Good morning, this is my second Economic commentary of the new year (see below) so I wanted to give you a quick recap of what my projections are for 2009, (on the economy that is, don’t ask me about resolutions or personal goals because I couldn’t answer even if I wanted to :P).
The economic numbers are not looking pretty today. Advance Retail sales (graph), basically a projection of how much consumers will spend in the near future, was released worse than expected. 2008’s terrible effect on the market (via housing / financial crisis) will continue to haunt companies for the following months. However I think there is definitely light at the end of the tunnel.
In the near future and in terms of the equity markets (not the economy): Obama’s economic speeches, coupled with the recent optimism of a new administration could have a positive impact in the stock market; buuuut as earnings sink in the minds of investors the Dow will suffer. So hold on to your 401ks dearly as I expect the stock market to trade sideways for the next few months. 1st Quarter 2009 econ numbers will likely be in the red across most sectors (2008 is still here even if it isn’t). Some companies will likely go under (Nortel did this morning), but as economic conditions improve, so will the numbers. A partial economic recovery is just around the corner (2nd half to late ‘09) with full-on recovery following next year. So hang in there!
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The economic numbers are not looking pretty today. Advance Retail sales (graph), basically a projection of how much consumers will spend in the near future, was released worse than expected. 2008’s terrible effect on the market (via housing / financial crisis) will continue to haunt companies for the following months. However I think there is definitely light at the end of the tunnel.
In the near future and in terms of the equity markets (not the economy): Obama’s economic speeches, coupled with the recent optimism of a new administration could have a positive impact in the stock market; buuuut as earnings sink in the minds of investors the Dow will suffer. So hold on to your 401ks dearly as I expect the stock market to trade sideways for the next few months. 1st Quarter 2009 econ numbers will likely be in the red across most sectors (2008 is still here even if it isn’t). Some companies will likely go under (Nortel did this morning), but as economic conditions improve, so will the numbers. A partial economic recovery is just around the corner (2nd half to late ‘09) with full-on recovery following next year. So hang in there!
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Econ Commentary - Advance Retail Sales down
Treasury prices ended the day on a mixed tone as Tuesday’s economic releases gave investors little direction to follow. One of the most relevant parts of the day was in fact Federal Reserve Chairman Bernanke’s remark in London where he said the Fed has more tools at its disposable beyond further rate cuts (a Fed’s “Policy Toolkit”). He divided these tools into 3 groups: providing short-term liquidity via the Fed discount window, opening liquidity access in key credit markets (student loans, small business administration, etc) and buying long term securities (where buying Treasuries is still being considered). On the economic front, the country’s trade deficit narrowed in November as falling oil prices and weakening consumer demand for products push the trade gap down 28.7% from the previous period to -$40.4 billion. The Dow Jones Industrial Average ended the day losing 25.1 points to close at 8,448. The short end of the Treasury curve ended the day basically unchanged while the 10 year Treasury rose slightly (3/32s) to yield 2.29% and the benchmark 30 year lost 9/32s to yield 3.30%.
Treasuries began trading in a much more decisive manner this morning as the worst than expected drop in advance retail sales gives investors a chilly reminder of what is to be expected in Consumer Spending (being released 02/02). The 5 year note is up 10/32s to yield 1.37%; the benchmark 10 year has gained 27/32s to yield 2.20% while the 30 year bond is up 1 point 15/32s yielding 2.94%. For the record, the Advanced Retail Sales number was worse than expected indicating that sales dropped 2.70% for the month of December. Analysts were expecting a 1.20% decrease. The Ex-Auto or “core” number was also weaker than expected at -3.10% versus the estimated -1.40%. Advance Retail Sales is a measure of sales at retail establishments (not including spending on services) and sets the tone of what is to be expected in the upcoming Personal Consumption report, a major component of GDP.
The headline Advance Retail Sales number reflects weaker than expected data across a number of different sectors: Gasoline stations sales dropped at a rate of 15.9% in December while motor vehicle and building materials sales decreased 0.70% and 2.90% respectively. The only two bright spots of the report were health care (up 0.40%) and miscellaneous sales (up 0.50% in Dec).
Additionally, the Bureau of Labor Statistics of the U.S. Department of Labor reported that the Import Price Index decreased 4.20% in December. Analysts were expecting a -5.30% change for the period.
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