December 09, 2013 - Markets Snap Winning Streak by "This Muc

December 09, 2013

Markets Snap Winning Streak by "This Much" 

Weekly Update - December 9, 2013

Stocks ended their winning streak, preoccupied by the Friday jobs report, but quickly regained steam after data revealed a rosy jobs picture. For the week, the S&P 500 lost 0.04% (though it jumped 1.1% on Friday), the Dow lost 0.41%, and the Nasdaq gained 0.06%.[1]

Economic data dominated most of the week's action as investors waited for the latest news on job creation, economic growth, and manufacturing. Overall, the news was good. The November Employment Situation report showed a 203,000 increase in nonfarm jobs and a significant drop in the unemployment rate, from 7.3% to 7.0%. Even better, this drop was not driven by discouraged job seekers dropping out of the labor force. The data was supported by Wednesday's ADP jobs report, which showed that private sector hiring rose to its highest rate in a year.[2] Paired with October's surprise gain of 204,000 new jobs, the data could show that the labor market is gaining steam.

At first glance, GDP data was positive, showing that the U.S. economy grew faster than initially estimated in the third quarter - growing at 3.6% (annualized) instead of the 2.8% originally estimated. However, digging deeper, most of the growth was due to businesses aggressively accumulating inventory, which they may or may not sell this quarter. Stripping out the contributions from inventory growth, the economy grew at 1.9%, rather than 2.0%. Consumer spending, which accounts for more than two-thirds of economic growth, was actually revised downward a fraction.[3] In short, the economic picture is still mixed. Businesses are clearly confident enough about sales growth to stock up on products, but it's unclear whether consumer demand will justify that optimism.

While investors gave in to economic worries last week, it's clear that the money isn't in any hurry to leave the market. Friday's stock market gains are evidence of another buythe-dip run that we may see continue this week. The wild card is the mid-December FOMC meeting; the Fed's Beige Book report showed that the economy grew moderately between October and mid-November, leaving the central bank in a policy quandary: To taper or not to taper?[4]

The two most critical metrics that the Fed uses to gauge policy decisions are unemployment and inflation. The November jobs report shows stronger job creation and inflation pressures are muted, increasing the odds that the Fed may announce a December taper. We believe that it's more realistic that the Fed will use its December meeting to clarify its timing and pave the way for a 2014 taper. While we can hope that the rally continues, it's very likely that we'll see more volatility as we approach the December 17-18 FOMC meeting and investors make bets on which way the Fed will move.


Wednesday: EIA Petroleum Status Report, Treasury Budget

Thursday: Jobless Claims, Retail Sales, Import and Export Prices, Business Inventories

Friday: Producer Price Index

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.


Chinese exports beat forecasts. The November export report handily beat economists' expectations, rising 12.7% year over year, and boosting evidence that the world's second-largest economy may be stabilizing. Exports are critical to China's economic growth and account for approximately 30 million jobs.[5]

Consumer sentiment surges in December. Americans are feeling much more optimistic about the economy and their job prospects, the latest Thomson Reuters/University of Michigan consumer sentiment report shows. Even more important, nearly all the improvement was in lower-income households, indicating that the good cheer is spreading.[6]

October new home sales strongest in three decades. Sales of new single-family homes leaped in October to their highest level in over 33 years. Keep in mind that September and October housing data was affected by the government shutdown and it's very possible that this number is an outlier. Economists will have a clearer picture of the housing trend once November numbers are released.[7]

Consumer credit rising faster than expected. Total consumer credit - which includes revolving credit like credit cards as well as fixed credit like auto loans - increased in October to its fastest pace in five months, a positive sign for holiday spending. Fortunately, though credit use is increasing, it is nowhere near pre-recession levels.[8]

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.

The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

The Chicago Board Options Exchange Market Volatility Index (VIX) is a weighted measure of the implied S&P 500 volatility. VIX is quoted in percentage points and translates, roughly, to the expected movement in the S&P 500 index over the upcoming 30-day period, which is then annualized.

Google Finance is the source for any reference to the performance of an index between two specific periods.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

By clicking on these links, you will leave our server, as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.

[1] ttp://