Wednesday, January 5, 2011

Markets hesitate after learning of improving economic data

Dow was down 4, decliners over advancers 5-4 & NAZ gained 9.  Favorable economic data did not inspire buyers today.  But bank stocks found a few friends taking the Financial Index above 220 again.


Value 220.33 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change   1.14  (0.5%)

The MLP index was down a fraction in the 363s.  Its chart shows it surging in the opening minutes of trading for 2011 (& beginning of a new decade) followed by selling.  The REIT index has the same kind of pattern although it rose a fraction today to the 224s.  Junk bond funds were 1% lower today after retreating in Q4 of last year.  Increased inflation worries are depressing prices of Treasuries.  The yield on the 10 year Treasury bond rose 8 basis points to 3.42% (the high end of its recent range).

Treasury yields:

U.S. 3-month
U.S. 2-year
U.S. 10-year

Alerian MLP Index   ---   weeks

Dow Jones REIT Index   ---   weeks

10-Year Treasury Yield Index   ---   weeks

Oil futures extended declines after a bigger-than-expected increase in inventories of gasoline & distillate fuels. Gold fell to the lowest price in almost 3 weeks on speculation about a stronger global economic recovery.

CLG11.NYM...Crude Oil Feb 11...88.67 ...Down 0.71  (0.8%)

GCF11.CMX...Gold Jan 11...1,364.20 ...Down 14.30  (1.0%)

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Service Industries in U.S. Expanded Fastest Pace Since 200

Photo:   Bloomberg

The non-manufacturing sector in the US grew in Dec at it fastest pace in more than 4 years, according to the Institute for Supply Management (ISM).  Its index of national services activity rose to 57.1 from 55 in Nov & above the median forecast of 55.6.  A reading below 50 indicates contraction in the non-manufacturing sector, while a number above 50 means expansion.  The reading was its highest since May 2006 when the service sector grew to 57.2.  The ISM non-manufacturing measure of new orders increased to 63, the highest since Aug 2005, from 57.7. Business activity rose to 63.5, also the strongest since Aug 2005, from 57.  The report's employment component fell to 50.5, while new orders, a leading indicator, jumped to 63.

U.S. Services Expand at Fastest Pace Since 2006

Companies in U.S. Added 297,000 Jobs in December

Photo:   Bloomberg

There was a surprise surge in private-sector employment last month, raising its index to its highest level on record.  Private employers added 297K jobs in Dec, triple what was forecasted & up from the gain of 92K in Nov, from an ADP Employer Services report with data going back to 10 years.  This is prompting an increase in the forecast for the jobs report on Fri to show a 250K increase (up from around 170K mentioned yesterday).  The vast majority of the jobs increase, 270K jobs, was concentrated in the service-providing industries while the goods-providing industries contributed 27K jobs (23K from manufacturing).  The track record of this indicator forecasting the gov reported jobs number 2 days later is mixed.  In addition, the number of planned layoffs at US firms fell last month to the lowest level in 10 years, according to a report by Challenger, Gray & Christmas.  Tempering some of the optimism, an industry group said applications for home mortgages ebbed in the last couple of months of the year, with loan rates hovering around their highest levels in 7 months.

U.S. Companies Added 297,000 Jobs in December, ADP Says

Fed Chairman Ben S. Bernanke

Photo:  Bloomberg

Federal Reserve officials signaled it will probably push ahead with unprecedented stimulus until the recovery strengthens & many of the 15M unemployed find work.  The jobless rate hasn’t fallen below 9.4% since May 2009 & will probably average that figure this year according to latest predictions. The unemployment rate is expected to decline to 9.7% from Dec 9.8% in the prior month.  Pumping money into the economy helps stocks in the short run, but adds worries about higher inflation down the road.

Fed May Keep Easing at `Full Throttle' Until Jobless Rate Falls

The immediate surge in the Dow at the start of the new year (& decade) was followed by indecision.  Considering the upward revisions in forecasts for 2011 during the last month, this has to be viewed as troubling.  Commodities are falling & interest rates are rising even though the Federal Reserve reaffirmed its intention to buy more Treasuries.  Widespread agreement that economic recovery in 2011 should be bring higher stock (& commodity) prices is not helping the stock markets so far.  To lighten the load, CES in Vegas is opening with a lot of new electronic products for the consumer.  This year the company getting the most attention is not Apple (AAPL), but Facebook & the hottest new product is the tablet (computer) category which brings more competition for AAPL.. 

Dow Jones Industrials   ---   weeks

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