Upward Movement to Begin the Year
Stocks started off the New Year with an upward movement, thanks largely to better than anticipated economic data including a strong employment report this past Friday. Friday, the Labor Department said the unemployment rate fell to nearly a three-year low of 8.5%, from 8.7% in November – the fourth consecutive monthly decline. Although trading volume was extremely light in the holiday shortened week, it appears as though investors were worried about missing out on the start of yet another possible stock market rally. In addition, there was some clue as to rally-chasing, since some of the stocks that did the best last week were the so-called ‘losers,’ or among the poorest performers of 2011. Contrary, some of the worst stock performers last week, mainly the defensive issues, were among the best of 2011.

For the first week of 2012, the Dow Jones Industrial Average rose by over 142 points, or 1.17%, to close out the four-day trading week at a level of 12,359.92. The broader Standard & Poor’s 500 rose by 1.61%, and now sits at the 1,277.81 mark. Meanwhile the Nasdaq Composite gained by 2.65%, and the smaller-cap stocks as represented by the Russell 2000 moved higher by 1.19 percent. Overall, it was a ‘risk-on’ week for stocks, even though this most recent rally came despite some conflicted moves at the week’s close. Either way, it was certainly nice to see the New Year start out so strong.
Will the Upward Movement Continue?
Looking forward, it would be nice to proclaim that we are once again in the midst of another start market rally. However, there is still a fair amount of timidity and tentativeness in the global financial markets as we head into 2012. It’s important to remember what we painfully learned about the ‘old fashioned’ economy, which was that it is pretty much long gone. Cutting interest rates to near zero and re inflating bubble after bubble only works for so long. Alan Greenspan played that hand after the 1987 Crash, the 1998 Long Term Capital debacle, and the tech meltdown. Meanwhile, current Fed chief Ben Bernanke played that same hand again after the housing bubble appeared in 2007 – 2008. Each bailout or interest rate cut led to a subsequent ‘new’ bubble, and the frightening part of this story is the question surrounding where this current interest rate bubble will lead. Only time will tell if the upward movement will continue.

Treasury securities and bond prices eased somewhat last week, as better-than-expected economic data, including the 200,000 gain in nonfarm payrolls for the month of December, dimmed their allure. The 10-year note ended last week at a yield of 1.963%, up from 1.885% the previous Friday. The 10-year note yield did go as high as 2.049% right after the employment report was released this past Friday. Internationally, continued concerns over the European debt crisis kept some Italian bond yields above the 7%, and there are now some additional worries as to the creditworthiness of both Portugal and Spain. Economic data for these regions has been extremely weak with unemployment rising for seven consecutive months now.

This week’s economic calendar will give us a checkup on the health of the consumer sector, starting with consumer credit outstanding on Monday. A key reading on the holiday sales period will be in the December’s retail sales report out on Thursday, followed by Friday’s initial January consumer sentiment. Also getting some attention will be the Federal Reserve’s Beige book at mid-week and international trade figures come Friday. In addition, Alcoa unofficially kicks off the fourth-quarter earnings season after the close of Monday’s trading session. Other companies set to report their earnings this week include Supervalue, Lennar and J.P. Morgan.

Until next week, take care, and again, all of us at Money Management Services, Inc. wishes each and everyone a belated Happy New Year!!

Sources: Barron’s, Wall Street Journal, Assoc. Press, Econoday, Bloomberg, Dow Jones & Co., Briefing.com, Gorilla Trading