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December 2012 THE MONTH IN BRIEF In November, a presidential election cleared up a few ambiguities for Wall Street; an oncoming fiscal cliff presented many others. Anxiety was prevalent, yet the S&P 500 managed to gain 0.29% for the month. The latest economic indicators were encouraging enough to distract investors from worries about 2013. Many of the major global indexes advanced in November; some key commodities retreated. The latest reports showed our manufacturing sector contracting and household spending declining. News out of Europe and China was less troubling than in past months.1 DOMESTIC ECONOMIC HEALTH Personal spending fell 0.2% for October, 0.3% when adjusted for inflation, the first downturn since June. Incomes were flat for the first month since April. Perhaps this development wouldn’t be repeated in November, as the International Council of Shopping Centers estimated that chain store sales during Thanksgiving week were 3.3% improved from a year ago.2,3 Consumer confidence was not flagging. In fact, the Conference Board’s monthly index rose to a 57-month peak in November at 73.7. The University of Michigan’s consumer sentiment index rose 0.1 in November to 82.7.3,4 U.S. manufacturing contracted: the Institute for Supply Management’s November manufacturing PMI fell sharply to 49.5 from 51.7 in October. That 49.5 reading was the lowest since June 2009. ISM’s service sector was still at a respectable 54.2 in October, declining 0.9% for the month. Durable goods spending held up for October; overall, it was flat for the month and actually increased 1.5% minus transportation orders, suggesting that many companies were spending even as the fiscal cliff loomed. The federal government revised Q3 GDP north to 2.7%.2,3,5,6 In October, annualized inflation was near the Federal Reserve’s target: the Consumer Price Index had risen 2.2% in a year and 0.1% in a month. Core CPI was up 2.0% annually and 0.2% in October. The Producer Price Index fell 0.2% in October as energy and vehicle costs waned, its first retreat in five months.7 President Obama’s reelection on November 6 had financial implications. Higher taxes to fund health care reforms seemed more probable, and efforts to repeal or scale back the Dodd-Frank Act were dealt a setback. Treasury Secretary Timothy Geithner appeared poised to leave the cabinet in 2013, and the New York Times reported that Federal Reserve Chairman Ben Bernanke had told friends that he would not seek another term in 2014 regardless of who was in the White House.8
GLOBAL ECONOMIC HEALTH It was official: Europe was again in recession. The European Union’s EuroStat office reported Q3 GDP shrinking 0.1% after declining 0.2% in Q2. In a new Bloomberg Global Poll of 800+ analysts, traders and investors, 53% of respondents felt Germany would enter a recession next year; though its unemployment rate was near a two-decade low, its retail sales had fallen 2.8% in October. While yields on Spanish bonds had declined from troubling July highs, 83% of those asked in the Bloomberg poll felt Spain would need a bailout in the next year. The EU did extend repayment terms (and lowered interest rates) on the latest rescue loan for Greece, with new confidence that its economy was finally on track to be repaired. 9,10 Data from China and other Asia-Pacific economies offered some bright spots. While GDP projections for China in ranged anywhere from 5.5% across the next six years (the Conference Board) to 9.3% in 2013 (Renmin University), its official purchasing managers index showed improvement to 50.6 in November while the HSBC China PMI hit a 13-month peak of 50.5. PMIs in Indonesia and Vietnam were above 50 in November; PMIs in Taiwan, Australia and South Korea were not.11,12
WORLD MARKETS November was a good month for many indices: the MSCI Emerging Markets Index (+1.18%), the MSCI World Index (+1.07%), the CAC 40 (+2.83%), the Hang Seng (+2.81%), the Nikkei 225 (+6.83%), the FTSEurofirst 300 (+1.48%), the TSE 50 (+6.46%), the Sensex (+4.93%), the DAX (+1.66%) and the KOSPI (+1.75%). It was a subpar month for the Shanghai Composite (-3.99%), the TSX Composite (-1.11%), the Bovespa (-0.36%) and the Micex in Russia (-1.16%).13,14 COMMODITIES MARKETS Oil was the leader among the major energy futures in November, up 3.1% to a November 30 settlement price of $88.91 on the NYMEX. Natural gas futures dropped 3.5%, heating oil futures 0.9%. While gold lost a little ground (0.4%) in November, it was still up 9.3% YTD at month’s end at $1,712.70. Other metals had a better month, with silver rising 3.0%, platinum 1.8% and palladium (this is not a misprint) 12.9%. On the farm, cotton rose 5.5%, cocoa 4.6%, orange juice 16.0% and hogs 11.0%; sugar lost 0.6%, corn 0.4%, coffee 2.6%, soybeans 7.1% and wheat 0.1%. The U.S. Dollar Index rose 0.29% last month.15,16,17
REAL ESTATE The numbers that mean the most in this sector were strikingly positive. October data from the National Association of Realtors showed existing home sales had improved 10.9% from a year before with an 11.1% increase in the median sale price ($178,600). The Census Bureau noted a 17.2% annual rise in new home sales. (For the month of October, existing home sales were up 2.1% while new home sales were down 0.3%; NAR had pending home sales up 5.2% to the highest level since March 2007.) The S&P/Case-Shiller Home Price Index had showed eight straight months of gains as of September; housing starts rose 3.6% in October to a five-year high, and builder confidence (as measured by the November National Association of Home Builders Housing Market Index) reached a six-and-a-half year peak. At the end of October, the supply of existing homes on the market dropped to a ten-year low, and the new home inventory was close to a 50-year low.3,18,19,20,21 If all that good news wasn’t enough, QE3 was helping to reduce mortgage rates yet further. From November 1 to November 29, average interest rates on conventional 30-year home loans fell from 3.39% to 3.32%. The average rate on the 15-year FRM dropped from 2.70% to 2.64%. Average rates on 5/1-year ARMs and 1-year ARMs respectively declined to 2.72% and 2.56% (a 0.02% decrease for both loan types). These numbers come from Freddie Mac’s Primary Mortgage Market Survey.22
LOOKING BACK…LOOKING FORWARD The CBOE VIX ended November at a remarkably low 15.86. The NASDAQ wrapped up the month at 3,010.24, the S&P 500 at 1,416.25 and the DJIA at 13,025.04.1
Sources: cnbc.com, bigcharts.com, treasury.gov – 11/30/121,23,24,25,26 Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. Last month, the market found enough hope, anticipation and solid fundamental indicators to overcome worries about the fiscal cliff and an earnings season that was as discouraging as analysts had forecast. Could something similar play out this month? A short-term answer to the fiscal cliff/slope with selective spending cuts and tax hikes may be more likely that anything resembling a sweeping “grand bargain”, and with the agreeability of the earliest negotiations seemingly eroding, a relatively minor fix may be exactly what we get. If indications of that emerge, it may amount to a kind of aspirin for Wall Street; signs of minor progress on this issue may appease the markets more than a perilous “either/or” as 2013 gets closer and closer. (Ratings agencies expect more than slight progress, however.) If the cliff is averted, some economists and analysts think America’s economic rebound will gather additional momentum in 2013.
UPCOMING ECONOMIC RELEASES: Across the rest of December, the list looks like this: ISM’s October non-manufacturing index and October factory orders (12/5), November’s jobs report and the University of Michigan’s initial consumer sentiment survey for the month (12/7), October wholesale inventories (12/11), an FOMC policy decision (12/12), November retail sales, October business inventories and the November PPI (12/13), November’s CPI and industrial output (12/14), the December NAHB housing market index (11/18), November housing starts and building permits (12/19), November existing home sales, the Conference Board’s November Leading Economic Indicators index, the final estimate of Q3 GDP and the October FHFA housing price index (12/20), the University of Michigan’s final consumer sentiment survey for December plus the November consumer spending figures (12/21), November durable goods orders (12/24), the October Case-Shiller home price index (12/26), the Conference Board’s December consumer confidence survey and November new home sales numbers (12/27), and finally, the November pending home sales report from NAR (12/28). |
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| This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates.Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The FTSE Eurofirst 300 is an index of the 300 largest companies ranked by market capitalization in the FTSE Developed Europe Index. The TWSE, or TAIEX, Index is capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange. BSE Sensex or Bombay Stock Exchange Sensitivity Index is a value-weighted index composed of 30 stocks that started January 1, 1986. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The KOSPI Index is a capitalization-weighted index of all common shares on the Korean Stock Exchanges. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange.The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange.The MICEX 10 Index is an unweighted price index that tracks 10 most liquid Russian stocks listed on MICEX-RTS in Moscow. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.Citations.1 – www.cnbc.com/id/50025105 [11/30/12]
2 – www.foxbusiness.com/economy/2012/11/30/consumer-spending-makes-unexpected-fall-in-october/ [11/30/12] 3 – news.investors.com/economy/112712-634800-fiscal-cliff-fears-dont-sink-durable-goods-confidence.htm [11/27/12] 4 – www.latimes.com/business/money/la-fi-mo-economy-consumer-20121121,0,596839.story [11/21/12] 5 – www.ism.ws/ISMReport/MfgROB.cfm [12/3/12] 6 – www.ism.ws/ISMReport/NonMfgROB.cfm [11/5/12] 7 – www.bloomberg.com/news/2012-11-15/consumer-prices-in-u-s-increased-at-a-slower-pace-in-october.html [11/15/12] 8 – seattletimes.com/html/businesstechnology/2019631568_treasurysecretaryxml.html [11/14/12] 9 – www.csmonitor.com/Business/Paper-Economy/2012/1116/EU-dips-into-recession.-Is-the-US-next [11/16/12] 10 – www.businessweek.com/news/2012-11-29/germany-seen-recession-bound-in-poll-showing-euro-crisis-deepens [11/29/12] 11 – online.wsj.com/article/SB10001424127887323401904578155952365105568.html [12/3/12] 12 – dealbook.nytimes.com/2012/11/26/the-confusing-outlooks-for-chinas-growth/ [11/26/12] 13 – markets.on.nytimes.com/research/markets/worldmarkets/worldmarkets.asp [11/30/12] 14 – mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [11/30/12] 15 – www.bloomberg.com/news/2012-11-30/oil-caps-monthly-gain-as-gold-extends-drop-commodities-at-close.html [11/30/12] 16 – www.coinnews.net/2012/12/01/gold-dips-in-november-silver-up-us-bullion-coin-sales-sizzle/ [11/30/12] 17 – online.wsj.com/mdc/public/npage/2_3050.html?mod=mdc_curr_dtabnk&symb=DXY [12/3/12] 18 – www.latimes.com/business/money/la-fi-mo-existing-home-sales-homebuilder-confidence-20121119,0,207630.story [11/19/12] 19 – abcnews.go.com/blogs/business/2012/11/housing-starts-surged-3-6-pct-in-october/ [11/20/12] 20 – www.philly.com/philly/business/20121130_Pending_home_sales_in_Oct__hit_nearly_6-year_high.html [11/30/12] 21 – www.latimes.com/business/la-fi-mo-new-home-sales-20121128,0,3039964.story [11/28/12] 22 – www.freddiemac.com/pmms/ [12/3/12] 23 – montoyaregistry.com/Financial-Market.aspx?financial-market=an-introduction-to-the-stock-market&category=29 [12/3/12] 24 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F30%2F11&x=0&y=0 [11/30/12] 24 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F30%2F11&x=0&y=0 [11/30/12] 24 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F30%2F11&x=0&y=0 [11/30/12] 24 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F29%2F02&x=0&y=0 [11/30/12] 24 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F29%2F02&x=0&y=0 [11/30/12] 24 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F29%2F02&x=0&y=0 [11/30/12] 25 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [11/30/12] 25 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [11/30/12] 26 – treasurydirect.gov/instit/annceresult/press/preanre/2002/ofm71002.pdf [7/10/02]
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