Home

Job Additions Highlight Hopes for Spring

The Labor Department's report of 175,000 job additions last month was much healthier than expected. Economists had been expecting an increase of 145,000 jobs, according to FactSet. Investors had low expectations due to the harsh winter weather that hit much of the country last month. The positive job figures came as quite a relief after the unforgiving weather closed factories, lowered auto sales, and caused existing-home sales to plummet. The unemployment rate ticked up to 6.7% from January’s number of 6.6%. The labor participation rate held steady at 63%.

The February Jobs Report doesn’t change the strong likelihood that the Federal Reserve will cut monthly bond purchases by another $10 billion later this month.

It has become clear that tapering is on a schedule that Fed officials are not going to change unless they absolutely must.

Market update and the crisis in the Ukraine

 

Index

Weekly Return %

thru Feb 28, 2014

YTD Return %

Dec 31, 2013 – Feb 28, 2014

DJIA1

+1.4

-1.5

NASDAQ Composite2

+1.1

+3.2

S&P 500 Index3

+1.3

+0.6

Bond   Yields

Feb 28   Yield & Weekly Change

Yield - % a/o Dec 31, 2013

3-month T-bill

0.05             Unch

0.07

2-year Treasury

0.33           Unch

0.38

10-year Treasury

2.66             -0.07

3.04

30-year Treasury

3.59             -0.10

3.96

Commodities

Feb 28 Price & Weekly Change

Year end 2013

Oil per barrel4

     $102.76             +0.46

    $98.42

Gold per ounce5

$1,326.50             +3.25

$1,201.50

Sources: U.S. Treasury, MarketWatch, St. Louis Federal Reserve, CNBC, Energy Information Admin.

 

A triple-digit gain for the Dow Jones Industrials evaporated in the final hour of trading on Friday, amid reports of a brewing crisis in Ukraine, but buyers stepped in, lifting the average by the close.

 

Ukraine recently installed a pro-Western government, and Russia quickly reacted, purportedly to keep the nation in a pro-Russian orbit.

 

On Saturday, Russia’s parliament authorized the use of Russian troops in Ukraine to protect Russian citizens, which could simply be the pretext for a full-scaled invasion of the sovereign nation (Wall Street Journal).

 

The U.S. and western countries quickly denounced what they saw as unwarranted aggression, but options are limited.

 

From a geopolitical perspective, the situation is extremely fluid right now. So far, U.S. markets have brushed aside the growing crisis. But traders sometimes don a “shoot now and ask questions later” mentality when a crisis emerges. It’s a knee-jerk reaction to unusual uncertainty, and markets loathe unusual amounts of uncertainty.

 

But let me quickly add, geopolitical instability has historically created only temporary jitters. The brutal civil war in Syria and the alleged use of chemical weapons quickly comes to mind.

 

Markets move on when the crisis does little damage to U.S. interests; it’s the devastating humanitarian toll that can be long-lasting.

Record Weather Conditions

From the US National Weather service, Billings MT:

This is now Billings second snowiest month ever in history, with only 42.3 inches in April 1955 having more accumulation.  . 2013-2014 will firmly be in 3rd place for all time snowiest winters by noon today, only trailing 1954-1955 and 1966-1967.

Be safe and stay warm!

Winter Weather & the Market

Winter Weather and the Market

 

The polar vortex is a term few of us have ever heard of and fewer could explain. But the blame for this year’s particularly bitter winter gets placed right at the doorstep of the polar vortex. And much of the recent economic weakness is being blamed on the cold and snow.

 

Index

Weekly Return %

thru Feb 21, 2014

YTD Return %

Dec 31, 2013 – Feb 21, 2014

DJIA1

-0.3

-2.9

NASDAQ Composite2

+0.5

+2.1

S&P 500 Index3

-0.1

-0.7

Bond   Yields

Feb 21   Yield & Weekly Change

Yield - % a/o Dec 31, 2013

3-month T-bill

0.05           +0.03

0.07

2-year Treasury

0.33           +0.01

0.38

10-year Treasury

2.73             -0.02

3.04

30-year Treasury

3.69             Unch

3.96

Commodities

Feb 21 Price & Weekly Change

Year end 2013

Oil per barrel4

     $102.30             +2.09

    $98.42

Gold per ounce5

$1,323.25             +3.25

$1,201.50

Sources: U.S. Treasury, MarketWatch, St. Louis Federal Reserve, CNBC, Energy Information Admin.

 

Let’s go back a couple of weeks. Retail sales and industrial production in January unexpectedly declined (Federal Reserve, U.S. Commerce Dept., Bloomberg). Had it not been for a surge in utility production to heat homes, we would have seen an even steeper drop in U.S. manufacturing.

 

Last week, housing became the latest victim. Single-family housing starts fell a sharp 15.9% in January, which included an astounding decline of 60.3% in the Midwest (U.S Census). You can’t push around dirt covered in snow and set a foundation in frigid temperatures. Besides, in the sunny and drier western U.S., single-family starts rose 10.7% in January.

 

In addition, the Housing Market Index (measures homebuilder sentiment) provided by the National Association of Homebuilders (NAHB) and Wells Fargo slipped 10 points in February to 46, its largest one-month decline since records began in 1985 (NAHB). The NAHB cited weather as one of the factors. Moreover, we saw a sharp drop in the traffic subcomponent of the index.

 

   scanned blog graph pdf 2 24 14                    

Source: NAHB, U.S. Census Bureau

Note: a reading of 50 on the Housing Market Index suggests builders are neither optimistic nor pessimistic

 

The coldest January in 20 years

That’s the case if measured by what’s called “heating degree days, or HDD (First Trust).” HDD is defined as the number of degrees the average of the high and low temperature is below 65 degrees, which is the outside temperature the average building would not need to be heated (NOAA).

 

For example, if the high temp is 30 degrees and the low temp is 10 degrees, the average for the day is 20. Subtract 20 from 65 and the HDD equals 45 degrees. Simply put, the colder the temperature the higher the HDD. Any averages above 65 and HDD equals zero.

 

Add up the numbers and January turned out to be the coldest in 20 years. Because HDD is population-weighted, the country’s economic centers bore the brunt of the ice and snow.

 

According to the NOAA, the Midwest and northeast, and for that matter, much of the eastern U.S. is set for another Arctic blast this week. But we are in the latter stages of winter, and flowers always bloom following the cold weather.

Market Update

Last week we saw the introduction of new Federal Reserve Chair, Janet Yellen. One misstep by Yellen, who made her first appearance before a House Committee, could quickly bring a torrent of criticism. But right out the gates, markets cheered what they heard from the new Fed chief.

 

Index

Weekly Return %

thru Feb 14, 2014

YTD Return %

Dec 31, 2013 – Feb 14, 2014

DJIA1

+2.3

-2.6

NASDAQ Composite2

+2.9

+1.6

S&P 500 Index3

+2.3

-0.5

Bond   Yields

Feb 14   Yield & Weekly Change

Yield - % a/o Dec 31, 2013

3-month T-bill

0.02             -0.06

0.07

2-year Treasury

0.32           +0.02

0.38

10-year Treasury

2.75             +0.04

3.04

30-year Treasury

3.69             +0.02

3.96

Commodities

Feb 14 Price & Weekly Change

Year end 2013

Oil per barrel4

       $100.40             +0.26

    $98.42

Gold per ounce5

   $1,320.00           +60.75

$1,201.50

Sources: U.S. Treasury, MarketWatch, St. Louis Federal Reserve, CNBC, Energy Information Admin.

 

It didn’t hurt that emerging market woes have receded, removing a stiff headwind. And the Street simply ignored an unexpected decline in January retail sales (U.S. Commerce Dept., Bloomberg) and an unexpected drop in January industrial production (Federal Reserve, Bloomberg), choosing instead to blame most of the recent economic weakness on harsh winter weather.

 

Not surprisingly, Janet Yellen’s testimony before the House Committee on Financial Services turned out to be the highlight of the week.

 

Yellen noted in her prepared remarks that she expects there to be “a great deal of continuity” between her leadership at the Fed and former Fed Chairman Ben Bernanke. She expressed confidence in the economic outlook and pledged to keep rates low for a considerable period, which was just the tonic jittery investors were hoping to hear.

More Articles ...

@LWMLLC