Weekly
Update – March 5, 2012

 

The S&P 500 and the Nasdaq have been up for eight of the last nine weeks, though mixed economic data
caused a minor decline on Friday. The S&P gained 0.28% andthe Nasdaq rose 0.44%, but
the Dow lost 0.04% for the week. Stocks have been the strongest positive indicator in a slew of mixed information coming at us during the last few weeks. The five-month stock rally has been built on steadily improving economic news and strong underlying fundamentals, though some strategists are calling for a pullback since indexes are hitting new landmarks and the fourth-quarter reporting period is winding to a close.[i]

Exerting some negative pressure on both stocks and the economy, gas prices continued their
march higher this week, reaching a national average of $3.74, according to AAA.[ii] Gas prices have risen more than 8% this year, influenced by ongoing Middle East tensions and a stronger U.S. economy. However, on a positive note, crude oil prices dropped Friday for the first time in days, on news that the U.S. won’t preemptively attack Iran and disrupt oil supplies. While sustained high gas prices are not something we want to see, economists continue to stress that $4 gas is not enough to derail the economic recovery.[iii]

Interestingly, higher gas prices haven’t dampened American enthusiasm for cars. Automakers reported strong sales for February, especially among smaller cars as buyers try to offset increased fuel expenses. Although all makers have not reported February results, analysts expect strong sales of 1.1 million cars and trucks for the month.[iv]

 

Federal Reserve Chair Ben Bernanke had both encouragement and words of warning for the Senate Banking Committee this week. While expressing that the recovery is not over and that the Fed expects continued growth of 2.2% to 2.7% this year, he also urged politicians to act on key issues. Bernanke expressed that the expiration of the Bush tax cuts, payroll tax increases, and massive federal budget cuts – all coming atthe same time in January 2013 – is a “fiscal cliff” that could threaten the economic recovery.[v] We agree that these lingering political issues could have significant negative consequences if they are not addressed properly. We sincerely hope that the leaders of this nation will act for the common good, and that they will not allow political bickering to get in the way of our ongoing recovery.

 

ECONOMIC CALENDAR:

 

Monday: Factory Orders, ISM Non-Mfg. Index

 

Wednesday: ADP Employment Report,
Productivity and Costs, EIA Petroleum Status Report

 

Thursday: Jobless Claims

 

Friday: Employment Situation, International
Trade

HEADLINES:

 

Traders pushed up the price of Treasury debt after economic data from Europe
brought back fears of a global economic slowdown. Demand for “safe haven”
investments like Treasury bills often goes up on the back of poor economic
news.[vi]

The Institute for Supply Management’s manufacturing index
fell in February to 52.4 from 54.1, a decline well below expectations. All four of the component
indexes also posted declines; however, ISM’s survey chief believes that the declines are part of a generally positive trend of moderate growth.[vii]

New orders for durable goods declined a surprising 4% in
January.

Orders for long-lasting goods like machinery, airplanes, furniture, and appliances dropped after a special business tax treatment expired. While the news could be a sign of weakening manufacturing activity, the durable goods report is notoriously volatile and it is likely one-time factors had a significant impact.[viii]

The Conference Board Consumer Confidence Index rose in February, a significant improvement over January’s performance, and is now close to February 2011 levels. Consumers are more confident about current economic conditions than they were in January, and despite rising gas prices, they are more optimistic about the economic recovery.[ix]

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