MMRecap for February 9th

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After all the excitement of the Super Bowl last Sunday, Monday turned out to be uneventful. Many of the numbers came in below expectations; but personal income in December was an exception, posting a predicted 0.3% gain. Personal spending fell by 0.3%, a huge departure from the 0.6% increase in November. PCE core prices came in at an expected 0.0% for December, while the ISM index on manufacturing in December dropped to 53.5 from 55.1. Monday’s final report showed a sizable increase in December construction spending, rising by 0.4%. Although this was far below expectations of +0.8% or +0.9%, it was way above the prior reading of -0.2%.
Stocks had a good day Monday. The Dow Jones rose 196.09 points, or 1.14%, while the Nasdaq gained 41.45 points, or 0.89%. The S&P 500 was up by a substantial 25.86 points, or 1.30%. The 10-year Treasury remained unchanged at 1.68%. And the price of oil held below $50 at $49.79 a bbl.
The only report on Tuesday was for factory orders in December. These numbers disappointed big time, coming in at -3.4% — far lower than the estimates of -2.0% and -2.4%. The price of oil rose to more than $50 a barrel.
The markets had a big rally on Tuesday with the Dow closing up 305.36 points, for a gain of 1.76%. Nasdaq gained 51.05 points, or 1.09%, and the S&P 500 posted a gain of 29.18 points, or 1.44%. The 10-year Treasury yield jumped 11 basis points to close at 1.79%.
On Wednesday ADP, the payroll giant, said 213,000 workers were added to payrolls in January. That was about 40K fewer new hires than came aboard in December. The analysts were expecting a number more like 230K to 250K, so this was not great news. The ISM service sector, which is largely made up of bars, restaurants, hotels and venues that provide entertainment, showed a slight increase to 56.7% from 56.5%.
The markets were fairly calm on Wednesday with small losses in the Nasdaq and S&P indices, and a small gain in the Dow. The Dow gained 6.62 points, the Nasdaq closed down 11.03 points and the S&P 500 dropped 8.52 points. The oil market, which never closes, was down to $48.45 a bbl. near the end of the trading day in the Western Hemisphere. The 10-year yield inched up a couple of points to end the day at 1.81%.
Thursday was packed with news, but most of it was anticipating Friday’s release of the employment numbers. Initial jobless claims jumped to 278K from 267K at the end of January. Continuing claims for the week ended 1/24 came in at 2400K — only 6K more than the previous week. The trade deficit, which had been tightening for the past couple of months, expanded in December, rising to $46.6B from $39.8B the previous month.
In spite of this news, when the markets closed on Thursday, all indices were up. The Dow posted a nice gain of 211.86 points, or 1.20%. The Nasdaq added 48.39 points for a gain of 1.03%, and the S&P 500 went up 21.01 points, or 1.03%. The 10-year Treasury yield went up 2 basis points and closed at 1.83%.
Friday showed the unemployment rate had edged up to 5.7% from 5.6%. Hourly earnings were up by 0.5%, and the average work week stayed the same — 34.6 hours per week. The consumer credit report for December is still higher than November, coming in at $14.8B, but it was also lower than the analysts expected.
The markets did a little selling off on Friday with the Dow losing 60.59 points. The Nasdaq closed down 20.70 points, and the S&P 500 finished the day down 7.05 points. The 10-year Treasury yield took a big leap and closed up 12 basis points to finish the week at 1.95%.
The MBA Mortgage Applications Survey for the week ended January 30, 2015 showed that applications increased by 1.3% on a seasonally adjusted basis. The refinance share of mortgage activity fell to 71% of total applications from 72% the previous week. The average contract interest rate for 30-year fixed-rate conforming mortgages decreased to 3.79%, the lowest level since May 2013, down from 3.83%, with points increasing to 0.29 from 0.26 (including the origination fee) for an 80% LTV mortgage. Low interest rates continue to spur the market.
This week has a good mix of important economic reports, along with a couple that can be dismissed. We need a break from “reports overload” once in a while, and today is a perfect example. Wholesale inventories in December are up first, and analysts expect them to come in anywhere between 0.2% and 0.6%. Either prediction would be lower than the previous 0.8%.
There are no market movers on Tuesday or Wednesday, but we get back on track Thursday, as there are reports that could influence trading. They begin with first-time jobless claims for the week ended February 7. The market analysts and the analysts both came up with the same number of 285K. This is slightly up from the 278K from the previous week. Continuing claims could fall by 25K for the week ended January 31.
Thursday we also get the reports on retail sales and retail sales excluding autos for January. The first one might show a little improvement. The predictors are guessing that retail sales might only be down by 0.2% to 0.5% as opposed to the -0.9% for December. Maybe it was all the after-Christmas sales that motivated shoppers to go out and buy things. Retail sales ex-auto could do a little better. One group of analysts is saying they will increase 0.5%, while the other group is predicting a 0.5% decline. Yikes! On the other hand, the report on business inventories for December is expected to remain the same at 0.2%.
Finally, on Friday we will get the consumer sentiment report from the University of Michigan. Its monthly report has been indicating a rise in consumer confidence. Both forecasting groups are extremely optimistic, believing this final report should come in at 100.0 or 98.5.

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