BetterTrades Blog

The markets fluctuated erratically throughout last week’s trading, posting triple-digit gains and losses. The week’s highs and lows were attributed to investors taking heed of economic news that influenced sentiment throughout the sessions. Adding to the indecision was news from Fed Chairman Ben Bernanke, who revealed plans on how to reduce the need of financial stimulus to the central banking system.

The nation’s trade deficit expanded at a much faster than expected pace in December, as the imbalance came in at $40.2B, an increase of more than 10% from November’s reading and the largest disparity in the past year. Expediting the surge was the country’s increased demand for oil and additional imports. Economists were looking for the deficit to come in around $36B.

Looking further inside the report, exports of goods and services advanced for an eighth consecutive month, increasing 3.3% to $142.7B, while imports expanded 4.8% during the month to, $182.9B. Imports were led by a 14.8% jump in oil imports, leading to its highest level since October 2008. By the end of 2009, the U.S. deficit receded to $380.7B, more than $315B less than the $695.9B deficit for 2008.

A report from the Labor Department revealed that the number of recently out-of-work employees declined more than anticipated for the week ending February 6. Surprisingly, initial claims fell by 43K claims to a seasonally adjusted rate of 440K. Economists were looking for first time filings to decline at much slower pace of 15K.

Initial claims are now approaching their lowest levels, which were established last December, when claims dropped to their lowest point in almost 18 months. Last week, the unemployment rate slipped to 9.7%. The drop was aided by the number of continuing claims decreasing by 80K, to an adjusted rate of 4.5M. Additionally, there were nearly 5.7M people receiving extended benefits in the week ending January 23, down from nearly 5.9M the previous week.

The National Association of Realtors announced last week that the median price, for existing homes sold, increased in 67 out of 151 metropolitan cities during the 4Q. With 40% of U.S. cities showing price improvements, that is a sharp improvement from the 3Q, when prices increased in only 20% of the cities surveyed. For the quarter, the national median price for existing homes was almost $173K, 4.1% below the same period from a year ago.

Representing nearly 70% of all economic activity, consumer spending plays a key role in the nation’s health. With that, the Commerce Department revealed that retail sales recorded a better-than-expected jump in January of 0.5%, the best showing since a 2% jump in November. The increase in sales was also better than the 0.3% gain economists had anticipated. Excluding the sale of autos, sales advanced at a 0.6% clip, also better than expected.

America’s businesses cut its stockpiles during December, as inventories were reduced by 0.2%, the opposite of the 0.2% gain economists were looking for. The back-and-forth between monthly gains and losses produced cautious behaviors from businesses as the strength and durability of the economic recovery remains in question. However, overall business sales rose 0.9% in December following a 2.4% surge in November.

The week ahead will see a handful of economic data released that will include the Treasury Budget, Building Permits, Import/Export Prices, Housing Starts, Capacity Utilization, Industrial Production, PPI, Leading Indicators and CPI reports for January.

The upcoming week will also include the Philadelphia Fed report for February, as well as weekly results for Initial Claims and Crude Inventories.

The DOW closed the week higher, climbing 86.91 points, or 0.9%, to close at 10,099.14. The S&P also finished the week in the green, rising 9.32 points, or 0.9%, ending at 1,075.50. The NASDAQ concluded the week up, gaining 42.46 points, or 1.9%, to close at 2,183.58.

The week kicked off with a down day in the markets, as the Dow Jones closed Monday’s session below the psychological level of 10,000, its first trip under that mark in more than three months. Nevertheless, Tuesday’s trading was more upbeat, despite a report from the Commerce Department that showed a decrease in inventories.

With pessimism running rampant throughout businesses, inventories at the wholesale level receded 0.8% in December, as companies remain conservative about restocking their depleted supplies. The unexpected decline came as a surprise for economists, who were anticipating wholesale inventories to increase by 0.5% during the month.

The one bright spot in the report showed a 0.8% advance in sales throughout December, while economists had projected a smaller increase of only 0.5%. The jump in sales follows an even bigger increase in November in which sales surged 3.6%.

After falling below $72 a barrel last week, energy prices reversed their downward trend to start the week, as investors took heed of economic data suggesting that demand for crude in the U.S. could be improving. By the close of trading, the price for a barrel of light, sweet crude for March delivery gained $2.04 to settle at $73.93. The current contract gained $0.70 to settle at $71.89 a barrel on Monday.

At the pump, gasoline prices have receded nearly $0.06 over the past two weeks to a national average of $2.67 a gallon. Additionally, a gallon of regular unleaded gas is $0.085 cheaper than last month, yet remains $0.731 higher than the same time last year.

The Forex markets saw the Dollar trade lower versus the majority of the world’s currencies, as the 16-nation Euro advanced against the greenback, buying $1.3750, up from the previous session’s price of $1.3695. The British pound also increased versus the Dollar, as the Sterling climbed from $1.5611 late Monday to $1.5630.

The Dollar did manage to increase in value against the Japanese yen, buying 89.40, up from yesterday’s value of 89.24.

Despite a weakening Dollar, Treasury prices were lower Tuesday, as investors were uncertain as to where to place their capital. With the day’s trading complete, the benchmark 10-year note was down, falling 8/32 to 98 6/32, with a yield of 3.63%, up 0.07% from the day before.

Meanwhile, the longer maturing 30-year note was lower on the day as well, slipping 15/32 to 97 17/32, as its yield advanced to 4.52%. Lastly, the shorter maturing 2-year note was marginally lower, falling 1/32 to 100 5/32, while its yield increased 0.03% to 0.79%.

Following the first two trading days this week, the Dow Jones was collectively higher by 0.5% at 10,058.64, while the broader market indicators were in positive ground as well. The S&P 500 was up 0.4% at 1,070.52, while the tech-heavy NASDAQ increased 0.5% to finish at 2,150.87.

The remainder of the week will see a handful of economic data released that will include the Business Inventory report for December, as well as weekly results for Initial Claims and Crude Inventories.

The final three days will also include the Treasury Budget and Retail Sales readings for January, along with the Michigan Sentiment report for February.

After reaching a 15-month high two weeks ago, stocks posted their worst month since February 2009, falling 5.7% in January.

Last week, the Dow lost 105.65 points, or 1.0%, to close at 10,067.33. The S&P shed 17.89 points, or 1.6%, ending at 1,073.87. The NASDAQ declined by 57.94 points, or 2.6%, to close at 2,147.35.

The S&P 500’s performance in January is seen as a forecast of how stocks will end the year. Since 1950, there have been only five major errors in predicting the markets’ direction based on how stocks do in January.

Wall Street was unsurprised with the Federal Reserve’s decision to hold interest rates at their record low of zero to 0.25%. It has remained in this range since December 2008. Commercial banks’ prime lending rate held fast at about 3.25% after the announcement. With the housing industry still on shaky ground, the central bank has been steadfast in keeping rates low since others, like home equity loans, credit cards and consumer loans, are directly tied to the Fed’s main rate.

With the economy slowly clawing its way out of the recession, orders for durable goods advanced by a modest 0.3% in December. But that was not enough to prevent orders from declining at a record level for the year. Economists were looking for a 2% advance in durable orders for the month. The monthly gain was facilitated by a 3.6% jump in demand for automobiles and related parts, an 8.1% surge in metals, and a 6% gain in machinery needs.

For 2009, durable goods orders plunged 20.2%, the largest decline on record that dates back to 1992. The more than 20% decrease follows 2008’s nearly 6% drop, marking the first back-to-back yearly declines since 2001-2002.

Following four straight quarters of economic contraction, the economy grew for its second consecutive quarter from October through December. The 5.7% gain was the largest growth rate since 2003. The GDP report may be a little misleading last quarter as the growth was primarily attributed to businesses restocking depleted inventories. In fact, nearly 60% of the 4Q’s advance was a result of increased inventories. Excluding inventory changes, economic growth would have been at a 2.2% rate.

There were several other factors contributing to the nation’s economic growth coming in ahead of expectations. A 13.3% surge in spending on equipment and software, and a steep increase in exports were primary catalysts. Overall shipments of goods worldwide advanced more than 18% during the quarter, outpacing the 10.5% increase in imports.

For 2009, the nation’s economy declined 2.4%, the largest drop since 1946. Many economists believe that GDP will slow to a 3% rate during the current quarter, a component of 2.5% growth rate for all of 2010.

During the fourth quarter, the nation’s workers saw a minimal increase in wages and benefits. Compensation grew by 0.5% , the smallest amount on record, dating back more than 25 years. During the past year, wages and benefits increased 1.5%, the weakest showing on record.

The 0.5% increase during Q4 for compensation came in marginally higher than the 0.4% gain economists had anticipated. However, the 1.5% yearly increase in wages and benefits for 2009 was well short of the 2.6% increase in 2008.

On the housing front, December new home sales unexpectedly decline a record 7.6% to a seasonally adjusted annual rate of 342K. That capped off the industry’s worst year on record. Recent results were the weakest since March, while sitting only 4% higher than the industry’s bottom last January. Economists had anticipated December sales to come in at 370K units.

For the year, there were only 374K new homes sold, down 23% from the previous year and the weakest showing since record keeping first began in 1963. The median sales price of new homes was $221K, down nearly 4% from $229K a year earlier. Still, they did increase 5% from November’s median price of $210K.

Unemployment remains the economy’s primary concern. The Labor Department announced the number of newly laid-off workers seeking unemployment benefits retreated by a less than expected amount last week. Jobless claims fell by 8K to a seasonally adjusted rate of 470K. Economists were looking for initial claims to drop to a rate of 450K. Meanwhile, the number of those continuing to receive benefits was reduced by 57K to 4.6M, while just over 5.6M were receiving extended benefits, a decrease of nearly 300K.

Earnings season rolls on and there’s a lot of economic data due up this week as well, highlighted by the January Employment report. Personal Income, Personal Spending, Construction Spending, Pending Home Sales, Factory Orders and Consumer Credit reports for December are due out as well, along with the ISM Index, Auto/Truck Sales, Challenger Job Cuts, ADP Employment Change, ISM Services for January, preliminary readings for Productivity and Unit Labor Costs for the 4Q, and weekly results for Initial Claims and Crude Inventories.

Volatility roared back in a major way during the holiday shortened trading week. After Tuesday’s surge of more than 1% throughout the major indices, stocks plunged more than 2% late in the week after multiple earnings and economic reports missed their mark. Stocks posted their worst 3-day run since February 2009 to close the week.

The Dow dropped 436.67 points, or 4.1%, to close at 10,172.98. The S&P soured 44.28 points, or 3.9%, ending at 1,091.75. The NASDAQ declined by 82.80 points, or 3.6%, to close at 2,205.29.

Unemployment remains a pressing concern as the number of newly unemployed workers increased unexpectedly last week. Initial claims came in at 36K to a seasonally adjusted rate of 482K. The increase surprised economists, who were looking for a marginal drop in claims.

Sentiment had previously been buoyed by the fact that since late October, companies have been cutting fewer jobs. Claims have decreased by 50K filings and the number of people continuing to draw benefits dropped marginally to just under 4.6M. But more than 5.9M are still receiving extended benefits, an increase of more than 600K from the previous reading.

Sentiment turned decidedly bearish after manufacturing in the Philadelphia region, despite expanding in January for the fifth consecutive month of gains, showed a sequential decrease. The Philly Fed’s economic index for manufacturing revealed a reading of 15.2, a much lower reading than the 22.5 recorded in December. Even though the numbers are below the previous month’s reading, any number over zero signifies growth.

The index disclosed that new orders fell to 3.2 from 8.3, while shipments declined from 14.9, the highest since December 2007, to 11. The employment index advanced to 6.1 from 4.5 in December. The 6.1 reading was the highest level in almost two years. The index of prices paid slipped to 33.2 from 36.6 in December, while prices received climbed to 2.7 from 1.4.

On the housing front, the Commerce Department announced that construction of new homes and apartments plunged 4% in December to a seasonally adjusted annual rate of 557K, well below the 580K in November. Economists had anticipated a reading of 580K. The Midwest and Northeast led the way in declines, falling 19% each. The South was the only bright spot, showing an increase in construction of 3%.

For the year, more than 550K new homes began construction, down almost 40% from the previous year and the lowest reading dating back to 1959. Meanwhile, applications for building permits (a gauge of future activity) surged 11% in December to an annual rate of 653K, the highest level since October 2008.

On a positive note, a reading from the Conference Board’s index of leading economic indicators showed that predictions for future economic activity increased by 1.1% in December, a sign that things could begin to pick up by spring. Economists were looking for the index to show a smaller increase of 0.7% for the month.

The reading follows November’s revised gain of 1%, which had been first reported to show an increase of only 0.7%. Eight of the 10 components demonstrated improvements for December. The interest rate spread and building permits both showed solid gains throughout the month.

Prices at the wholesale level inched higher in December, advancing by 0.2%, as a big drop in the cost of energy offset a surge in food prices. For the month, the PPI followed November’s surge of 1.8%, while economists had anticipated a flat reading for December.

The marginal increase in prices resulted from a 0.4% decline in energy costs. However, the overall reading was greatly affected by a 1.4% jump in food prices. The jump in food costs accounted for one-fifth of December’s overall increase in wholesale inflation. Core inflation, which excludes food and energy costs, came in flat.

For the year, wholesale prices increased by 4.4%, versus a 0.9% decline in prices throughout 2008. For 2009, core inflation advanced by 0.9%, much better than the 4.5% surge in 2008.

Economic data picks up in velocity this week with the FHFA Home Price Index report for November, Existing Home Sales, New Home Sales and Durable Orders reports for December, Consumer Confidence, Chicago PMI and University of Michigan Sentiment readings for January, the Employment Cost Index and the advanced readings for GDP for the 4Q, as well as weekly results for Initial Claims and Crude Inventories

Investors returned to the market in fine spirits after U.S. exchanges were closed in observance of Martin Luther King Jr. Day. Major indices posted greater than 1% gains despite what appeared to be a disappointing earnings report from Citigroup Inc. (C).

The Dow Jones rallied 1.1% at 10,725.43, the S&P 500 climbed 1.2% at 1,150.23, and the tech-heavy NASDAQ added 1.4% to finish at 2,320.40 to start the week.

The market shrugged off a report that Citigroup recorded a net loss of $7.58B for Q4 as consumers struggle to repay outstanding bank loans. The bank did note that $6.2B of the quarterly loss was directly related to paying back $20B of the $45B received in federal aid last year.

Despite the quarterly loss, shares of Citigroup finished the day in the green, adding $0.12, or 3.5%, to conclude the session at $3.54 per share.

Investors were buoyed by Kraft Foods Inc. (KFT) deal to finally purchase Cadbury PLC. Kraft sweetened their offer to $13.78 per share for Cadbury – the maker of Crème Eggs and Dentyne chewing gum – to form what will now be the world’s largest chocolate maker. The deal is estimated to be worth $19.5B.

Shares of Cadbury slipped in trading on the London Stock Exchange, falling just over 1.4%, but managed to jump more than 6% on the NYSE at $55.09 per share. Kraft’s stock retreated by the close, falling nearly 1%, or $0.17, to end the day at $29.41 per share.

The only economic data released at the start of the trading week was the Treasury Department’s report showing global demand for long-term U.S. assets increased in November marking its largest jump since October 2007. Foreign investment in domestic debt assets came in at $126.8B despite China reducing their debt holdings by $9.3B.

On the commodity front, the price of oil slipped throughout Tuesday’s trading. Prices were kept in check by an uptick in the value of the dollar, along with crude inventories remaining at elevated levels. By late afternoon, the price for a barrel of light, sweet crude for February delivery was $79.02 per barrel. The January contract ended its trading on Friday, closing at $78 per barrel.

Looking ahead, this data-light week features the Philadelphia Fed report for January, Building Permits, Housing Starts, PPI, Core PPI and the Leading Indicators reports for December, along with weekly results for Initial Claims and Crude Inventories.

Friday capped off a modestly downbeat week for Wall Street as investors welcome in earnings season and several mixed economic reports.

The Dow dropped 8.54 points, or 0.1%, to close at 10,609.65, the S&P slipped 8.86 points, or 0.8%, ending at 1,136.02, and the NASDAQ gave back 29.18 points, or 1.3%, to close at 2,287.99.

In the wake of December’s poor employment report, the Labor Department reported that the number of newly laid-off workers seeking unemployment benefits advanced by 11K claims for the week ending January 9. That was nearly 4 times that of the 3K gain economists had anticipated. Although jobs remain scarce amid a sluggish economic recovery, the number of people continuing to claim benefits dropped sharply to 4.6M from 4.8M the previous week.

Since late last October, initial claims have fallen 17%, or by 90K filings. Just two weeks ago, claims slipped to their lowest level since July 2008.

The Labor Department also reported last week that the Consumer Price Index advanced by a reserved 0.1% in December, while core inflation increased by a similar 0.1%. For 2009, consumer prices increased 2.7%, following a 0.1% advance in 2008, representing the smallest gain in more than 50 years. Core inflation advanced 1.8% for the year, matching 2008’s rate and came in at the smallest increase since a 1.1% gain in 2003.

December saw the federal budget reach an all-time high for the month, as the deficit topped out at $91.85B. Through the first three months of fiscal 2010, the deficit stands at $388.51B, nearly 17% higher than the $332.5B imbalance reported this time last year.

Last year’s imbalance soared to $1.42 trillion, more than three times the record of the previous year, an imbalance of $454.8B set in 2008. This year’s deficit is expected to be even higher, to come in around $1.5 trillion. That would equate to an increase of 5.6% above the 2009 deficit.

On the retail front, despite an upswing in spending leading up to the holiday season, sales in December posted a 0.3% decline. The lack of demand helped push yearly sales to its largest decrease on record. The 0.3% drop was a far cry from the 0.5% increase economists had expected, marking the first decline since a 2% decrease in September.

For the year, retail sales plunged 6.2%, only the second time on record that sales had decreased on a yearly basis. The other annual decline was a 0.5% drop in 2008.

In housing news, a record 2.8M households receive some sort of foreclosure notice in 2009, up 21% from the previous year. Banks repossessed more than 92K homes in December, while nearly 350K households received a foreclosure notice. The repossessions represented a 14% spike over November’s rate, and the foreclosures signified a 15% jump from December 2008.

A positive sign within the economy came from an unexpected jump in business inventories in November. Stockpiles increased by 0.4%, matching October’s increase. Manufacturers increased their supplies by 0.2%, while retail auto-part suppliers pushed their inventories up by 0.1%. Inventories at furniture, appliance and electronics stores slipped 1.4%. Economists were projecting inventories to advance at a more modest 0.2% rate.

Another hopeful sign was industrial production increasing by 0.6% in December, marking the sixth consecutive months of gains, in-line with economists’ projections. With the nation battling bitter temperatures, electric and gas utilities pushed production higher by 5.9% during the month. Mines increased output by 0.2%, while manufacturers produced 0.1% less during the month as construction and consumer durable goods posted declines of 2% and 0.9%, respectively.

The week ahead is relatively light on data as earnings season picks up. Building Permits, PPI, Housing Starts, and Leading Indicators reports for December are due out, along with the Philadelphia Fed reading for January, Net Long-Term TIC Flow report for November, and the usual weekly results for Initial Claims and Crude Inventories.