The economic picture in the U.S. improved somewhat with revised GDP figures for the fourth quarter advancing 1% vs. the original report of 0.7% and significantly above consensus. However, inflation also ticked higher with personal consumption expenditures increasing 1.3% in December from twelve months prior and the largest rise since October, 2014. The growth, by some indications however, point to additions to inventories and not as much to consumption. The GDP growth had a positive effect on the stock market, the inflation figure – not so much. Traders are now more fearful of the Fed moving more aggressively with its interest rate policy. The fear that the prolonged weakness in energy prices may take its toll on the banking industry is also weighing on investor’s minds. JPMorgan Chase and Wells Fargo announced increases to their loan loss reserves due to distress in the oil and gas sector. In fact, loan loss provisions within the financial sector rose in the fourth quarter by the most since 2009. Income candidate Royal Bank of Canada also increased its reserves with its exposure to Canadian energy loans. Crude oil did manage a 10% gain for the week with West Texas Crude closing at $32.78/bbl., $3.14 above where it started on Monday.
Net-net, the Dow Industrials and the S&P 500 moved higher by 1.5% for the week, but the low volume shows that there is not a lot of conviction in equities moving higher. The NASDAQ was stronger by nearly 2% and the smaller-cap Russell 2000 index closer to 3%. The S&P 500 was able to break out of its slump and moved back above its 50-day moving average for the first time since late December, a positive for technical watchers. All but utility stocks showed gains for the week led by basic materials and consumer services. Utilities got pummeled on Friday following the report on inflation and the possibility of sooner than later rate hikes back on the table.
Ninety-three percent of S&P 500 companies have now reported fourth quarter results, with overall earnings contracting a negative 3.4%, but growing 2.4% if you exclude energy. So the markets will now focus more on macro-economic data, interest rate predictions and global growth – or lack of it. And of course oil is still a wildcard with market moves closely tied to prices on a hour-by-hour basis. Friday, the employment report for February will be released and the number is expected to show a pickup in the pace of hiring with expectation of non-farm payrolls growing by 175,000 jobs. The political landscape in heating up and I am not ruling out that the effects of the election will weigh on the markets.
Here is the answer to last week’s trivia question: S.C. Johnson & Son, maker of such products as Saran Wrap, Pledge, Glade, Windex, Raid and Ziploc bags is? Privately held; a division of Church & Dwight; Publicly held trading under the ticker symbol SCJS; or owned by private-equity firm The Carlyle Group. Answer: Privately Held. The Racine, Wisconsin-based household products company, founded in 1886, has annual revenue of approximately $12 billion and is one of the largest privately held companies in the U.S.
Today’s Trivia Question: January saw one of the highest turnovers in corporate Chief Executive Officers – 19% over January, 2015. How many CEO positions were replaced? 15, 542, 131 or 209.