Higher jobless claims and S&P’s lowered rating on Japan’s long term-debt weighed on markets this morning. However, some positive earnings news and higher durable goods orders are keeping the averages near the flat line. Gains in the mining sector are giving European markets a lift, while Asian stocks were mixed with China and Japan higher and Hong Kong lower. Crude oil is down slightly, while metals and most agriculture commodities are higher.
Looking back at Wednesday, stocks finished higher but not far enough for the Dow to hold 12,000 or the S&P to reach 1300. The Federal Market Open Committee (FOMC) interest rate decision was largely interpreted by the market as a non-event. Gains were driven at least in part by strong new home sales. Also, higher commodity prices and well-received results from oil services stocks buoyed the resource sectors. Weakness in Boeing after lowered guidance did not stop the Industrials from moving higher.
Around our financial planning firm offices this morning, we were discussing three items that we thought would be of particular interest to our readers:
There was no dissent at the FOMC. As expected, the FOMC voted yesterday to keep rates near zero and to continue to pursue its program of quantitative easing. Aside from a slight upgrade to its assessment of consumer and business spending, and an acknowledgement of rising input prices, there were few differences between the December 14th and yesterday’s FOMC statements.
Economic data for December and January continues to point to a reaccelerating economy. The economic data released over the past 24 hours continues to suggest that the economy accelerated as 2010 ended. The December durable goods order data showed solid gains, as did the backlog of unfilled orders. Capital goods shipments, a proxy for business capital spending, rose in December, although business spending in Q4 looks to have decelerated from the pace seen in Q3 2010.
Focus on the U.S. debt-to-GDP ratio. The deficit and accumulated U.S. debt has become a major issue, particularly over the past 12 months. Simply put, it is often cited as a risk to a sustainable recovery. Although certainly an issue, it does not appear to be an impediment to growth in 2011. However, unless significant progress can be made on reigning in spending on federal entitlement programs like Social Security, Medicare and Medicaid soon, the deficit could become more of an issue for the economy in the form of slower economic growth, misallocation of resources and higher borrowing rates.
As always, email me here with your questions or comments. I love to hear from you and thoroughly enjoy the “intellectual debate” with our clients and friends that these opinions generate.
Greg Powell, CIMA
Note: The opinions voiced in this material are for general information and are not intended to be specific advice. Any indices such as the S & P 500 can’t be invested into directly.