This morning, strong results from GE and Google as well as several energy and financial companies are helping stocks push higher after Thursday’s selloff. Improvements across the wide variety of GE’s businesses and an increase in bookings are encouraging from a broad perspective. These solid results, coupled with a bullish German sentiment report, are offsetting some weakness in Bank of America after its results this morning. The U.S. economic data calendar is clear for today. Copper, natural gas and agriculture prices are higher, while crude oil and precious metals are down marginally.
Looking back at Thursday, the sell-off was attributed to China and some earnings misses. Fears of further policy tightening in China after a very strong GDP reading drove stocks lower early on Thursday. Earnings-driven selloffs in Technology (F5 Networks) and Materials (Freeport-McMoran) also weighed on the market. Better-than-expected jobless claims numbers had some positive effect.
The focus next week will be more on policy than economic data. Next week’s data is likely to be overshadowed by the President’s State of the Union address on Tuesday and the Federal Reserve’s Federal Open Market Committee (FOMC) meeting on Wednesday. In addition, several major central banks meet to set policy including the Bank of Japan, the Reserve Bank of New Zealand and Norway’s central bank. Both Norway and New Zealand have already raised rates in this cycle.
Economic data for December and January continue to point to a reaccelerating economy. Data released Thursday on manufacturing activity in the Philadelphia region in January as well as leading indicators and existing home sales for December continued to paint a picture of a U.S. economy that was accelerating in the fourth quarter of 2010 and as the first quarter of 2011 began. Additional data on regional manufacturing surveys, new home sales and durable goods will be out next week.
Municipal bonds stabilized on Thursday as crossover buyers (institutional investors who do not enjoy the tax benefit of munis) emerged to take advantage of cheaper valuations. While yesterday’s performance was encouraging, weakness could persist as long as redemptions from municipal bond mutual funds by retail investors continue.
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