In addition to the President’s “middle of the road” address helping markets somewhat, the Federal Open Market Committee meets later today and is a major focus. Today’s batch of earnings reports include several key Industrials (Boeing and United Technologies are examples) and Energy companies highlighted by Occidental Petroleum and ConocoPhillips. Overseas markets are mostly higher this morning, although Japan’s Nikkei fell.
Looking back to Tuesday, the bulls “battled back” to push the S&P to breakeven. After a slow start Tuesday on some earnings-driven selling pressure and the surprise contraction in the U.K. economy, the bulls “stepped in” following a strong consumer confidence report and erased early losses. Corning, Baker Hughes, U.S. Steel and Harley-Davidson were among yesterday’s earnings winners, while 3M and Johnson & Johnson were among the losers. Telecom topped the sector rankings led by Verizon, while Technology also outperformed on strength in the Internet group and the mega caps.
Around our financial planning firm offices this morning, we were discussing four items that we thought would be of particular interest to our readers.
The State of the Union address “kicks off” budget season. President Obama delivered a generally market-friendly State of the Union address last night, mentioning tax reform, corporate tax cuts and the need to address the deficit. His call for a federal spending freeze did not go as far as the House Republicans wanted, and that will frame the debate on the budget that will dominate over the next few months. The non-partisan Congressional Budget Office will release its budget outlook today for fiscal year 2011-2012. The President will release his budget in mid-February, and the House Republicans will release their version shortly thereafter. The debt limit ceiling debate may become a more important market issue by then.
Corporate revenues continue to surprise. As we pass the quarter point in earnings season, the ability of corporate America to beat revenue forecasts by a full percentage point thus far is particularly impressive and differentiates this period from recent others. The upside surprise to fourth quarter U.S. economic growth and natural resources strength drove much of the strong “top line” results. On the “bottom line,” due in part to margin pressures from higher commodity prices, results and guidance have been consistent with recent quarters.
The Federal Open Market Committee meets today. As mentioned above, this will be a major focus for the markets. The FOMC is likely to upgrade its assessment of the economy and labor market and also express concern about rising raw materials prices. The FOMC will also formulate a new economic forecast at this meeting (it makes four forecasts per year), although that forecast will not be released until February 16th.
Municipal bond performance. This is seeing some signs of stabilization recently. Over the past five trading sessions, municipal bonds, as measured by the Barclays Capital Municipal Bond Index, returned 1.01%. The taxable bond market, as measured by the Barclays Capital Aggregate Index, returned .24% over this same time period.
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.