Market Matters…         

To break-even, or not to break-even…that remained the question, though many traders/investors seemed content to wait until the new year to get the answer as late–year vacations (and general time-off) contributed to some pretty light trading volume.  Though the Dow Jones entered the week (comfortably) “in-the-black” for the year (barring a few triple digit down days that were so often commonplace in 2011), the S&P stood right at the Mendoza Line (how’s that for a nonsensical baseball expression?) and flitted back and forth between profit and loss throughout the sessions.  As had become the norm, investors took cues from global geopolitical developments.  In Europe, Italy appears to be the flavor-of-the-day as nervous investors worried that its government would have problem selling debt at the week’s auctions.  Iran took its rightful turn in the limelight within the Middle East as talks of additional sanctions over nuke issues prompted threats by the world’s third largest oil producer to close a major oil channel.

On the domestic front, holiday sales remained center stage as procrastinators hit the malls in time for the last-minute discounts.  Consumer outlays surpassed $40 billion in the week ended December 24^th, a 15%-ish increase over 2010’s Christmas week numbers; holiday sales are expected to increase almost four percent from last year for the November and December months.  Interestingly, many analysts had forecast a decline in retail activity as a lackluster (but strengthening) job market and European craziness persist.  The Kindle appears to be on most everyone’s gift list as the new “Fire” set sales records for Amazon and has been the company’s best-selling product since its introduction just over three months ago.  Sears, on the other hand, has struggled throughout the season and announced its intent to close up to 120 stores.  In transaction news, “on-line” is in as GE Capital is buying MetLife’s online banking platform and home improvement retailer Lowe’s will acquire ATG Stores to enhance its web presence. 

Though government inventory levels rose last week, energy traders worried about the potential crisis in Iran and its government vowed to close the Straits of Hormuz in the latest standoff against the anti-nuke West (at least, anti-Iran having nuclear capabilities).  Crude surged to over $101/barrell mid-week and closed the year at the $99/ level.    Stocks dropped early as the euro fell to a 14-month low and Italian borrowing costs continued to hover around the seven percent level, though the bond auctions were actually met with better demand than initially feared.  Some decent signs from previously defunct labor and housing markets brought investors back into the game as odds-makers focused on the closing bell and just where the true benchmark index, the S&P 500, would end the year.  And the answer is…after 12-months of concerns over…Greece, Italy, Spain, the IMF, the ECB, even France and Germany, Japan and manufacturing, overheating China, the Middle East, Arab Spring, Libya, banking reform, debt ceilings, US credit ratings, the (less than) Super-Committee, partisan bickering, unemployment, consumer confidence, holiday retail, and the Fed (in)activity…the S&P closed the year off -0.0032% (talk about break-even). 

Economic Calendar

Though Italian Prime Minister Monti’s $38.82 billion austerity package kicked in just before Christmas, analysts still worried that bond investors’ confidence would be lacking at the week’s crucial auctions.  Instead the debt offerings were relatively well-received, though a seven percent 10-year may be beyond the comfort zone and unsustainable over the long-term.  The European Central Bank shared those rate concerns and the regulator bought Italian bonds throughout the week.  As if Greece, Italy, Spain are not enough, Hungary may be the next to join the pity party.  During the week, the EU country failed to sell its targeted amount of bonds and was forced to pay a rate far higher than previously imagined.  At some point, the International Monetary Fund may have to add Hungary to its (long) list of countries angling for financial support.

Closer to home, consumers apparently believed in the solid holiday shopping numbers (at least before the price discounts) as a key confidence measure jumped to its highest level last April.  While jobless claims increased a tad in its most recent weekly release, the measure remained below the critical 400k level for the fourth straight week and the four-week moving average dropped to levels not seen since June 2008.  Housing may very well be exiting its perpetual doldrums as pending home sales surged in November to its highest level in 19 months. 

While data reflects that housing appears to be on the mend (it’s about time), the sector has become back in vogue among some of the nation’s more “sophisticated” investors.  Hedge Funds Caxton Associates, SAC Capital Advisors, and Blackstone have been betting on a rebound as of late and Goldman Sachs and researcher Zelman & Associates have forecast newfound optimism for the housing market. 

On the Horizon…As January goes, so goes the market for the year (or is it, as the first week in January goes…).  While most investors look beyond such hype, many surely will be pulling for a strong start to the new year (and beyond).  Despite summit after summit, emergency call after emergency call, bailout after bailout, stimulus after stimulus, the European debacle appears no closer to resolution (and is maybe getting worst).  Italy is hurting; Hungary could be next; Germany and France are calling the shots (and looking out for their own self interests).  Iran presents a new threat to the oil markets as a blockage at the Strait of Hormuz threatens real damage to the energy supply/demand picture.  Politicos return in the new year with an eye toward the November election though if polls are at all accurate, many will find themselves voted out of office and added to the unemployment roles.  In the meantime, the economic data is looking up (and Obama is giving plenty of thanks this season).  Labor is improving; manufacturing is bouncing back from its post-Japanese earthquake funk; retailers breathed a collective sigh after months of worry that consumers would stay far away from the malls and buy only the essentials of life.  A confirmed successful holiday season could go a long way to convincing the masses that the rebound is upon us.  Any belated Santa sightings?  Happy New Year!!!

(c) Brounes & Associates

www.ronbrounes.com

         
 

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