The Weekly Market Snapshot from Frazier Allen for the week of December 23rd, 2012
December 23, 2012
Market Commentary by Scott J. Brown, Ph.D., Chief Economist
Stock market participants were encouraged by progress (over the weekend) in fiscal cliff negotiations. However, the two sides remained far apart and discussions stalled on Tuesday. House Speaker Boehner proposed a plan B, which would raise taxes on those making more than $1 million per year. However, the plan faced opposition from Senate Democrats, a threat of a presidential veto, and rejection from some of the more conservative members of the House.
Lacking enough votes within his own party, Boehner pulled the plan on Thursday evening. The result was an even greater bargaining advantage for the Democrats and a near certainty of going over the cliff. There’s still a strong belief that a deal will be reached in January or early February, but negotiations may have to start over with the new Congress. Post-cliff, however, Republicans would be able to vote for tax cuts rather than tax increases. [Read more]
The Weekly Market Snapshot from Frazier Allen for the week of December 17th, 2012
December 17, 2012
Market Commentary by Scott J. Brown, Ph.D., Chief Economist
As expected, the Federal Open Market Committee decided to fold purchases of $45 billion per month in long-term Treasuries into QE3 when Operation Twist ends later this year (in Operation twist, the Fed is buying $45 billion per month in long-term Treasuries and selling a similar amount of shorter-term Treasuries out of its portfolio). Thus, the Fed will continue buying $85 billion in long-term assets in 2013 ($45 billion in Treasuries, $40 billion in mortgage-backed securities), with no specified ending date, until there is “substantial improvement” in labor market conditions.
The Fed also shifted the language in its forward guidance on the overnight lending rate from dates to economic thresholds. Specifically, the Fed “currently anticipates that the exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2% longer-run goal, and longer-term inflation expectations continue to be well anchored.” [Read more]
The Weekly Market Snapshot from Frazier Allen for the week of December 9th, 2012
December 9, 2012
Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The economic data were mixed. The ISM Manufacturing Index weakened. Unit autos sales roared back in November from the Sandy-related decline in October. The Employment Report was moderate. Nonfarm payrolls rose by 146,000, more than expected, but the two previous months were revised a net 49,000 lower.
The unemployment rate fell to 7.7% (from 7.9%), but the drop was due entirely to a drop in labor force participation. The Bureau of Labor Statistics said that Hurricane Sandy did not have a significant impact on the numbers, but details of the Household Survey showed a spike in the number of people unable to get to work due to adverse weather. [Read more]
The Weekly Market Snapshot from Frazier Allen for the week of December 2nd, 2012
December 2, 2012
Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The economic data reports were mixed. The estimate of 3Q12 GDP growth was revised higher (to 2.7%, from 2.0%), but the details were worse. Most of the revision was due to higher inventory accumulation. Consumer spending growth was revised to a 1.4% annual rate, from +2.0%.
Business fixed investment was also revised down. The report showed a downward revision to income growth over the last two quarters. The October income and spending report showed a clear negative impact from Hurricane Sandy.
However, excluding the storm’s effects, income and spending would have been lackluster (positive, but not particularly strong). The Fed’s Beige Book noted that “economic activity expanded at a measured pace” in October and early November. [Read more]
The Weekly Market Snapshot from Frazier Allen for the week of November 26th, 2012
November 26, 2012
Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The fiscal cliff refers to a substantial tightening of fiscal policy in 2013. Monetary policy cannot offset the cliff’s negative effect on the economy. However, it would be surprising if a deal were not reached, if not by the end of this year, then in early 2013. Due to concerns about the long-term budget picture, some of the cliff is almost certain to get through.
Alright, we’ve been over this and over this, and I’m going to keep going over this until I stop getting questions. Okay? There are two issues with the fiscal cliff. One is that the federal budget is on an unsustainable trajectory. No one disputes that or argues that we shouldn’t address it. There’s broad (not universal) agreement that everything should be on the table, tax increases, the possible elimination of deductions, entitlement reforms, and cuts to defense and other types of spending. That’s not what the fiscal cliff is about. The fiscal cliff refers to doing too much too soon to reduce the deficit and the negative impact that would have on the economy. [Read more]
The Weekly Market Snapshot from Frazier Allen for the week of November 19th, 2012
November 19, 2012
Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The economic data were clouded by the effects of Hurricane Sandy and in most cases it’s impossible to isolate the storm’s impact. Retail sales fell 0.3% in October, although Sandy had both positive and negative effects. Initial claims for unemployment insurance benefits jumped, similar to the increase seen after Katrina in 2005. Industrial production fell 0.4% and Federal Reserve economists estimate that Sandy shaved a full percentage point from the headline production figure. Factory output fell 0.8%, but would have been flat if not for Sandy.
Currently, the Fed is buying about $40 billion per month in Mortgage-Backed Securities as part of its Large-Scale Asset Purchase program (QE3, funded by the creation of money) and about $45 billion in long-term Treasuries through its Maturity Extension Program (“Operation Twist”, funded by selling short-term Treasuries out of its portfolio). Operation Twist ends in December. [Read more]
The Weekly Market Snapshot from Frazier Allen for the week of November 11th, 2012
November 11, 2012
Market Commentary by Scott J. Brown, Ph.D., Chief Economist
After all the fund raising, primaries, conventions, robocalls commercials, and actual voting, the leadership in Washington remains the same. President Obama was given another four years. The Republicans retained control of the House of Representatives. The Democrats kept control of the Senate, picking up one seat despite having many more seats to defend. The stock market rallied on Election Day, despite tough odds for Governor Romney (based on the electoral map and recent polls).
The stock market fell sharply after the election results, partly reflecting disappointment that Romney didn’t win, but more importantly, as investor attention turned toward the fiscal cliff. The fiscal cliff (mostly the expiration of the Bush-era tax cuts, the end of the 2% reduction in payroll taxes, and forced spending cuts following the failure of the Super Committee last year) does not hit all at once. If a deal is not reached by the end of the year, President Obama and the new Congress have several weeks to reach a deal in 2013 before the economy weakens. Unfortunately, the two sides remain far apart on how to reduce the budget deficit. [Read more]
The Weekly Market Snapshot from Frazier Allen for the week of November 6th, 2012
November 6, 2012
Market Commentary by Scott J. Brown, Ph.D., Chief Economist
Superstorm Sandy delivered a hard punch to the upper mid-Atlantic states, contributing to tragic loss of life and severe property damage. Flooding in lower Manhattan led to a two-day shutdown of the NYSE. It will take some time to assess the economic effect and the impact appears likely to be much larger than initially estimated. However, it is likely to be limited relative to a $16 trillion national economy. Severe weather typically shifts some spending around and rebuilding will add to GDP growth.
The economic data remained consistent with moderate economic growth. However, the October Employment Report was much stronger than anticipated. Nonfarm payrolls rose by 171,000 (vs. a median forecast of +125,000), while figures for August and September were revised a net 84,000 higher. The unemployment rate ticked up to 7.9%, but that appeared to reflect statistical noise in a general downtrend. For those aged 25-55 years, labor force participation has stabilized and begun to trend higher and the employment/population ratio is much higher than a year ago (76.0%, vs. 74.8%). [Read more]
The Weekly Market Snapshot from Frazier Allen for the week of October 30th, 2012
October 30, 2012
Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The economic data reports were mixed. Real GDP rose at a 2.0% annual rate in 3Q12 (+2.3% y/y), boosted partly by an increase in government spending (the first since 2Q10). The report showed a moderate pace of consumer spending and weakness in business fixed investment. Durable goods rose 9.9%, reflecting a rebound in aircraft orders. However, orders and shipments of nondefense capital goods weakened and unfilled orders (ex-transportation) continued to weaken.
The Federal Open Market Committee left short-term interest rates unchanged, did not alter its forward guidance (on the federal funds target rate), and kept its Large-Scale Asset Purchase program (QE3) in place. At the December 12-13 FOMC meeting, officials are likely to decide whether to extend Operation Twist or up its asset purchase plans. [Read more]
The Weekly Market Snapshot from Frazier Allen for the week of October 22nd, 2012
October 22, 2012
Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The economic data reports were mixed, but mostly on the strong side of expectations. Retail sales rose 1.1% in September, while figures for July and August were revised higher. Industrial production rose a little more than anticipated, but manufacturing activity was down in the quarter as a whole. Residential construction activity surged in September (single-family permits up 6.7%), although improvement may have been inflated by the seasonal adjustment (19 working days last month, vs. 23 in August and 21 a year ago). The Consumer Price Index was boosted by higher energy costs, but the underlying trend in core inflation remained low.
While the economic data were mostly favorable, the stock market was more concerned with earnings reports, which were generally disappointing. News reports noting that we’re at the 25th anniversary of Black Monday probably didn’t help either. [Read more]
