The Markets and Shopping (?) Update—Rocking On?

This Week's Quote:
"The odds of going to the store for a loaf of bread and coming out with only a loaf of bread are three billion to one..”
~Erma Bombeck


J.L. Davis Thoughts This Week:

Is the consumer roaring back? Are they coming to the rescue of the American economy? Maybe, just maybe.

The National Retail Federation reports that the first full weekend of holiday shopping was up 13% over last year. And last year wasn’t bad!

“Black Friday” sales were up 26% according to ComScore, surpassing $1 billion for the first time ever, while CoreMetrics (an IBM affiliate) reported internet sales up 20%.

Why?

Let’s look. In the last twelve months, U.S. unemployment is a full percentage point lower for starters, meaning a jump in payrolls of 162,000 according to the Department of Labor. The same source reports that private wages and salaries are up some 4.6%. All that might mean we have more shoppers, with a bit more money to spend. They appear to be spending it, don’t they?

With the U.S. consumer driving a full two-thirds of the economy, the fact that spending for 2012 will likely be up yet again, for the fourth year in a row. That’s good news.

At JL Davis, we believe that increased consumer spending improves corporate profits. In turn, improving corporate profits generate earnings. Nice earnings often result in upward stock prices. Improving stock prices help portfolio returns for our great clients.

We like what we’re seeing.**


Market Week: November 26, 2012

The Markets

During a holiday-shortened trading week, equities had their best week in months. Encouraged by a more conciliatory tone out of Washington and improved economic data on Chinese manufacturing and U.S. housing, investors took advantage of light trading volumes to push stocks up, particularly the technology stocks that had been beaten up in recent weeks. The renewed appetite for risk sent the 10-year Treasury yield up as demand fell.


Last Week's Headlines

• Dissension in Europe: European finance ministers failed to come to an agreement on how best to reduce Greek debt to 120% of GDP by 2020, but will meet again to try to resolve the issue so an additional €31.5 billion bailout payment can be released. Also, talks on the European Union's long-term budget broke down after British and German leaders split with France in rejecting the proposed budget for the European Commission while their domestic budgets are undergoing substantial cuts.
• Moody's became the second rating service to take away France's AAA credit rating. Citing rising risks from its exposure to the problems of other eurozone countries, its prospects for long-term economic growth, and reduced resilience to potential eurozone crises, Moody's downgraded the country's debt one notch to Aa1 with a negative outlook.
• A preliminary survey of Chinese purchasing managers showed manufacturing expansion for the first time in 13 months as the HSBC PMI index rose to 50.4 in November (any number above 50 represents expansion).
• The stream of encouraging news from the U.S. housing market continued. The 3.6% increase in housing starts in October put them at their highest level in more than four years and 42% higher than last year, according to the Commerce Department. Building permits (an indicator of future activity) were down 2.7%, driven primarily by a 10.6% decline in multi-unit buildings; permits for single-family homes were up 2.2%. Meanwhile, the National Association of Realtors® said sales of existing homes rose 2.1% in October and were almost 11% higher than last October, while reduced inventory helped push up the median home resale price by more than 11% from a year earlier.
• Based on a 0.2% rise in its index of leading economic indicators in October, the Conference Board said it expects a continued modest expansion in the U.S. economy.
• The Securities and Exchange Commission filed what it said is the biggest insider trading case in its history. The SEC accused former hedge fund advisor Mathew Martoma and CR Intrinsic Investors LLC of trading based on unpublicized information about drug trials that allegedly was provided by the chairman of the committee overseeing the trial.
• Preliminary reports on consumer spending over the Black Friday weekend raised hopes for a robust holiday shopping season to come.
Eye on the Week Ahead
U.S. economic data will compete with political news out of Washington and Europe for investor attention.

Key dates and data releases: durable goods orders, home prices (11/27); new home sales, Fed "beige book" report (11/28); 2nd estimate of Q3 gross domestic product (11/29); personal income/outlays (11/30).

Data sources: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.


The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

Prepared by Lee Davis** and Broadridge Investor Communication Solutions, Inc. Copyright 2012