Investors Flee to Safety on Jobs Disappointment and Eurozone Concerns

Tuesday, June 5th, 2012

by Douglas Coté, ING Investment Management

- Disappointing U.S. economic data combined with continued concern about the fate of Europe to send investors fleeing to safety. Global equity markets fell to finish off a brutal May, while benchmark tenyear U.S. Treasuries hit a new all-time low of 1.46%. The German two-year bond yield fell below 0%, meaning investors preferred a guaranteed loss to the uncertainties of holding other securities.

- First quarter economic growth was restated down to 1.9% from the previous estimate of 2.2%, as inventory building and government spending were markedly weaker than expected. Corporate profits, however, posted their largest quarterly gain since fourth quarter 2009.

- Jobs data were disappointing. Nonfarm payrolls came in at 69,000 for May, far short of the 155,000 economists had expected. Separately, ADP reported the addition of only 133,000 private sector jobs; the consensus estimate had been 150,000. New unemployment claims increased for the fourth consecutive week, while the unemployment rate rose from 8.1% in April to 8.2% in May. Median unemployment duration rose to over 20 weeks, with 43% of the unemployed out of work more than six months.

- Pending home sales in the United States unexpectedly fell to a four-month low, tempering some of the recent positive data in the housing market. Meanwhile, the Case-Shiller home-price index ended March at its lowest level since the housing crisis began.

- Though investors took comfort in a survey suggesting that Greece may be able to form a government following its June 17 elections and abide by its bailout plan, the situation in Spain grew more precarious, sending yields on Spanish debt close to euroera highs. Bankia, the country’s third-largest bank, has asked for government assistance to the tune of €19 billion, and a number of other banks are also thought to need recapitalization.

- The Indian economy grew at its slowest pace in almost ten years during the first quarter. GDP growth of 5.3% fell short of the consensus estimate of 6.1% as both the manufacturing and agricultural sectors foundered.

Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions expressed herein reflect our judgment and are subject to change. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) interest rate levels, (4) increasing levels of loan defaults, (5) changes in laws and regulations and (6) changes in the policies of governments and/or regulatory authorities. Past performance is no guarantee of future results.

Copyright © ING Investment Management

Tags: agricultural, Bailout Plan, Bond Yield, Case Shiller Home Price Index, Consensus Estimate, Corporate Profits, Economic Data, Eurozone, Fourth Quarter, Global Equity Markets, Government Assistance, government spending, Home Price Index, Housing Market, India, Indian Economy, Ing Investment Management, Nonfarm Payrolls, Recapitalization, Treasuries, Unemployment Duration, Unemployment Rate
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U.S. Equity Market Cheat Sheet (June 13, 2011)

Saturday, June 11th, 2011

U.S. Equity Market Cheat Sheet (June 13, 2011)

The figure below shows the performance of each sector in the S&P 500 Index for the week. All ten sectors declined. The best-performing sector for the week was utilities which declined 0.74 percent. Other top-performing sectors were healthcare and consumer staples. Information technology was the worst performer, down 3.25 percent. Other bottom performers were financials and consumer discretions.

Strengths

• The paper packaging group was the best-performing group for the week, up 5.2 percent, driven by increases in both of its members (Bemis Co., Inc. and Sealed Air Corp.). Sealed Air Corp. gained after suffering a sharp decline last week from its announcement that it had agreed to buy Diversey Holdings Inc. Bemis Co., Inc. announced this week that its tender offer to acquire shares of its Brazilian subsidiary, Dixie Toga, had been approved.
• The home furnishing group was the second-best performer, up 2.5 percent, led by its single member, Bed Bath & Beyond on rumors of renewed leveraged buyout (LBO) chatter.
• The distiller and vintners group outperformed, rising 0.75 percent on the strength of its member, Brown-Forman. The stock gained after it reported a 26-cent-per share gain from the sale of its Fetzer vineyards to a Chilean wine producer for $238 million.

Weaknesses

• The building products group was the worst-performing group, down 11 percent. The Case-Shiller home price index, released last week, which showed home prices were entering a double dip, could be a possible reason for Masco Corp’s decline.
• The homebuilding group was the second worst-performing group, losing 9 percent. Its members D.R. Horton Inc., Lennar Corp. and Pulte Group declined as the slowdown in home sales enters its fifth year.
• The tires and rubber group lost 8.6 percent led by its single member, Goodyear, which fell after a J.P. Morgan analyst cautioned investors on the company because of significantly weaker demand for tire replacements.

Opportunities

• There may be an opportunity for gain in merger & acquisition (M&A) transactions in 2011. Corporate liquidity is high, thereby providing the means to pursue acquisitions.

Threats

• The end of quantitative easing currently scheduled by the Federal Reserve for the end of June might result in a weaker economy.

Tags: Bemis Co Inc, Brazil, Case Shiller Home Price Index, Chilean Wine, Consumer Staples, D R Horton, D R Horton Inc, Discretions, Dixie Toga, Fetzer Vineyards, Home Furnishing, Home Price Index, Lennar Corp, Leveraged Buyout, Masco Corp, Packaging Group, Performing Group, Sealed Air, Sealed Air Corp, Share Gain, Wine Producer
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U.S. Equity Market Cheat Sheet (April 4, 2011)

Saturday, April 2nd, 2011

U.S. Equity Market Cheat Sheet (April 4, 2011)

The figure shows the performance of each sector in the S&P 500 Index for the week. Nine sectors increased and one decreased. The best-performing sector for the week was telecom services which rose 4.15 percent. Other top-three sectors were industrials and materials. Technology was the worst performer, down 0.09 percent. Other bottom-three performers were financials and consumer discretionary.

Within the telecom services sector the best-performing stock was AT&T, which rose 6.14 percent. Other top-three performers were Metropcs Communications and American Tower Corp.

Strengths

• The paper products group was the best-performing group for the week, up 8 percent. The group was led by International Paper, which increased its quarterly dividend by 40 percent from $0.75 per year to $1.05 per year. The company also announced that it is buying up to 75 percent of Andhra Pradesh Paper Mills, thereby taking its first position in India’s paper market.
• The health care facilities group (Tenet Healthcare) outperformed, rising 6 percent. Investors appeared to be more optimistic about the potential for an uptick in hospital utilization given a more stable economic environment. Most publicly-held hospital company stocks rose this week.
• The Internet retail group rose 5 percent, led by Amazon.com and Priceline.com. Amazon launched a cloud-based music service which allows users to store music on the cloud and access it on multiple devices. Also, a major brokerage firm raised its target price on the stock, citing their belief that the market is underestimating the positive share shift from specialty retailers to Amazon. On Thursday of the prior week a major brokerage firm increased its 2012 earnings estimate and its price target on Priceline.

Weaknesses

• The homebuilding group underperformed, losing 4 percent. The S&P/Case Shiller Home Price Index 20 City Composite was 3.1 percent lower in January compared to a year ago. Homebuilder Lennar Corp. reported a 12 percent year-over-year drop in new home orders for the three-month period ending February 28.
• The electronic component group lost 4 percent, led down by Amphenol Corp. A major brokerage firm lowered its 2011 revenue, earnings estimates and price target on the stock based on a slowdown in defense-related orders during the month of March.
• The electronic manufacturing services group fell 3 percent after being the best-performing group last week on a strong earnings report from Jabil Circuit. Jabil sold off this week, perhaps on investor concern about supply chain disruptions from the disaster in Japan.

Opportunities

• There may be an opportunity for gain in merger & acquisition (M&A) transactions in 2011. Corporate liquidity is high, thereby providing the means to pursue acquisitions.

Threats

• Should investors’ expectations for an improving economy not come to fruition on a reasonable time frame, it could be a threat to stock prices.
• Quantitative easing currently being implemented by the Federal Reserve might result in unintended consequences.
• The nuclear disaster in Japan creates uncertainly, which is not good for stock prices.

Tags: Amazon, American Tower Corp, Brokerage Firm, Case Shiller Home Price Index, Company Stocks, Earnings Estimate, Facilities Group, Health Care Facilities, Home Price Index, Hospital Utilization, India, Metropcs, Performing Group, Price Target, Priceline, Quarterly Dividend, Retail Group, Stable Economic Environment, Target Price, Telecom Services, Tenet Healthcare
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U.S. Economy and Bond Market Diary (October 4, 2010)

Saturday, October 2nd, 2010

The Economy and Bond Market Diary (October 4, 2o1o)

Treasury bonds rallied again this week sending yields lower, as expectations continue to build for an additional round of quantitative easing. The chart below depicts the European Commission Economic Sentiment Index which reflects general economic activity in the European Union. The index unexpectedly rose in September and is close to 2007 levels, indicating a fair amount of optimism. This is quite surprising given all the negative news out of Europe. Maybe things are better than people realize?

Strengths

• Similar to the theme in the chart above, German consumer confidence hit the highest level in three years.
• U.K. GDP growth grew the fastest in nine years, expanding 1.2 percent in the second quarter. If reported on an annualized basis as it is done in the U.S., this would equate to roughly 5 percent GDP growth.
• Manufacturing indicators around the world were generally positive this week with positive reports out of China, Europe and the U.S.

Weaknesses

• In contrast to the positive sentiment in Europe, CEO confidence in the U.S. hit the lowest level since the fourth quarter of 2009 and consumer confidence hit a seven month low.
• The S&P Case-Shiller home price index fell modestly in July and house prices remain 28 percent below their 2006 peak.

Opportunities

• Inflation is unlikely to be a problem for some time and this gives central bankers and other policy makers around the world room for expansive policies.

Threats

• Europe is looking much better than expected and possibly presents an upside risk to the global economy, implying central bankers may need to change course quicker than expected.

Tags: Bond Market, Case Shiller Home Price Index, China, Consumer Confidence, Economic Activity, Economic Sentiment, European Commission, Fourth Quarter, GDP, GDP Growth, Global Economy, Home Price Index, House Prices, inflation, Market Diary, Negative News, Nine Years, Optimism, Second Quarter, Sentiment Index, Treasury Bonds
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Consumer Confidence Index Declines in July, But It May Not Hold Back Retail Sales

Tuesday, July 27th, 2010

July 27, 2010
by Asha Bangalore, Northern Trust.

The Conference Board’s Consumer Confidence Index fell to 50.4 during July from 54.3 in June. The drop reflects declines in the Present Situation Index (26.1 vs. 26.8 in June) and the Expectations Index (66.6 vs. 72.7 in June). Effectively, the Consumer Confidence Index has lost all the gains recorded since November 2009.

The sub-index measuring if ‘jobs are plentiful” held steady at 4.3, while the gauge tracking if “jobs are hard to get” rose to 45.8 in July from 43.5 in June. The net of these two indexes has a strong positive correlation with unemployment rate. The net measure rose to 41.5 in July vs. 39.2 in June, implying that the unemployment rate of July is most likely to be higher than the 9.5% reading of June.

It is widely held that consumer confidence measures and spending have a tight relationship. In recent years, this relationship has become tenuous. The latest retail sales survey for the month of July indicates that households did not shy away from stores. But, this evidence contradicts the suggestion from the consumer outlook survey.

April House Price Gain is Partly from Support of Government Program

The Case-Shiller Home Price Index moved up 0.5% on a seasonally adjusted basis during April, marking the tenth monthly increase in the last year. On a year-to-year basis, the index shot up 4.6%, the largest gain since August 2006. The latest monthly increases in home prices are partly tied to the first-time home buyer program. The program expired as of April 30, 2010. On a monthly basis, only two of the 20 metro areas of included in this index recorded declines in April, while on a year-to-year basis nine metro areas posted lower prices. The elevated level of distressed properties sold recently (32% of existing homes sold in June) reduces the probability of continued gains in home prices in the near term, in addition to the adverse influence from large unsold inventories and a soft labor market.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

Copyright (c) Northern Trust

Tags: Adjusted Basis, Advers, Case Shiller Home Price Index, Confidence Measures, Consumer Confidence Index, Distressed Properties, Expectations Index, First Time Home Buyer, First Time Home Buyer Program, Government Program, Home Buyer Program, Home Price Index, House Price, Metro Areas, Northern Trust, Outlook Survey, Positive Correlation, Situation Index, Tight Relationship, Time Home Buyer, Unemployment Rate
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