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Commentary and market review for December follows. 

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tom
Crow Financial

JANUARY MARKET COMMENTARY

By Tom Crow
February 7, 2011

 

 

Gain (Loss) by Period

Index

Month End

Month

Most Recent Quarter

Year-to-Date

Trailing Twelve Months

Dow Industrials

11,892

2.7%

7.0%

2.7%

18.1%

S&P 500

1,286

2.3%

8.7%

2.3%

19.8%

Nasdaq

2,700

1.8%

7.7%

1.8%

25.7%

 

Markets finished the first month of 2011 by wiping out half of Friday's (1/28) losses, and giving us the best January for the S&P 500 since 2001. Going back ten years, the average January market return for the index has been -1.7%. The last two years had a large influence on that average as the S&P 500 lost 3.7% in January of 2010 and 8.6% in January of 2009.

 

Do market gains in January guarantee gains for the year? Not exactly, but things look pretty good so far. Three Januaries of the past ten have ended positively: '04, 06 and '07. All three of those years ended positively for the S&P 500. Conversely, the other seven Januaries finished lower and only three of them: '01, '02 and '08 accurately forecast a down year for the index.

 

The S&P 500 has finished higher than it started for seven of the last ten years. But, when in the first two years ('01 and '02) the index declines 13.1% and 23.4% that starts us out in a big hole. Just when it looks like things are back on track, 2007 comes along with a 38.5% decline and it's not difficult to see why just about everybody's ten-year returns look pretty flat.

 

Technically, the S&P 500 is in a nice upward trend, and is doing pretty well at staying above its short-term moving average. I am looking at two conflicting indicators at this point. One says it has been above the trend line since early December, and has remained there several weeks longer than it did last time it was in this position.

 

The other says we may have just launched another 2-3 week leg higher. Neither of these says a reversal is imminent, but I am starting to look for a correction in the near term. As long as there are no major economic or geopolitical events to cause panic, it should be rather mild and the current indications are that it will result in a good buying opportunity.

 

Another month...another jobs report...and no matter how anybody tries to spin the data and say the employment situation is improving, it just doesn't look that way to me. The jobs numbers were awful again. No doubt the fierce winter storms had something to do with it, but only 36,000 new jobs were created in January.

 

Analysts expected 140,000 new jobs, and for the unemployment rate to tick higher from 9.4% to 9.5%. Instead, it dropped to 9.0% as some 600,000 workers exhausted their benefits, gave up, or took the month off from looking for work. The last three months have seen an average of only 83,000 jobs created per month...well below the rate required to keep up with population growth.

 

I wrote in an earlier commentary about a time when we might see lots of new jobs being created, as in several hundred thousand per month, and a rising unemployment rate as those who had long been out of work and who had run out their benefits started looking for work again. Apparently we are not there yet. A lower or falling unemployment rate while fewer than 150,000 jobs are being created each month tells me we have not turned this thing around yet.

 

Along with the dismal January reports, the government included its annual revisions to the previous year's employment picture. The estimated, and much touted 1.1 million jobs created last year was revised such that only 950,000 of the 8.3 million jobs lost since the recession began were actually recovered last year. Estimates of the "real" unemployment rate, including all those who have run out of benefits or quit looking for work, is around 20%.

 

Reported inflation remains low...I guess the folks who report it don't buy gas for their cars, or airplanes. Airlines are trying to increase prices and improve margins, but increasing fuel costs are offsetting everything they do. If they can't increase margins and profits by raising prices, they'll do it by cutting costs and laying off workers.

 

Other countries and central banks are inching interest rates higher. The Fed is holding ours at zero. The administration's economic advisors are hoping for some inflation so the US can pay down its debt with cheaper dollars. This is fine in theory but they ignore the other side of the equation. Inflation and cheaper dollars coupled with persistent, high unemployment and slow-to-nonexistent wage growth means folks who spend dollars every day see their purchasing power decline.

 

Unrest in Egypt and the potential for radical Muslims to gain power there as they did in Iran during Carter's presidency has more than a few observers looking at the tenuous stability in Jordan and Saudi Arabia and holding their collective breath. Oil prices have increased slightly, but not as much as some expected. Gold's decline came to a temporary stop as it put in a near-term bottom on January 27th, but the bounce so far seems to be a little weak. We continue to keep a close eye on both.

 

The vote on raising the debt ceiling will not come up until sometime in March. That could be the next, big market moving piece of news on the home front.  If things in Egypt don't boil over into neighboring countries, the rest of February should be good for stocks, and valentines.

 

The talking heads last week couldn't help bringing up the "Super Bowl Indicator." It says when a team from the old NFL wins, we can expect a bull market. Historically, it is right about 85% of the time. So there you have it. It should be a great year! I was just wondering if there was an indicator for the markets in years where the singer screwed up the National Anthem. Maybe we should start one.

 

I hope your team won!