It was a busy day Wednesday for economic reports of all kinds. But in the absence of any really earth-shattering announcements, the major indexes, while finishing mostly up, made no surprise moves.
INDEX WRAPUP, WEDNESDAY, DEC. 16:
However, the Nasdaq did manage a new 52-week high of 2,206.91, up 5.86 points or 0.27%. Where it's headed still remains to be seen.
After a more-than-weeklong rise that was the mirror-image of gold's fall, the dollar fell as much as 0.4%, which helped boost stocks early in the session. But other than the opening jump and a post-Fed-Open-Market Committee-meeting fall, things were pretty rangebound. The S&P500 ended up a point at 1,109.18 and the Dow fell 10.9 points or 0.10% to 10,441.12. Both have been trading in a narrow range for over a month. It would have been helpful for them to make a decisive move one way or the other after the FOMC announcement. But no.
DOW JONES INDUSTRIAL AVERAGE:
In mid-afternoon the committee released its latest report of economic activities, resource utilization, inflation trends et cetera, and its always-highly-anticipated Fed funds decisions. The committee told us that economic activity has continued to pick up and that deterioration in the labor market is abating (we knew that). Fed Chairman Ben Bernanke says he thinks slack in the economy -- meaning idle plants and the weak job market -- will keep inflation in check. (We're really out of luck if it doesn't.) The Fed also said that conditions in financial markets are looking up, so we shouldn't expect them to keep the money pumps open: the special liquidity programs will end as planned.
The main event as always was the target range for the federal funds rate, which will remain at 0.00% to 0.25%. The committee, as it did last time, cited low rates of resource utilization and very mild inflation trends and expectations, ergo, why not keep interest rates where they are for a long time to come. Well, why not indeed, except for the fact that inflation trends, like the weather, can and do change suddenly, leaving the Fed with no choice but to say Oops and renege. We'll see.
U.S. INTEREST RATES:
The economy is weak enough to keep inflation down but strong enough to increase the pace of home construction and raise hopes for a sustained recovery. Such was the Consumer Price Index report for November, mostly soothing despite the slight rise in the all-inclusive, or headline, number. That number -- and especially the core (excluding food and energy) CPI -- were less inflationary than yesterday's producer price index numbers, which gave the Fed the breathing room it needed to keep rates at record lows. Apparently, core inflation isn't rising through the economy. Companies find it a little tough to jack up prices when consumers are tight-fisted, the job market is weak and the recovery is slow.
Headline consumer price inflation jumped 0.4% in November after gaining 0.3% the month before, matching the consensus forecast. You can blame a 4.1% jump in energy prices (on top of October's 1/4% rise) for the higher headline number, as well as gasoline, up 6.4% after a 1.6% gain the month before. Food prices stayed well-behaved, up a mere 0.1%, same as October. Core CPI inflation, unlike Tuesday's core PPI jump, showed scant change after a 0.2% rise in October, beating estimates.
Down: shelter, including rent and away-from-home lodging, off 0.2%. Up: new and used motor vehicles, medical care, airline fares, and tobacco.
CORE CONSUMER PRICE INDEX:
Year over year was a different story. Although the core number was unchanged from last year at +1.7% -- the first time core inflation was unchanged after 10 straight monthly year-over-year increases -- headline inflation was at +1.9% vs. -0.2% last October. So inflation is still up there when you add in energy and eats, which must make the Fed nervous.
On a related note, as soon as I read in a lead paragraph that the House of Representatives passed legislation Wednesday authorizing the government to borrow $290 billion to finance its operations for six additional weeks, I immediately stopped reading and looked at gold stocks. Hardly to my surprise, or yours I bet, I found that after a steady nine-session slide, the S&P Gold Trust (GLD) was up 1.67% and to name merely a few miners, Barrick (ABX) and Goldfields (GFI) were up 2.4% and 1.9% respectively, and Yamana (AUY) up 2.25%. As the night will follow the day, devalue your currency and gold will rise.
SPDR GOLD TRUST:
Two pieces of housing news were out Wednesday. First, the purchase index of the Mortgage Bankers' Association slipped 0.1% last week; even the refinance index (which counts as mortgage applications, don't ask me why), which was up 0.9% in the same week, couldn't boost the final numbers, despite mortgage rates still averaging only 4.92% for 30-year loans. I promise you we will look back on these rates one day and kick ourselves for not buying every house in sight.
Housing starts were announced later Wednesday morning, and that was better news. Starts -- groundbreaking for new construction -- had dropped 10% in October but rebounded 8.9% last month although yes, most of the gain was a comeback in volatile multifamily starts, up 67.3%; the single-family component posted only a mild rebound of 2.1% after a 7.1% fall the month before. The November annualized pace came in almost exactly as expected, but was down 12.4% year over year. Meanwhile the single-family component edged up 2.1 percent after a 7.1 percent fall the month before. Major homebuilders' stocks -- Toll Brothers (TOL), Lennar (LEN), Beazer (BZH), Pulte (PHM) and DR Horton (DHI) responded very positively to the news, reversing a month-long slide:
By region, the November rebound in starts was led by 16.4% rebound in the Northeast with welcome gains also seen in the South, up 12.3%. Housing permits, another quiet sign to look for, rebounded 6% in November after a 4.2% fall the previous month to an annual rate of 584,000 thousand units, stronger than hoped for. Lest we get over-excited, let's keep in mind that October's numbers were depressing. But the last two months together indicate that housing is in a recovery, but a slow one. The bad news is that the recovery is slow. The good news is that slow probably means sustainable.
As to petroleum, refineries, already operating at a bare 80% of capacity, cut back output last week to the accompaniment of reduced imports, producing a large 3.7 million barrel draw in crude oil -- almost twice what analysts expected -- to 332.4 million barrels. It was slightly offset by a rise in West Texas crude stocks. Distillate supplies fell 2.9 million barrels, but that was offset as well by a 900,000 barrel build in gasoline.
Crude imports averaged 7.8 million barrels per day last week, down 365,000 barrels from the prior week and well below the four-week average. The demand side remains dull at 9 million barrels per day for gasoline and 3.6 million for distillates. Crude futures rose about $1 in reaction to the Energy Information Administration's report to top $73 a barrel, and West Texas Intermediate Crude went on to gain $1.83 or 2.4%; the US Oil Fund ETF (USO), which tracks it, was up too, with commodities having a fair enough day:
USO Oil ETF:
Also Wednesday, the government said its broadest measure of foreign trade posted a sharp increase in the July-September quarter, signaling higher demand for foreign goods. Economists think the current account deficit will continue to widen next year -- but not reach the record levels seen previously because a weaker dollar will boost U.S. exports and in fact U.S. companies have been seeing export sales rise in recent months.
Electronics retailer Best Buy (BBY) got a downgrade. It beat third-quarter expectations but mainly via a one-off tax settlement; and while same-store sales advanced (Circuit City's exit helped that), the product mix of notebook computers and entry-price TVs killed margins. Best Buy said to expect more of the same -- improved revenue but driven by lower-margin products. Christmas may not be the best time to announce that; the stock plunged yesterday and fell again today. Former resistance now looks strongly like support, so the fall may be over.
Health care wasn't a big mover but little pharma Achillion (ACHN) saw its stock jump more than 48% on promising results from an early-stage Hepatitis-C drug, making it the top mover on the Nasdaq.hem the top percentage gainer. Dramatic preliminary results showed what is called "proof of concept" for the drug, ACH-1625. Rather than deal with safety, as is usually the case in early stage trials, the company administered the drug to patients for five days. The next step, which is why the stock soared, will probably be for a big drug company to invest heavily in Achillion.
ACHILLION--small company, huge jump:
In an odd complaint filed Wednesday against Intel (INTC), the worldâ€™s largest chip maker, the Federal Trade Commission said it wanted to address anticompetitive abuses not only now and in the past, but in the future. The agency said it wants to prevent Intel from using its dominance in the market for microprocessors, the main control chips in personal computers, to squash competition in video graphics chips. The graphics-chip market is currently divvied up pretty much among giants Intel, Nvidia (NVDA) and Advanced Microdevices (AMD). Interesting. Nvidia's stock has been flying since November and kept running up today.
NVIDIA has a friend in the FTC:
After the close came the news that Bank of America (BAC) has named Brian T. Moynihan as chief executive and president. He assumes the helm on January 1. The morning will tell what the market thinks of the move. The stock was up a fraction during the day's trading.
No matter how indecisive this market may be in the short run, eventually it will move up more or less steadily and reward everyone who has been patiently buying on the dips. I hope some of your buys have been, and will continue to be, dividend-bearing stocks, including ETFs. After all, why shouldn't you get a piece of that profit every quarter? Or better yet, every month? The best dividend stocks will be your friends through fair weather and foul.
And here's a map of countries by alcohol consumption, measured in litres of pure alcohol consumed per capita annually by persons 15(!) or older, according to the most recent data from the World Health Organization. Good lord, what was the WHO thinking by including adolescents in that survey? Anyway, I guess it's nice that the U.S. is up there in the 5-to-10 liters division, but from their vantage point on the floor, Europe and Russia must be laughing at us.
NATIONAL ALCOHOL CONSUMPTION RANKINGS, don't drink and drive:
Thursday's market mover could be the jobless claims report; the natural gas report could have an effect, while leading indicators and the Fed survey of the Philadelphia region should prove an interesting read.
For one low price the 2009 EOY package includes a full year of Option Investor, Premier Investor, Option Writer, LEAPS Trader and Couch Potato Trader. You get daily market commentary and plays every week in nearly every possible strategy. Plus you get two Option Expiration Calendar Mouse Pads with the "NEW" option symbol format for 2010. You get three DVDs with 254 minutes of option education. You get all of this for the unbelievable low price of $1.36 per day. If you have not signed up take two minutes and do it now!