• Investing & Markets

Market Digest – Week Ending 2/3

February 3, 2012 | Craig Birk, CFP®

Global stocks extended the steady climb which began just before Christmas. The Labor Department reported 243,000 jobs were added in January. This beat expectations and dropped the unemployment rate to 8.3%. The news fueled optimism that the US economy will weather Europe’s debt crisis. Treasuries fell. On a less positive note, the Case-Shiller housing prices released for November showed a larger than expected drop.

Weekly Returns

S&P 500: 1,345 (+2.2%)

MSCI EAFE: +2.7%

US 10-Year Treasury Yield: 1.92% (+0.03%)

Gold: $1,726 (-0.7%)

USD/EUR: $1.314 (-0.6%)

Major Events

  • Monday – Efforts to restructure Greek debt hit a snag when Greece’s finance minister rejected calls for a European appointed commissioner to oversee the budget.
  • Tuesday – The November Case-Shiller housing report showed a larger than expected 0.7% monthly decline in November.
  • Wednesday – Facebook filed for its much anticipated IPO.
  • Wednesday – European regulators rejected a merger bid between NYSE Euronext and Deutsche Boerse which would have created the world’s largest exchange.
  • Wednesday – US auto sales rose 11% in January, compared to the same month last year.
  • Thursday – Bernanke said the US economy is showing signs of improvement but remains vulnerable and reiterated a pledge to keep near-zero interest rates through late 2014.
  • Friday – The Labor Department announced the US economy added 243,000 jobs in January, well above expectations.

Our Take

This week’s jobs report was an important victory for an economic recovery that has felt elusive to many. The S&P 500 is up 7% year to date, demonstrating the stock market has been slowly converting doomsayers back into believers of capitalism. The clouds over Europe remain dark and may yet wreak havoc on stocks, but it now feels safe to say our long-held expectation that the US economy would not fall back into recession was correct. Interestingly, the Treasury market continues to tell a different story. We urge readers not to be complacent if they hold longer duration bonds. Historically, major losses in bonds are not uncommon, but after a 30 year bull market most investors have forgotten. The next chapter could be painful. If the economy starts to accelerate, the Fed will not hesitate to back out of its pledge to hold rates down. Bernanke wants to be known as the man who saved the world from the financial crisis, not the man who drove us into high inflation.

We congratulate Facebook on its pending IPO. The media is filled with opinions on what Facebook should or shouldn’t do. Most are driven by petty envy or ignorance. Facebook has changed the world in a way most people seem to like. Many of those involved will become new “1 percenters”, reaping millions or even billions. They deserve it. This is the carrot that drives innovation and better quality of life for all.

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