By Greg Peel
The Dow closed down 49 points, or 0.4%, while the S&P lost 0.3% to 1498, with the Nasdaq flat. The broad market S&P 500 closed January up 5%.
There's an old adage on Wall Street, dating back to the eighties, that "so goes January, so goes the year". This adage has proven true 73% of the time. It is being bandied about on Wall Street right now with the Dow closing off on its best January performance since 1994. Readers might be quick to note, however, that January has not proven a reliable indicator every year since the GFC and when it has, the adage has left out the bit about "but you might fall into a screaming heap somewhere between May and October before the ship is righted again".
The fact that Wall Street is now in sight of all-time highs suggests, at least up to this point, we've been in a bull market since March 2009. However so perilous has been the volatility at various times during this period, the "bull market" has been unsupported by retail investment flows. In 2013 things appear to be a little rosier, but the world still has its issues and there remain many investors who fear another big drop ahead on whatever the next macro bombshell might be, even if 2013 ultimately closes net positive. It's just too damned scary when that happens.
So while analysts choose this time of the year to publish their year-end forecasts, whether or not those forecasts see stocks higher by year end is almost not as important as whether analysts see a steadier market on lower volatility. Only then will the punters return in number (they have begun to trickle back but may yet have to face a healthy pullback), and only then can we truly say a bull market might just be in place.
With the S&P 500 having breached the 1500 mark and the Dow eyeing off 14,000, Wall Street has stalled. It has little to do with Wednesday's negative GDP result, which has been largely dismissed as overly influenced by the Middle East troop withdrawal, and a lot to do with round-number psychology and an incentive to take profits for those who have been enjoying the ride to date. The US results season has continued to be uneventful ? more positive than negative but off a low base ? and US economic data has been largely positive, but not in any earth shattering way. The spending cut debate will resume in earnest in March, and the debt ceiling issue will need to be resolved by May. Time. Perhaps, to rest.
On the subject of the fiscal cliff, US personal incomes rose 2.6% in December to mark their biggest gain since December 2004. It was not about wages, it was all to do with a rush by US companies to pay dividends to shareholders before Cliff bumped up the dividend tax. It is thus a distortion. Spending in the crucial month rose 0.2%, which was a little weak compared to November's 0.4%. Spending in 2013 is expected to show slower growth than 2012 given higher social security taxes.
And on the subject of distortions, FNArena has pointed out that the big plunge in weekly new jobless claims mid-January represented a statistical blip that would soon correct itself. Sure enough, last night's number showed a gain in claims of 38,000. This helped put a dampener on the session ahead of tonight's non-farm payrolls release, but on a net basis means little.
The US dollar index was down a tad last night to 79.20 but gold, having had a brief surge these past couple of sessions, ran into unbelievers and fell US$16.30 to US$1660.80/oz. Comex gold futures had closed on Wednesday night ahead of a Fed statement, which gave no indication of exit strategy plans, yet one negative GDP read is clearly not enough to press home the QE-driven inflation hedge argument. The Aussie is 0.2% lower at US$1.0430.
The January rally has also given Wall Street pause to reflect on oil prices. Despite the newfound abundance of oil and natural gas in America, the price of oil has continued to rise. Last night saw West Texas fall US46c to US$96.48/bbl but with talk of "hundred dollar oil" in the wind, there are those on Wall Street wondering when prices at the pump again become an issue for the US consumer. Up until that point a strong oil price serves to drive strong gains for the sizeable US energy sector, but beyond that point energy cost starts to become a drag on the rest of the economy.
The reason WTI is so strong can be linked to the price of global exportable oils, for which Brent is the benchmark. It actually rose US68c to US$115.60/bbl last night and has been posting mild but consistent gains for some time now. A rising Brent price becomes an issue for all world economies.
Base metals took a slight breather last night after Wednesday night's jumps, while iron ore had a solid session, rising US$3.10 to US$152.50/t.
The local market was a tad soggy yesterday so the SPI Overnight is up 5 points despite Wall Street's fall.
It's manufacturing PMI day today which includes Australia, but more importantly we'll see China's release late morning. The US will follow tonight along with the jobs numbers.
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