Bailouts hardly suggest the damage will be mitigated outside of the short term, you pay for reckless behavior now or you pay a higher price later; the markets seem to like the later option, and it showed. The broad market did pare morning-session gains late in the day but closed nicely higher nonetheless.
If traders didn’t want to take a position in front of the Bernanke’s testimony on Monday, they sure didn’t have a problem with doing so yesterday. I think more people started to realize that Bernanke isn’t going to go and surprise the market right now – we’ll get more of the same: their exit strategy plan will involve reverse repos and interest payments on excess reserves as the primary ways the Fed will attempt to drain liquidity. I think he’ll make it very clear that this liquidity drain isn’t going to occur anytime soon. Mr. Bernanke was scheduled to testify today on the FOMC’s exit strategy, but due to the weather in Washington the Fed will only release the text version -- Big Ben is thanking the global cooling cycle, or is it just the seasonal change? I can’t keep track these days.
Shares of Caterpillar helped propel the Dow Industrials after Morgan Stanley upgraded the shares along with a few other industrials. CAT shares jumped 6% yesterday, following a 20% slide over the past month – the shares have been a spectacular performer since the March lows, jumping twice that of the broad market.
Basic material shares were the leading performing sector; the group has taken it on the chin over the last four weeks, down 14% until yesterday’s 2.5% pick up. Energy and industrials also outperformed the market. Health care and utility shares were the laggards but managed gains of 0.63% and 0.96% respectively.
Ex-financial profit results continue to hang in there, up 13% with 65% of S&P 500 companies in to this point. Revenues are up 3.8% -- 54% of companies have beat their revenues estimates, 39% have missed and 7% have matched.
Market Activity for February 9, 2010
NFIB Small Business Optimism Survey
The National Federation of Independent Business reported that their optimism survey rose to the highest level in 16 months for January. Seven of the 10 components of the survey rose last month, led by an increase in expectations for higher sales and a reduction in the number of companies planning to cut stockpiles. More businesses also planned to increase spending on new equipment.
The index rose to 89.3 in January from 88.0 the month prior. The cycle low of 81.0 was touched last April; the all-time low of 80.1 was hit in April 1980; the average reading since the NFIB began tracking small business trends in 1974 is 98.9.
As the chart above illustrates, the overall survey remains depressed, stuck below a reading of 90 for the longest stretch in the history of the survey.
The plans to increase new equipment spending reading, while the highest since November 2008, remains significantly below the low points of the previous two recessions (currently 20 vs. 25 in those prior downturns – the all-time low of 16 was hit in November 2009).
The hiring aspects of the report remain very weak – this along with the plans to increase equipment purchases are the two most important areas of the report to watch. The NFIB’s chief economist noted that there was no improvement in the job creation statistics for January. Just 9% of owners increased employment by an average of 3.0 workers per firm, but 19% reduced employment by 3.9 workers per firm.
Over the next three months plans to create jobs improved, but still more firms plan to cut than add. That’s not a particularly good sign, but since the plans to reduce fell more than the plans to increase jobs, the reading did improve.
The overall index was restrained by declines in the net number of firms saying it was a good time to expand and the reading anticipating better business conditions. The sales expectations reading, as mentioned above, improved but actual reported sales over the previous three months fell to -26 from -25 in December. We’re going to have to see actual sales improve for several months before small firms go on a hiring spree that would bring the unemployment rate meaningfully lower. The NFIB survey stated: “Owners complained that ‘poor sales’ was their top problem, and there is no need to hire with no new customers. It is hard for workers to ‘earn their pay’ in this environment, a necessity if a firm is to stay in business.” Wow, that’s a hard-hitting statement.
The survey went on to state: “Twenty-four months of recession have sapped the financial strength of many small firms that are too numerous now in the new spending/credit environment. Too many houses were built, too many strip malls opened, too many restaurants started, too many retail outlets were launched in the 2003-2007 period and all of them cannot be supported by a consumer that now chooses to save.”
These are very sobering comments. I think the official recession is not going to show it lasted two full years – and later commentary within the NFIB report did acknowledge the recession will likely be officially announced to have ended in the second half of 2009. It’s clear though that small firms still feel recession is upon us.
The inventory reading improved substantially, up 7 points to a -21 from December’s record liquidation reading.
The survey was based in 2,114 survey responses through January 31.
NFIB Small Business Optimism SurveyThe National Federation of Independent Business reported that their optimism survey rose to the highest level in 16 months for January. Seven of the 10 components of the survey rose last month, led by an increase in expectations for higher sales and a reduction in the number of companies planning to cut stockpiles. More businesses also planned to increase spending on new equipment.
The index rose to 89.3 in January from 88.0 the month prior. The cycle low of 81.0 was touched last April; the all-time low of 80.1 was hit in April 1980; the average reading since the NFIB began tracking small business trends in 1974 is 98.9.
As the chart above illustrates, the overall survey remains depressed, stuck below a reading of 90 for the longest stretch in the history of the survey.The plans to increase new equipment spending reading, while the highest since November 2008, remains significantly below the low points of the previous two recessions (currently 20 vs. 25 in those prior downturns – the all-time low of 16 was hit in November 2009).
The hiring aspects of the report remain very weak – this along with the plans to increase equipment purchases are the two most important areas of the report to watch. The NFIB’s chief economist noted that there was no improvement in the job creation statistics for January. Just 9% of owners increased employment by an average of 3.0 workers per firm, but 19% reduced employment by 3.9 workers per firm.
Over the next three months plans to create jobs improved, but still more firms plan to cut than add. That’s not a particularly good sign, but since the plans to reduce fell more than the plans to increase jobs, the reading did improve.
The overall index was restrained by declines in the net number of firms saying it was a good time to expand and the reading anticipating better business conditions. The sales expectations reading, as mentioned above, improved but actual reported sales over the previous three months fell to -26 from -25 in December. We’re going to have to see actual sales improve for several months before small firms go on a hiring spree that would bring the unemployment rate meaningfully lower. The NFIB survey stated: “Owners complained that ‘poor sales’ was their top problem, and there is no need to hire with no new customers. It is hard for workers to ‘earn their pay’ in this environment, a necessity if a firm is to stay in business.” Wow, that’s a hard-hitting statement.
The survey went on to state: “Twenty-four months of recession have sapped the financial strength of many small firms that are too numerous now in the new spending/credit environment. Too many houses were built, too many strip malls opened, too many restaurants started, too many retail outlets were launched in the 2003-2007 period and all of them cannot be supported by a consumer that now chooses to save.”
These are very sobering comments. I think the official recession is not going to show it lasted two full years – and later commentary within the NFIB report did acknowledge the recession will likely be officially announced to have ended in the second half of 2009. It’s clear though that small firms still feel recession is upon us.
The inventory reading improved substantially, up 7 points to a -21 from December’s record liquidation reading.
The survey was based in 2,114 survey responses through January 31.
Wholesale Inventories
Distributors’ inventories fell in December even as sales rose for an eighth-straight month, coming off of the worst collapse in the postwar era as sales plunged 24% over an eight-month stretch.
So inventories fell 0.8% in December after a huge 1.6% November rise – the biggest since June 2004. This may have suggested distributors had trouble keeping up with demand after November’s big 3.6% jump in sales. Or maybe it’s because firms aren’t willing in this uncertain environment to add to stockpiles even as they are near record lows. The inventory-to-sales ratio came in at 1.12 months’ worth, the all-time low is 1.11.
We’ll need the following months to confirm whether or not firms are willing to stretch just a little bit and take on inventories that are meaningfully higher than the record low. In any event, very low stockpiles will continue to catalyze GDP growth for another quarter or two. Beyond that, we’ll need durable sales growth or it all just fizzles out.Today’s Data
Today will be very light in terms of data releases as all we’ll get is mortgage applications and the December trade figures. The budget statement (federal budget deficit figure) was scheduled for release but has been postponed due to the weather. The January retail sales figure, which was scheduled to be release tomorrow, will also be postponed; the results are now planned to be announced on Friday.
I’ll be out of the office until Tuesday, either Dave or Pete will take over until then.
Have a great day!
Brent Vondera, Senior Analyst
No comments:
Post a Comment