(0) The CPI inflation<\/b> number for January was flat, which was a bit less than the slight increase of +0.1% expected.\u00a0 However, the core inflation number\u2014which excludes more volatile food and energy prices\u2014gained +0.3% as opposed to an expected +0.2%.\u00a0 The difference was mainly due to an energy price decline in the headline figure, as well as marginal gains in apparel, tuition\/child care and tobacco in the core number.\u00a0 Year-over-year, the headline inflation number was up +1.6% and core +1.9%.\u00a0 Similarly, the Producer Price Index<\/b> for January rose +0.2% which was a tick below the expected +0.3% increase (and a year-over-year result of +1.4%).\u00a0 The core number rose by an identical amount, in line with expectations.<\/p>\n
<\/p>\n
Overall, inflation results remain well-contained, if the CPI and PPI are used as one\u2019s primary measures.\u00a0 Of course, if one uses one of the many \u2018underground\u2019 metrics available, such as one of several historical methodologies or lifestyle-based calculations, you might find a different number\u2014but these are based on different rules and product mixes (one must also account for the technological differences implied in these assumptions).\u00a0 For example, our food might be cheaper, but many of us might argue cable TV, tuition and health care certainly aren\u2019t.\u00a0 It\u2019s hard to find a perfect measure here.\u00a0 But the differences do become important for retirees and future retirees if\/when cost of living adjustments for Social Security benefits are tweaked and CPI starts to mean something.\u00a0 Then, those getting the benefits will begin to care about the calculation a lot.\u00a0 In that situation, retirees will naturally benefit from the highest (\u2018most realistic\u2019) inflation number possible, while it will behoove the government (for program sustainability reasons) to keep these increases as low as possible, which may or may not track the actual inflation many of us experience on a day-to-day basis.<\/p>\n
<\/p>\n
(+) The Conference Board\u2019s Index of Leading Economic Indicators<\/b> rose 0.2% in January to 94.1.\u00a0 This wasn\u2019t as dramatic as December\u2019s +0.5% jump, but it remains a gain, nonetheless.\u00a0 As the economists behind the index put it, the underlying results showed a continued trend of slow, but continued expansion\u2014in the recent months, this was led by housing and financial results such as interest rate spread and stock prices.\u00a0 All-in-all, six of the ten indicators advanced, while consumer expectations for the future and new manufacturing orders were a negative influence.\u00a0 The \u2018coincident\u2019 indicators, which looks at variables that measure current conditions, were up +0.4%, while the \u2018lagging\u2019 index of backward-looking metrics rose the same amount.\u00a0 All point to positive movement, in line with an upward trend of the past six months.<\/p>\n
<\/p>\n
(-) The Philadelphia Fed index<\/b> underperformed for February, which added fuel to the fire for Thursday\u2019s market drop.\u00a0 The resulting -12.5 point drop stood in stark contrast to an expected improvement of +1; however, the underlying components were not quite as bad as the index looked, with assessments of the general business climate coming in as worse than the orders, capital spending, shipments and employment metrics themselves.\u00a0 Additionally, there were some optimistic anecdotes for early 2013…<\/p>\n
<\/p>\n
(+) Existing home sales<\/b> rose +0.4% in January, which was better than the forecasted decline of -0.8%.\u00a0 Single-family sales were just slightly up, but condos (nearly +2% higher) were much more significant.\u00a0 The Northwest, Midwest and South gained, while the West fell almost -6%.\u00a0 When looked at from a multi-month moving average standpoint, this was the strongest existing home sales reading in three years.<\/p>\n
<\/p>\n
(-) Housing starts<\/b> fell in January by -8.5%, which was a disappointment compared to the expected drop of -3.6%.\u00a0 The bulk of the decline occurred in the multi-family category (-24%), which was too much to offset a +1% gain in single-family homes.\u00a0 On the positive side, December\u2019s starts were revised upward by a few percentage points.\u00a0 For the year-over-year results, starts are up +20%, which represented a significant improvement and positive trend.<\/p>\n
<\/p>\n
(+) Housing permits<\/b> were up +1.8% on the month, which was a bit better than the forecast +1.2%.\u00a0 In this case, single- and multi-family were both up roughly evenly.<\/p>\n
<\/p>\n
(-) The NAHB homebuilder index<\/b> fell by a point to 46, which fell short of an expected 48 reading.\u00a0 In the underlying data, single family housing sales fell by a point, and prospective buyer traffic fell by 4.\u00a0 In general, this data can be a bit of a precursor to upcoming housing starts, but tends to be choppy month-to-month.<\/p>\n
<\/p>\n
(-) Initial jobless claims<\/b> rose to 362k, higher than the expected 355k for the Feb. 16 ending week.\u00a0 It appears seasonal adjustment factors may be contributing to the volatility of the weekly series so far this year, which is not unusual.\u00a0 Continuing claims<\/b> for the Feb. 9 week came in at 3,148k, which was a touch lower than the 3,150k expected.\u00a0 However, the prior week\u2019s claims were revised upward by 23k.<\/p>\n
<\/p>\n
(+\/-)\u00a0 We don\u2019t normally put a lot of effort into a recap of the Fed Open Market Committee minutes<\/b>, since these notes are often received with little fanfare, but the release on Wednesday led to a relatively sharp equity market selloff.\u00a0 The catalyst was mention of a significant discussion about the risks of QE (in relation to the benefits), and potential timing and factors that would prompt an exit from the program.\u00a0 As expected, several members appeared to be more inflation-sensitive, while others remained fearful of removing accommodation too soon.\u00a0 Note the difference between all members <\/i>(various regional Fed presidents) and voting members<\/i> (a more condensed and influential group)\u2014the latter of which have largely been in favor of keeping QE intact.<\/p>\n
The issue is clarity (of lack of it).\u00a0 Markets want a clear picture and uncertainty makes participants nervous; bad news outright is almost better than uncertainty in some cases.\u00a0 Why the worry?\u00a0 Institutional investors realize how important the Fed stimulus has been in promoting the improvement in risk asset pricing.\u00a0 Should it be removed too soon, there are fears that the gears of the economic engine are not quite moving fast enough to pick up the slack and keep the car moving on its own (pardon the auto analogies, but these do seem to work well).\u00a0 At the same time, as noted by several members, excess monetary stimulus can be potentially inflationary if left on in too large of an amount and for too long.\u00a0 (This explains our assessment of \u2018+\/-\u2019 on whether this was\/is good news or not.\u00a0 For quite a few reasons, the stimulus has been a mixed blessing in that regard.)<\/p>\n
<\/p>\n
With the risk of this extra \u2018gas\u2019 being removed, risk assets retreated.\u00a0 And, with the risk-off day, it was interesting that a safe haven like gold also lost ground.\u00a0 Why?\u00a0 Well, discussion of a premature stimulus exit gives the gold bugs less pent-up monetary stimulus and inflationary pressure to worry about.\u00a0 So stocks fall, gold falls… so much for a safe haven hedge.\u00a0 Additionally, with low inflation levels, there is a bit less of a negative \u2018real yield\u2019 environment that gold and silver tend to thrive in.\u00a0 Thirdly, add in the much easier transmission vehicle of the ETF, and gold exposure can be obtained much more easily and cheaply than ever before\u2014so these assets have represented an increasing percentage of overall bullion ownership.<\/p>\n
<\/p>\n
This coming week, of course, we\u2019re likely to see continued battles to avoid the March 1 sequestration deadline…<\/p>\n
Market Notes <\/i><\/b><\/p>\n 1 Week (%)<\/b><\/b><\/p>\n<\/td>\n YTD (%)<\/b><\/b><\/p>\n<\/td>\n<\/tr>\n 0.19<\/p>\n<\/td>\n 7.31<\/p>\n<\/td>\n<\/tr>\n -0.22<\/p>\n<\/td>\n 6.62<\/p>\n<\/td>\n<\/tr>\n -0.74<\/p>\n<\/td>\n 7.99<\/p>\n<\/td>\n<\/tr>\n -0.15<\/p>\n<\/td>\n 3.71<\/p>\n<\/td>\n<\/tr>\n -1.23<\/p>\n<\/td>\n -0.17<\/p>\n<\/td>\n<\/tr>\n 0.13<\/p>\n<\/td>\n -0.52<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n <\/p>\n 3 Mo.<\/b><\/b><\/p>\n<\/td>\n 2 Yr.<\/b><\/b><\/p>\n<\/td>\n 5 Yr.<\/b><\/b><\/p>\n<\/td>\n 10 Yr.<\/b><\/b><\/p>\n<\/td>\n 30 Yr.<\/b><\/b><\/p>\n<\/td>\n<\/tr>\n 0.05<\/p>\n<\/td>\n 0.25<\/p>\n<\/td>\n 0.72<\/p>\n<\/td>\n 1.78<\/p>\n<\/td>\n 2.95<\/p>\n<\/td>\n<\/tr>\n 0.10<\/p>\n<\/td>\n 0.29<\/p>\n<\/td>\n 0.87<\/p>\n<\/td>\n 2.01<\/p>\n<\/td>\n 3.18<\/p>\n<\/td>\n<\/tr>\n 0.13<\/p>\n<\/td>\n 0.27<\/p>\n<\/td>\n 0.84<\/p>\n<\/td>\n 1.97<\/p>\n<\/td>\n 3.15<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n <\/p>\n In a four-day market week, stocks were off by a fraction of a percent, largely mid-week after the FOMC minutes and Philadelphia Fed Index announcements (noted above), as well as underlying concerns about the sequestration deadline.\u00a0 Defensive consumer staples and utilities were the best performing, while cyclical materials and consumer discretionary lagged by the largest amounts.<\/p>\n <\/p>\n In foreign markets, Japanese stocks were up big again with additional positive pro-growth rhetoric about quantitative easing, creation of some inflation.\u00a0 This market has gained strongly since Fall 2012 and contains a good deal of quality, world-class companies with solid foreign demand\u2014albeit still appear to be overshadowed by their government\u2019s tinkering with ways to stimulate growth and, indirectly, currency values.\u00a0 On the losing end, China, Hong Kong, Brazil and Italy (the latter with uncertainty about upcoming elections) lagged on the week.<\/p>\n <\/p>\n Bonds were up a bit with a weaker environment for equity assets, and the bond yield curve flattened, with higher rates slightly on the short end and lower rates on the long-end.\u00a0 Therefore, long bonds gained nearly a half-percent in price on the week, but most bond categories gained at least a small amount.\u00a0 Foreign bonds were generally negative on the week with weaker currency and spread impact.<\/p>\n <\/p>\n Commodity were generally down on the week, in line with global risk assets.\u00a0 Natural gas and \u2018softs,\u2019 including coffee and cotton, were the strongest performers on the week (although small parts of the total index), while grains, general petroleum, precious metals and industrial metals all lost ground (in order from best to worst).\u00a0 Gold\u2019s niche problems were discussed above, while petroleum declined due to indications that the Saudis would raise production in the next few months.<\/p>\n <\/p>\n We have also been taking note of the VIX, which is often misunderstood for good reason\u2014it\u2019s the \u2018implied\u2019 S&P 500 volatility looking out 30 days into the future, as derived from the classic Black-Scholes equity option pricing model.\u00a0 Vol is low again, which has spooked a few people that take the low relative level for investor complacency.\u00a0 This may or may not be true.\u00a0 Rising markets have tended to experience lower volatility numbers due to the pattern of how prices and sentiment operate\u2014bull markets tend to be longer-lasting, somewhat subtle and less volatile, while bear markets have been choppy, inconsistent and relatively quick (by comparison).\u00a0 This tendency mathematically raises the VIX in falling markets.\u00a0 However, noting some recent research, low starting VIX readings are also correlated to better market returns.<\/p>\n <\/p>\n Could we see a bit of a \u2018retreat\u2019 in light of recent market strength in the shorter-term?\u00a0 Sure.\u00a0 We generally see 5% corrections no less than five times a year, on average.\u00a0 And we likely will (we just can\u2019t tell you when or what the opportunity cost might be in the meantime by attempting to time things).\u00a0 Do fundamentals also appear attractive versus history and other asset classes?\u00a0 Yes.<\/p>\n <\/p>\n Have a good week.<\/p>\n <\/p>\n Karl Schroeder, RFC<\/p>\n Investment Advisor Representative<\/p>\n Schroeder Financial Services, Inc.<\/p>\n 480-895-0611<\/p>\n <\/p>\n Sources:\u00a0 FocusPoint Solutions, Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Goldman Sachs, JPMorgan Asset Management, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Schroder\u2019s, Standard & Poor\u2019s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.\u00a0 Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return\/excluding dividends.\u00a0 Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.<\/p>\n <\/p>\n The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.\u00a0 All information and opinions expressed are subject to change without notice.\u00a0 Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.\u00a0 Schroeder Financial Services, Inc. is a registered investment advisor.<\/p>\n <\/p>\n Notes key:\u00a0 (+) positive\/encouraging development, (0) neutral\/inconclusive\/no net effect, (-) negative\/discouraging development.<\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" (0) The CPI inflation number for January was flat, which was a bit less than the slight increase of +0.1% expected.\u00a0 However, the core inflation number\u2014which excludes more volatile food and energy prices\u2014gained +0.3% as opposed to an expected +0.2%.\u00a0 The difference was mainly due to an energy price decline in the headline figure, asRead more<\/a><\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[],"class_list":["post-957","post","type-post","status-publish","format-standard","hentry","category-finance"],"_links":{"self":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts\/957","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/comments?post=957"}],"version-history":[{"count":2,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts\/957\/revisions"}],"predecessor-version":[{"id":959,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts\/957\/revisions\/959"}],"wp:attachment":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/media?parent=957"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/categories?post=957"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/tags?post=957"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n\n
\n Period ending 2\/22\/2013<\/b><\/b><\/td>\n \n \n \n DJIA<\/td>\n \n \n \n S&P 500<\/td>\n \n \n \n Russell 2000<\/td>\n \n \n \n MSCI-EAFE<\/td>\n \n \n \n MSCI-EM<\/td>\n \n \n \n BarCap U.S. Aggregate<\/td>\n \n \n \n\n
\n U.S. Treasury Yields<\/b><\/b><\/td>\n \n \n \n \n \n \n 12\/31\/2012<\/td>\n \n \n \n \n \n \n 2\/15\/2013<\/td>\n \n \n \n \n \n \n 2\/22\/2013<\/td>\n \n \n \n \n \n