Thursday started off with the usual irrational exuberance, which has become familiar since the onset of 2012. Bruce McCain, chief investment strategist at Key Private Bank, shared his reaction to January’s bullishness with Kate Gibson of MarketWatch:
“Investor enthusiasm and optimism seems to be as high as [they’ve] been for years, and it just doesn’t seem to be justified in terms of the economic and fundamental realities,” McCain said.
By noon, the Commerce Department’s monthly report on new home sales finally began to catch the attention of investors, eventually sending all three major stock indices into negative territory:
Sales of new single-family houses in December 2011 were at a seasonally adjusted annual rate of 307,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.
The December figure is below the revised November rate of 314,000 as well as the December 2010 estimate of 331,000.
The report disclosed that an estimated 302,000 new homes were sold in 2011. This disappointing number contrasts with the 2010 figure of 323,000.
The Dow Jones Industrial Average declined by 22 points on Tuesday, to close at 12,734 for a loss of 18 basis points (0.18 percent). The S&P 500 lost 58 basis points (0.58 percent) to finish at 1,318. The NASDAQ Composite fell by 46 basis points (0.46 percent) to end the day at 2,805.
Miami-based corporations had a mixed day on Tuesday. Ryder System (R) led the group with a gain of 87 basis points (0.87%) to close at 56.50. Royal Caribbean (RCL) declined by 75 basis points (0.75%) to finish at 27.90. Carnival Cruise Lines (CCL) sank by 2.15% to close at 30.48. Lennar (LEN) trailed the group with a loss of 2.94% to end the day at 22.13.
Our “thought for the day” comes from a commentary by Comstock Partners, written in reaction to the latest statement by the Federal Open Market Committee (FOMC):
Despite the market’s cheering of the promise of a near-zero fed funds rate until late 2014 and the prospect of QE3, the Fed is fighting a lonely battle against severe economic headwinds----and they know it. In answering a reporter’s question, Bernanke made it crystal-clear that he does not believe that the recently optimistic economic releases are sustainable. He has good reason to think so.
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The stock market strength assumes that the economy is getting stronger and that company earnings will remain at elevated levels. We think that this will not be the case, and that the market is subject to substantial downside risk.
The following companies will be playing “beat the number” on Friday, with the release of their quarterly earnings reports: Altria Group (MO), Amcol International (ACO), Chevron (CVX), Dominion Resources (D), DR Horton (DHI), Ford (F), Honeywell (HON), Idexx Laboratories (IDXX), ImmunoGen (IMGN), Legg Mason (LM), Newell Rubbermaid (NWL), NextEra Energy (NEE), Nustar Energy (NS), Procter & Gamble (PG), Provident Financial Services (PFS), T Rowe Price Group (TROW) and West Coast Bancorp (WCBO). Good luck!
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