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US Real Gross Domestic Product for 2009: -2.4%
US Real Gross Domestic Product for 4Q’09: +5.7%
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Consumer Price Index Y/Y: +2.7%
Consumer Price Index December 2009: +0.1%
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January showed ongoing signs of economic recovery, but also reminders that excessive debt created during the last business cycle will take time to unwind. The advance GDP reading for 4Q 2009 was a strong 5.7% annualized jump. However, a sharp slowdown in the rate of inventory reductions added 3.4% to the overall GDP number. Stripping out the impact of inventories and net external trade, final sales actually slowed to a 1.7% annualized pace in 4Q from 2.3% in 3Q. The strong snap back in industrial sector demand continued to be evident in the January ISM reading, which increased to 58.4, the highest reading since mid-2004. An ISM reading above 50 indicates expanding activity. Other signs of improving economic activity include the index of leading economic indicators which increased a better than expected 1.1% in December and the Conference Board’s consumer confidence reading at 55.9 in January, the highest level in over a year. Offsetting these positives, the deleveraging process is still weighing on the economy. Personal bankruptcy filings hit 1.4 million in 2009, up 32% from a year earlier. Commercial mortgage delinquencies for December shot up to 6.07%, the highest level on record. According to research firm Jefferies & Co., commercial mortgage delinquencies could rise to a range of 9%-14% by the end of 2010. During the month, the Chinese government took steps to tighten monetary policy in response to strong economic growth and rising inflation pressures by increasing bank reserve requirements and imposing curbs on lending. A more tepid economic recovery in Europe led to credit problems surfacing in Greece, where the budget deficit is equal to 12.7% of GDP. The U.S. dollar continued its recent advance against the Euro, closing January at $1.38 dollars-per-Euro, an improvement from $1.43 at year end. On the domestic front, the Obama Administration’s health care reform took a serious blow when Massachusetts elected Republican Senator Scott Brown to fill the seat left by the late Ted Kennedy. President Obama used his first State of the Union address to focus on the need for job creation to spur economic growth.
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The Stock Market
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Dow Jones Industrial Average YTD Total Return: -3.3%
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Standard & Poor’s 500 Index YTD Total Return: -3.6%
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Despite a strong first two weeks for the stock market, the S&P 500 ended the month of January down 3.6%. Rhetoric out of Washington seemed to spook the market as investors grappled with the uncertainty of new government proposals. The Obama Administration announced a plan to levy a fee on large financial institutions that would raise about $90 billion over 10 years. The money would be used to cover the cost of the Troubled Asset Relief Program and reduce the federal deficit. The best performing sectors of the market for January were healthcare, industrials, and consumer staples. Information technology, telecommunication, and materials underperformed for the month.
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The Bond Market
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Federal Funds Rate: Target 0% - ¼%
10-Yr US Treasury Yield: 3.6%
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Barclays Intermediate-Term US Gov’t Bond Index: YTD +1.4%
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The 10-year U.S. Treasury yield decreased slightly during the month as investors looked for safety from turbulent equity markets and sovereign debt troubles brewing in Europe. The Congressional Budget Office forecast that the 2010 U.S. budget deficit would be $1.35 trillion, only a slight improvement from the record $1.40 trillion in 2009. The Senate voted to lift the government borrowing limit by a record $1.9 trillion, bringing the total to $14.3 trillion. Federal, state, and local borrowing needs are estimated to exceed $2 trillion in 2010, increasing the risk of “crowding out” in debt markets.
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US Real Gross Domestic Product for 2009: -2.4%
US Real Gross Domestic Product for 4Q’09: +5.7%
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Consumer Price Index Y/Y: +2.7%
Consumer Price Index December 2009: +0.1%
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January showed ongoing signs of economic recovery, but also reminders that excessive debt created during the last business cycle will take time to unwind. The advance GDP reading for 4Q 2009 was a strong 5.7% annualized jump. However, a sharp slowdown in the rate of inventory reductions added 3.4% to the overall GDP number. Stripping out the impact of inventories and net external trade, final sales actually slowed to a 1.7% annualized pace in 4Q from 2.3% in 3Q. The strong snap back in industrial sector demand continued to be evident in the January ISM reading, which increased to 58.4, the highest reading since mid-2004. An ISM reading above 50 indicates expanding activity. Other signs of improving economic activity include the index of leading economic indicators which increased a better than expected 1.1% in December and the Conference Board’s consumer confidence reading at 55.9 in January, the highest level in over a year. Offsetting these positives, the deleveraging process is still weighing on the economy. Personal bankruptcy filings hit 1.4 million in 2009, up 32% from a year earlier. Commercial mortgage delinquencies for December shot up to 6.07%, the highest level on record. According to research firm Jefferies & Co., commercial mortgage delinquencies could rise to a range of 9%-14% by the end of 2010. During the month, the Chinese government took steps to tighten monetary policy in response to strong economic growth and rising inflation pressures by increasing bank reserve requirements and imposing curbs on lending. A more tepid economic recovery in Europe led to credit problems surfacing in Greece, where the budget deficit is equal to 12.7% of GDP. The U.S. dollar continued its recent advance against the Euro, closing January at $1.38 dollars-per-Euro, an improvement from $1.43 at year end. On the domestic front, the Obama Administration’s health care reform took a serious blow when Massachusetts elected Republican Senator Scott Brown to fill the seat left by the late Ted Kennedy. President Obama used his first State of the Union address to focus on the need for job creation to spur economic growth.
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The Stock Market
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Dow Jones Industrial Average YTD Total Return: -3.3%
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|
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Standard & Poor’s 500 Index YTD Total Return: -3.6%
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Despite a strong first two weeks for the stock market, the S&P 500 ended the month of January down 3.6%. Rhetoric out of Washington seemed to spook the market as investors grappled with the uncertainty of new government proposals. The Obama Administration announced a plan to levy a fee on large financial institutions that would raise about $90 billion over 10 years. The money would be used to cover the cost of the Troubled Asset Relief Program and reduce the federal deficit. The best performing sectors of the market for January were healthcare, industrials, and consumer staples. Information technology, telecommunication, and materials underperformed for the month.
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The Bond Market
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Federal Funds Rate: Target 0% - ¼%
10-Yr US Treasury Yield: 3.6%
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|
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Barclays Intermediate-Term US Gov’t Bond Index: YTD +1.4%
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The 10-year U.S. Treasury yield decreased slightly during the month as investors looked for safety from turbulent equity markets and sovereign debt troubles brewing in Europe. The Congressional Budget Office forecast that the 2010 U.S. budget deficit would be $1.35 trillion, only a slight improvement from the record $1.40 trillion in 2009. The Senate voted to lift the government borrowing limit by a record $1.9 trillion, bringing the total to $14.3 trillion. Federal, state, and local borrowing needs are estimated to exceed $2 trillion in 2010, increasing the risk of “crowding out” in debt markets.
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