Last week was a relatively uneventful and quiet one for the markets, with the major U.S. equity indices including the Dow, Nasdaq, and S&P 500 all declining modestly. Despite some daily volatility, the markets remain in a relatively tight trading range, consolidating around the 1100 level on the S&P 500. With lack of a breakout in either direction, the S&P 500 has traded at or close to the 1100 level for the past four months. As we have stated before, consolidation is a healthy phenomenon for the markets, particularly given the meteoric rise in equity prices since last March. Building a solid base at current levels can provide stability and confidence to a market where jitters still remain. The tight trading range is evidenced in the VIX, a measure of future volatility in the S&P 500, which currently rests at 19.50, just below its 20 year average of 20.24. Clearly we all wish the markets would continue higher, but consolidation is part of that process.
The economic calendar is fairly active this week and it will be interesting to see what the data says. Last week was a poor week for economic indicators as the residential housing market recovery appears to be taking another leg down, while initial jobless claims once again ticked the wrong way. Housing and unemployment go hand in hand, and unfortunately they are both struggling. While the data has been skewed by the round of winter storms affecting the Northeast and Mid-Atlantic, we can’t blame everything on the weather. We need to see steady improvement in the data and hopefully this week will commence that process. To that end, the calendar is as follows:
Monday March 1: Personal Income, Personal Spending, PCE Deflator (YoY), PCE Core (Mom and YoY), ISM Manufacturing, ISM Prices Paid, Construction Spending
Tuesday March 2: ABC Consumer Confidence, Domestic Vehicle Sales, Total Vehicle Sales
Wednesday March 3: MBA Mortgage Applications, Challenger Job Cuts, ADP Employment Change, ISM Non-Manufacturing Composite, Fed’s Beige Book
Thursday March 4: Nonfarm Productivity, Unit Labor Costs, Initial Jobless Claims, Continuing Claims, Factory Orders, Pending Home Sales, ICSC Chain Store Sales
Friday March 5: Change in Nonfarm Payrolls, Unemployment Rate, Change in Manufacturing Payrolls, Average Hourly Earnings, Average Weekly Hours, Consumer Credit
Obviously, all eyes will be on the full employment report on Friday. The headline number is always the Unemployment Rate which is surveyed to come in at 9.8%. In light of the recent jobless claims data, don’t be surprised if this number spikes higher.
In light of the weak economic data last week, treasuries rallied significantly across the curve, pushing yields lower. It is interesting that yields moved markedly lower in a week that the U.S. Treasury auctioned a record $126 billion in new treasuries. Global appetite remains insatiable as the U.S. still remains the preferred place to invest in times of uncertainty. Look for yields to continue to move lower on any weakness in the equity markets and geopolitical issues like the Greece situation which remains dubious at best.