MarketView for February 9

 

 

Summary

 

Stocks were up moderately for a third straight day on Thursday after Greece reached a deal to secure a financial bailout, but he Street remained cautious, having been through this drill before. Skepticism that Greece would follow through on promised austerity measures kept investors hesitant to dig deeper into equities.

 

The market's steady march higher left many reluctant to buy aggressively without evidence of a significant catalyst that would help to continue to push shares up even farther. Well over 75 percent of S&P 500 stocks are trading above their 26-week moving average, according to Thomson Reuters data. The index has finished higher on six of the last seven trading days.

 

Leaders from major Greek parties agreed on reforms and austerity measures needed in exchange for a new bailout package to avoid a chaotic default. Euro zone officials say the full package must be agreed with Greece and approved by the EU, IMF and European Central Bank by February 15, so legal paperwork can be completed in time to avoid a chaotic default that could destabilize the global financial system.

 

Providing support to the market was a report showing jobless claims fell last week, underscoring improvement in the labor market. That followed Friday's report of a better-than-expected rise in the number of jobs created in January.

 

Looking at some individual companies, Apple's shares rose 3.5 percent to $493.17, hitting an all-time high of $496.75 earlier in the day. AllThingsD said Apple would introduce its latest iPad tablet version next month.  In other technology news, Cisco Systems limited gains by the tech sector as the network equipment maker's forecast failed to impress. Cisco ended the day down 2.1 percent to close at $20.

 

PepsiCo slid 3.7 percent to $64.27 after the beverage maker forecast lower-than-expected 2012 earnings and said it would cut thousands of jobs. Groupon was down 14 percent to $21.17. The daily deal website posted an unexpected loss in the first quarterly report since it went public. Diamond Foods fell 37 percent to $23.13 after the company removed its top management and said it would restate results due to improper accounting of payments to walnut growers. LinkedIn closed out the day with a gain of 6.3 percent to $81.18 after the bell on fourth-quarter revenue that beat expectations.

 

About 7.30 billion shares changed hands on the three major equity exchanges, a number that was slightly below last year's daily average of 7.84 billion shares.

 

Wholesale Business Inventories Rise

 

Wholesale businesses increased their stockpiles sharply in December although the gains are expected to slow in coming months, a development that could curb overall economic growth.

 

The Commerce Department says wholesale businesses boosted inventories by 1 percent in December after no increase in November. The rise came as sales rose 1.3 percent, the best showing in nine months and more than double the 0.5 percent November sales gain. The gain pushed stockpiles to $473.9 billion, 22.5 percent above their 2009 lows.

 

Strong inventory growth was a major factor boosting growth in the final three months of the year, but this trend is expected to slow in the early part of this year. That is a major reason economists are looking for slower overall economic growth in the current January-March period.

 

Unemployment Claims Decline Again

 

According to a report released by the Labor Department Thursday morning, the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, underscoring a firming of the labor market. Initial claims for state unemployment benefits were down by 15,000 claims to a seasonally adjusted 358,000 claims. The four-week moving average for new claims, seen as a better measure of labor market trends, fell 11,000 to 366,250 - the lowest level since April 2008.

 

The claims data pointed to building strength in the labor market. The economy has had two straight months of job gains above 200,000 and the unemployment rate dropped to a three-year low of 8.3 percent in January.

 

Solid employment gains and strong manufacturing activity have prompted analysts to temper their expectations of a sharp slowdown in growth in the first quarter after a brisk 2.8 percent annual pace in the final three months of 2011.

 

The upbeat data have raised doubts about the Federal Reserve's expectation that it could hold interest rates near zero at least through late 2014 and reduced the odds of a third round of bond buying to spur the recovery.

 

Last week's decline in both new applications for jobless benefits and the four-week average pushed them closer to the 350,000 mark that many believe signals sustained labor market strength.

 

A Labor Department official said there was nothing unusual in the state-level data and that no state had been estimated.

 

Nonetheless, the labor market recovery still has a long away to go. About 23.8 million Americans are either out of work or underemployed and there is no job for nearly three out of every four unemployed people. The number of people still receiving benefits under regular state programs after an initial week of aid rose 64,000 to 3.52 million in the week ended January 28.

 

The number of Americans on emergency unemployment benefits fell 21,789 to 2.99 million in the week ended January 21, the latest week for which data is available. A total of 7.66 million people were claiming unemployment benefits during that period under all programs, up 7,982 from the prior week.

 

White House Says It was Too Pessimstiic

 

Drawing on a string of improved economic data, advisers to President Obama have updated their forecasts in recent days and now project that the economy will create two million jobs this year if stimulus measures are extended, which could reduce the unemployment rate to about 8 percent by year’s end.

 

Alan Krueger, chairman of the president’s Council of Economic Advisers, confirmed the revised projection for the economic figure. Mr. Krueger said the forecast was updated because the projection that will be published in the president’s annual budget, to be released on Monday, was already “stale and out of date.”

 

The budget will project an average unemployment rate of 8.9 percent for 2012 and 8.6 percent for next year, based on economic conditions that prevailed in mid-November. But unemployment in January surprisingly dropped to 8.3 percent, for the fifth straight monthly decline, suggesting a downward trend that would have to reverse sharply to produce an annual average of 8.9 percent.

 

Since the initial forecast last November, Mr. Krueger said, “we learned that the unemployment rate has fallen by an impressive 0.8 percentage point over the last six months and other job market indicators have improved.”

 

He added, “Private sector forecasters have shaved about half a percentage point from their 2012 unemployment rate forecast in response to the improvement in the job market since we made our forecast.”

 

One such private forecaster, the chief economist at Moody’s Analytics, Mark M. Zandi, said he now expected unemployment to be near 7.9 percent at the end of the year and 7.3 percent at the end of next year. And the co-founder of Macroeconomic Advisers, Chris P. Varvares, said his firm had reduced its forecast for the year’s average to an 8.2 percent unemployment rate from 8.9 percent.

 

Mr. Krueger said the administration’s new outlook depended on the passage of Mr. Obama’s economic stimulus proposals, chiefly an extension through the year of a temporary payroll-tax cut and assistance for the long-term unemployed. Those measures expire at the end of the month, and negotiations to extend them have been at a near-impasse between Democrats and Republicans in Congress.

 

Private sector forecasters have said that ending the two percentage point reduction in payroll taxes and the emergency jobless aid could subtract about 1 percent from economic growth.

 

The administration forecast also depends on the country avoiding the sort of global headwinds that have stalled the recovery in each of the last two years, including another flare-up of the European debt crisis or war in the Middle East.

 

“If the president’s job creation proposals are passed in full, and if we can avoid the types of shocks that slowed the recovery in early 2011, the unemployment rate could easily be below 8 percent a year from now,” Mr. Krueger said.

 

The two million jobs that the administration will project for 2012 compares with a net addition of 2.2 million jobs in the last 12 months, and 3.7 million added in 23 months of net job growth. But, with more than eight million jobs lost since the recession began in December 2007, stronger growth is needed to restore employment to pre-crisis levels.

 

Inflation Rises In China

 

China's inflation rate rose in January, which may dash hopes that the country's central bank will soon take more action to support economic growth there.

 

Consumer prices rose 4.5 percent over a year ago, China's National Bureau of Statistics reported Thursday, marking a pick-up from a 4.1 percent inflation rate the month before.