April 19, 2013
Yesterday, a historic event occurred: The S&P 500 broke through its 50-day moving average. This has only happened 13 times over the past decade. What does this mean? Well, the market is officially oversold.
But before you cue the doomsday music, know this: If history repeats itself, Wall Street will likely bounce around over the next few weeks before firming up sometime next month. On the handful of other times that the S&P 500 has broken through this average, the index climbed an average of 0.07% the following week and 2.18% the following month. So I see the current pullback as a buying opportunity.
One thing that is clearly weighing on investors' minds is sputtering economic recovery in the U.S. The economic news this week was largely mixed, but before we get to that, let's highlight this week's key takeaways from Wall Street:
In March, the Consumer Price Index (CPI) declined 0.2%, compared to analyst expectations of a 0.1% drop. Gas prices fell 4.4%, reversing part of February's 9.1% gain. Excluding the volatile food and energy categories, core prices rose 0.1%. In the 12 months ending in March, they rose 1.9%. That's below the Federal Reserve's inflation target of 2%. Except for the jump in February, consumer prices have consumer prices have declined or been unchanged in four of the past five months. In the past year, consumer prices have risen 1.5%. That's the smallest yearly increase in the past eight months and it gives the Fed more leeway to keep the monetary pump on.
In March, housing starts rose 7% from upwardly revised February figures to a seasonally adjusted annual rate of 1,036,000. This was 46.7% higher than March 2012 and sharply higher than the consensus estimate of a 935,000 rate. In addition, February housing starts were revised to an annual rate of 968,000 from 917,000.
Building permits were down slightly, dropping 3.9% from February to a seasonally adjusted annual rate of 902,000, although they were up 17.3% from March of last year. Multifamily building was up in March, but single-family housing starts dropped 4.8% compared with the previous month. So there's going to some volatility in the housing market, but overall we have plenty of room for upside here.
In March, industrial production grew 0.4%, slightly above the 0.3% consensus estimate. Meanwhile, industry capacity utilization rose to 78.5% from 78.3% in the previous month. This means that firms are using the most of their resources in five years. Rising industrial production is definitely a plus, but the latest better-than-expected figures were entirely due to robust utility production. In addition, the Fed's manufacturing numbers are consistent with other figures showing that factories are struggling to post consistent gains. So we're likely to continue this up-and-down trend for a while.
The Labor Department announced that new jobless claims ticked up 4,000 to an annual rate of 352,000. This was largely in line with economist expectations. Meanwhile, the four-week moving average edged up by 2,750 to 361,250. Despite this weekly increase, the four-week average continues to remain near its lowest level in five years and it's likely to fall further in the next few weeks as the effects of the end-of-March spike fade. And while hiring remains somewhat stagnant, this gives the Fed room to continue with its efforts to reduce the unemployment rates to 6.5%.
In March, the Leading Economic Indicators (LEI) declined 0.1% to 94.7, following a 0.5% increase in February, and a 0.5% increase in January. This was slightly below economist expectations for the LEI to be flat. This breaks the three-month streak of gains in the LEI—a 0.5% in February and January and a 0.4% gain in December. So the overall picture here is of a continued slow-growth economic environment that has some headwinds ahead of it. But overall, I'm expecting for this to perk up again once some of the government spending cuts get shaken out of the system and the private sector starts to heat back up again.
Have a nice weekend,