Markets ignore weak retail sales, jobs data

Traders and investors largely ignored more evidence of a weakening U.S. economy on Thursday, sending stock and bond prices higher. Both asset classes opened lower on a weaker than expected January retail sales report and higher than forecast unemployment claims for the latest week but immediately moved higher, with all three major equity indexes crossing into the green by 11:00 AM. Stocks extended their gains the rest of the day and closed at or near their highs of the day. NASDAQ led the gains with a 0.9% rise while the S&P 500 rose 0.6% and the Dow followed with a 0.4% increase. All 10 sectors of the S&P rose, led by a 1.2% rise in utilities, no doubt helped by the huge winter storm that hit the East Coast, and a 1% gain in telecom. That sector got a boost from the 7% jump in Time Warner Cable, which agreed to be acquired by Comcast, which dropped 4%. Small cap stocks did best of all, as the Russell 2000 jumped 1.4%.

After falling initially, Treasury bond prices also ended higher. The price of the 10-year T-note rose about ½ point to lower its yield five basis points to 2.72% after hitting 2.78% earlier in the session. The government sold $16 billion of new 30-year bonds at a yield of 3.69%, the lowest rate since last August. Permanent investors bought nearly 70% of the issue. In secondary market trading, 30-year bonds jumped ¾ point to lower their yield four bps. Federal Reserve Chair Janet Yellen’s second day of testimony before Congress was postponed due to the storm.

The January retail sales report was much weaker than expected, while weekly jobless claims were higher than forecast. Retail sales dropped 0.4%, well below the consensus forecast of a 0.1% decline and the most pessimistic forecast of a 0.3% drop. It was the biggest monthly decline since June 2012. To make matters worse, December sales were revised downward to show a 0.1% decline, reversing the 0.2% increase originally reported. Weak car sales were blamed for the declines in both months; excluding autos, January retail sales showed no change while December sales were up a downwardly revised 0.3%. The report suggests that fourth quarter GDP was not as robust as reported and that the first quarter may not be as strong as expected. Weekly unemployment claims rose 8,000 to 339,000. The Street had been expecting little to no change from the previous week.

European stocks were largely mixed but Asian stocks were broadly lower on profit-taking following recent strong gains. The Stoxx Europe 600 recorded a 0.2% decline despite a 0.6% rise in German stocks and 0.2% gains in France and Spain, but Italian stocks were down by that amount. Sovereign bond prices were up along with U.S. Treasurys. In China, both Hong Kong and Shanghai-traded stocks were down about a half percentage point while Japan’s Nikkei 225 fell 1.8%. Hong Kong stocks had gained more than 3% during the previous two sessions while Shanghai had been up 3.8% so far this month. The Nikkei had climbed 4.6% in the previous three sessions. India’s Sensex dropped 1.3%.

Reports/dates/facts/links worth paying attention to over the next week:

  1. February 14: Industrial production for December; University of Michigan consumer sentiment index for February.
  2. February 17: U.S. markets closed for Presidents’ Day.
  3. February 18: National Association of Home Builders housing market index for February; Empire State manufacturing survey for February.
  4. February 19: Housing starts for January; producer price index for January; minutes of the Federal Open Market Committee’s January 29 meeting released.
  5. February 20: Consumer price index for January; weekly unemployment claims; leading indicators for January; Philadelphia Fed survey for February.
  6. February 21: Existing home sales for January.

Copyright © 2014 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.

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