Through the close of the market on Thursday, Feb. 10, 2011, the Standard & Poor’s 500 Index closed at 1321; the Dow Jones Industrial Average closed at 12,229, and the NASDAQ closed at 2790. Year-to-date, both the S&P and Dow are up more than 5%, which we are excited to see.
There was an article in the Financial Times this week about Goldman Sachs (NYSE: GS) attempting to spend its excess capital, but the increased interest in riskier assets has made it difficult for the global investment bank to find bargains. We are also seeing the money supply increasing, as banks are putting excess reserves to work in the form of loans to both individuals and small businesses.
While last Friday’s unemployment rate fell from 9.4% to 9%, the seemingly good news merely was due to a decline in the labor force. January’s payroll numbers increased by only 36,000, which was far below the expectations of a 150,000 gain. We have explained before, the economy needs to add 100,000 jobs per month to keep up with population growth, so this news was very disappointing.
Monday’s consumer credit report showed Americans’ credit-card debt rose for the first time since 2008. We agree that this should be a sign that American consumers are growing more confident about the economy and opening their wallets wider. Outstanding consumer credit increased by a strong $6.1 billion in December, bringing the total to $2.41 trillion. Another strong economic sign came Tuesday, when chain store sales posted their first gain of 2011, despite adverse weather conditions keeping many shoppers at home. Year-over-year growth improved to 2.5%.
Interest rates continued their sharp rise of recent weeks with the two-year Treasury rising to 0.81%; the five-year Treasury is yielding 2.34%, and the 10-year Treasury is at 3.67%. The spread between the two-year and the 10-year is higher than it has been in a while, putting banks in a profitable position to borrow at short-term rates and lend at long-term rates.
The increase in interest rates is also an indication the market is expecting a bit of inflation, which we are also seeing in commodity prices. PepsiCo (NYSE: PEP) reported Thursday, that income fell 5% as a result of higher costs and subsequently cut its earnings forecast on a dim view of the economy. Earnings fell to $1.37 billion, down from $1.43 billion last year. Coca-Cola Enterprises, Inc. (NYSE: CCE) and Toyota Motor Corporation (NYSE:TM) also cited increased costs in their earnings reports.
Information technology leader Cisco Systems, Inc. (NASDAQ: CSCO) stated it earned $1.5 billion or $0.27 a share, down 18% from the same quarter a year ago. Cisco stated that their consumer business segment hurt their numbers and business sales to cash-strapped governments were down. This is not surprising, as state governments are reporting they are still tightening the purse strings, despite increases in tax revenues. We feel cloud computing will play a role in the company’s future; however, there are other more hungry players in that market. Shares of the stock plummeted after its outlook once again disappointed investors.
The Walt Disney Company’s (NYSE: DIS) first-quarter profit beat analysts’ estimates after an increase in attendance at its resorts and advertising sales growth at ESPN. Income rose to $1.3 billion, or $0.68 a share from $0.44 a share a year earlier. Profits beat the $0.58 a share expected estimates, sending Disney shares up 5% on the news.
Overall, a strong week despite the disappointing jobs report from Friday, Feb. 4th.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
