European Fears Drive Investors to U.S. Treasurys

For the week of Monday, December 12, 2011 through Friday, December 16, 2011

• Standard & Poor’s 500 Index: -2.83%
• Dow Jones Industrial Average: -2.61%
• NASDAQ Composite: -3.46%

The U.S. indices slipped a little this week, as the financial crisis in Europe weighed on the markets. Following a deal last Friday that was supposed to save the eurozone, stocks and the euro sold off early in the week. The ticking time bomb hanging over Europe is the potential downgrade of European debt by Standard & Poor’s rating agency.

Fear of a European recession has pushed many investors into safe haven assets like U.S. Treasurys, and as a result, interest rates fell significantly this week. The U.S. dollar strengthened against many currencies and commodities fell. Gold lost roughly 7% this week.

We feel the overall economic picture remains positive domestically. Retail sales rose in November, albeit at a slower pace. Producer prices inched up as well last month, while industrial production fell slightly. The Federal Open Market Committee announced they will maintain the current monetary policy. The economic recovery has continued, but the unemployment rate remains uncomfortably high while inflation is expected to slow in the coming months.

European News

• Following last week’s sovereign-debt summit, Moody’s and Fitch joined S&P and downgraded European debt.
• The rating agencies feel that the summit did “little to ease pressure” on the debt crisis.
• The Euro currency lost value as investors fled to the safety of the U.S. dollar.

Industrial Production

• Following October’s 0.7% rise, November’s industrial production fell 0.2%.
• Posting the first decline since April, manufacturing output dropped 0.4%.
  • Part of the disruption was due to flooding in Thailand, where many auto parts suppliers are located.
  • Factoring out automotive production, manufacturing output fell 0.2%.
• Mining and utilities production edged higher in November.

Retail Sales

• Sales tailed off a bit in November rising just 0.2%, the slowest rate since June.
• This is far less than data from September and October, which show increases of 1.3% and 0.6%, respectively, after upward revisions.
• Appliance, electronics stores and non-store retailers were the only segments to show growth of more than 1%.
• Building supply stores, grocery stores and restaurant sales declined.
• Year-over-year growth slowed to 6.7%.

Jobless Claims

• Initial claims surprisingly fell to 366,000 from 385,000.
• Claims from two weeks ago were revised higher to 385,000 from 381,000.
• Claims have fallen to the lowest level in three years; however, this is likely due to seasonal hiring for the holidays.
• Continuing unemployment claims rose 4,000 from the previous week.

Earnings

• Intel Corporation (NASDAQ: INTC)
  • Intel cut fourth quarter revenue guidance on Monday, expecting it to be between $13.4 billion and $14 billion.
    • Flooding in Thailand caused hard-drive shortages, which has affected PC producers.
    • PC sales have fallen since inventory can not be rapidly replenished.
  • Analysts expect revenue of $14.65 billion.
  • Shares fell 4% on the news, and the microchip sector dropped with Intel.
• Best Buy Co, Inc (NYSE: BBY)
  • Best Buy chose to slash prices this holiday season to offer value and generate traffic in stores.
  • Income for the electronics retailer fell 29% as the company struggles to compete with online retailers and discount stores.
    • Net Income fell to $154 million from $217 million last year.
    • Excluding one-time items, adjusted earnings per share were $0.47 per share, well below analysts’ expectations of $0.52 per share.
  • Revenue rose to $12.1 billion over last year’s $11.9 billion.
  • Same-store-sales rose 1%, mostly because of a 20% increase in online revenue.
  • Shares fell 15% on the news.
• FedEx Corporation (NYSE: FDX)
  • Beating expectations for the quarter, FedEx nearly doubled its earnings, aided by strong home deliveries during the holiday season.
  • FedEx earned $497 million, or $1.57 per share, beating last year’s $283 million at $0.89 per share.
    • However, last year’s quarter included business unit combination and legal reserve charges of $0.27 per share.
  • Analysts expected earnings of $1.53 for the quarter.
  • Revenue increased 10% to $10.59 billion.
  • Shares rose 5% on the news.

Interest Rates

• The two-year Treasury increased two basis points to 0.24%, the only increase this week.
• The five-year Treasury fell three basis points to 0.86%, closing in on the all-time low of 0.78%.
• The 10-year Treasury slid 14 basis points to 1.91%, dropping under 2% and within striking distance of September’s low 1.72% rate.
• The 30- year Treasury yield sank 19 basis points to 2.91%.

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.