Strong Week for the Markets as Central Banks Pledge to Avoid a Lehman-Style Collapse in Europe

For the week of September 12, 2011 through Friday, September 16, 2011

• Standard & Poor’s 500 Index: 5.35%
• Dow Jones Industrial Average: 4.70%
• NASDAQ Composite: 6.25%

This was a good week for the market with all five days closing on the positive side. The majority of the news came from Europe. The likelihood of Greece defaulting on its debt is almost certain. There was news that China would possibly aid Italy with purchases of Italian bonds, but nothing substantial materialized. There were riots in Rome this week opposed to austerity measures being proposed by the Italian legislature. Many European countries are pledging to assist Greece and European banks, but time will tell if they take the steps to help. Several central banks have pledged to add liquidity to the European banking system in order to avoid a Lehman-type incident.

On this side of the pond, the Consumer Price Index showed that inflation was steady from July after analysts expected it to subside a little. The Producer Price Index remained flat as well. The discouraging news came from the employment picture. Jobless claims continue to rise and revisions to previous weeks are on the rise as well. Unemployment in the United States continues to drag on the economy. Investors now realize the bargain prices on stocks and are leaving safe haven assets to take on more risk and higher returns. So far, no news has had a large negative impact on the market. We expect it to continue to rise, albeit rather slowly as growth returns.

Economic Data

• European Debt Crisis
  • Five central banks have banded together to provide liquidity to the European banking system.
    • The U.S. Federal Reserve;
    • The Bank of England;
    • The Bank of Japan, and
    • The Swiss National Bank joined with the European Central Bank.
• This will be done with “dollar liquidity operations” to help avoid a “Lehman Brothers moment.”
• The news has driven the market higher to close out the week.

• Producer Price Index (PPI)
  • The PPI for August remained flat, which surprised analysts, who were expecting a drop.
  • The energy goods index dropped, while the finished goods index rose more, balancing the decline.
  • Core finished goods’ prices showed a decrease in inflationary pressure.
  • However, inflation remains moderate in the earlier production stages.

• Consumer Price Index (CPI)
  • CPI for the month of August rose 0.4%, which was somewhat unexpected and just under July’s reading.
  • Food, gasoline, shelter and apparel all contributed to the jump.
  • Core inflation matched July at 0.2%.
  • Continual inflation could become a problem for the Fed.

• Jobless Claims
  • Initial claims rose to 428,000 from 417,000, which was more than were expected.
  • Claims from a week ago were revised higher by 3,000.
  • Initial unemployment benefit claims have risen to their highest level since the end of July.
  • Continuing claims fell last week.
  • The rise in initial claims shows just how weak the employment situation is in this country.

• Retail Sales
  • There were no substantial gains in retail sales for the month of August.
  • Non-auto retail sales rose 0.1% in August, mostly as a result of the volatile market conditions, following the U.S. deficit debate and downgrade by Standard & Poor’s.
  • Removing automobiles, gasoline and building materials from calculations, there were no sales gains following the small gains of 0.4% and 0.3% in June and July, respectively.
  • Clothing retailers and miscellaneous goods were the biggest losers with a decrease of 0.7% and 2.2%, respectively.

Earnings

• Best Buy Co., Inc.
  • Best Buy (NYSE: BBY) shares fell 6.5% after reporting a 30% decline in profit for the quarter and lowering forecasts for the remainder of the year.
  • Best Buy’s income fell from $254 million or $0.60 per share to $117 million or $0.47 per share.
  • Guidance for 2011 includes earnings per share of $3.35 to $3.65 on sales of $51 billion to 51.2 billion.

• Cracker Barrel Old Country Store Inc.
  • Cracker Barrel (NASDAQ:CBRL) reported a 36% decrease in profit for the quarter to $17 million or $0.75 per share down from earnings of $1.14 and $27.4 million.
  • The restaurant and retailer increased their quarterly dividend to $0.25 per share, a 14% increase and approved a plan to buy back $65 million in stock.
  • Guidance for 2012 earnings per share remains below estimates of $4.24, estimated between $4.05 and $4.20 per share.

Interest Rates

• The two-year Treasury stands at 0.20% up 0.03% from the all-time low.
• The five-year Treasury jumped 16 basis points to 0.97%, after bottoming out at 0.80% last week, a new all-time low.
• The 10-year Treasury climbed to 2.07%, another 16 basis point move after creating an all-time low last week at 1.92%.
• The 30-year Treasury yield rose to 3.32%, but still down almost 1% for the year.

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.