North America’s major stock market indices performed exceptionally well in January.
NASDAQ was the leader, jumping 8.0% in the month. It was followed by the S&P 500 (+4.3%), the Toronto Stock Exchange (+4.2%) and Dow Jones Industrials (+3.4%).
The huge profits reported by Apple Inc., due to sales of its iconic iPods, iPhones and iPads, set the pace for the high-tech sector. Other knowledge-based firms have been pulled along in Apple’s wake.
It hasn’t all been smooth sailing, though. Earnings reported by Amazon, despite that company’s dominance in the new world of digital publishing, were less than expected.
Nevertheless, technology is where the new jobs are originating. One factor accounting for Amazon’s weaker than expected profit was the dramatic increase in hiring by the company, a course of action intended to drive future revenue growth.
And the S&P 500 has been taking flak for not being particularly robust over a long period of time.
Yes, there have been a couple of upswings that have rewarded some investors handsomely. But there have also been declines, so much so that the S&P 500 currently stands at a level no higher than what was achieved way back in 1999.
That’s a gripe for another day. It’s more interesting to consider how the indices have performed since the recession.
Compared with February 2009’s trough, NASDAQ is +104%, DJ industrials and the S&P 500 are +79% and the TSX is +53%.
There was a secondary weak spot for all four indices in early October of last year.
Since then, the three U.S. indices are +22%. That’s a resounding gain. It must be making many investors quite happy.
Over the same four-month period, the Toronto Stock Exchange has also risen, but by a more modest 15%.
Recent news about the U.S. economy has been mainly positive, but it does vacillate.
The net increase in employment in December was 200,000 jobs. Also, initial jobless claims have been much more restrained on a weekly basis – between 380,000 and 400,000 – for the past four months.
The figure was north of 500,000 throughout the recession.
U.S. gross domestic product (GDP) growth in the final quarter of last year was +2.8%. The quarterly rate accelerated throughout the 12 months of 2011.
Manufacturing has been on a tear. The January Purchasing Manufacturers Index (PMI) of the Institute of Supply Management (ISM) rose for the third consecutive month in January to 54.1.
A PMI value above 42.6% indicates growth in the overall economy, but manufacturing may not be sharing in the good times. For that to happen, the PMI needs to be 50% or greater.
The PMI has been above 50% for 30 months in a row. Based on historical comparisons, the present PMI level corresponds with a “real” (i.e., inflation-adjusted) GDP growth rate of 3.9%.
That’s more optimistic than most analysts’ forecasts for the U.S. economy.
The world economic slowdown, beginning in Europe and spreading to China, is expected to lower U.S. GDP change in 2012 to between +2.0% and +2.5%.
Concerns have been showing up in a couple of areas.
According to the Conference Board, consumer confidence in January fell back slightly from a reading of 64.8 in December to 61.1 in January. Since the recession, the highest the index has reached was 70.4 almost a year ago, in February 2010.
The December incomes report from the Bureau of Economic Analysis showed a good month-to-month rise in earnings, but spending by consumers declined (-0.1%). The extra money went into paying down debt, as the savings rate rose to 4.0% from 3.5% in November.
And home prices continue to act as a drag on the economy. S&P Case-Shiller’s home price index for November recorded 1.3% declines for both the 10-city and 20-city composite indices. On a year-over-year basis, U.S. existing home prices are nearly -4.0%.
There’s still a substantial backlog of vacant, foreclosed and under-water (i.e., in terms of market value versus mortgage outstanding) U.S. homes that needs to be worked off.
The Toronto Stock Exchange has been lagging the other major indices because of lowered expectations for raw materials demand and prices. Many commodities have pulled back from their earlier price peaks.
The problems of Canada’s resource sector have also shown up in the month-to-month GDP results. November recorded a decline (-0.1%) after October was flat (0.0%).
The primary reason given by Statistics Canada for November’s drop in industry-based GDP was lower energy output, due largely to maintenance shutdowns in the crude petroleum sector.
The future for commodity prices will prove particularly interesting. For many parts of Canada, especially in the West and the Atlantic Region, it’s a positive that one commodity, crude oil, is maintaining a relatively strong price level.
On the other hand, the possibility of another round of gasoline price hikes is already being met with concern by consumers both north and south of the border.
|INDEX||52-WEEK LOW||52-WEEK HIGH||YEAR AGO
(JAN 31, 2011)
(DEC 30, 2011)
|Latest Month-end Closing Prices
(JAN 31, 2012
|PER CENT CHANGE,
|52-WEEK LOW||52-WEEK HIGH||YEAR AGO||MONTH AGO|
| Dow Jones Industrials
|Oct 4 11 10,362||May 2 11 12,928||11,892||12,218||12,633||21.9%||-2.3%||6.2%||3.4%|
S & P 500
|Oct 4 11 1,075||May 2 11 1,371||1,286||1,258||1,312||22.0%||-4.3%||2.0%||4.3%|
|Oct 4 11 2,299||May 2 11 2,888||2,700||2,605||2,814||22.4%||-2.6%||4.2%||8.0%|
|S & P/TSX Composite
|Oct 4 11 10,848||Mar 7 11 14,329||13,552||11,955||12,452||14.8%||-13.1%||-8.1%||4.2%|