The week that was:
Volatility returned to global markets this week as fears over unrest in Egypt sent stocks reeling Friday to their biggest one-day decline in months and put an end to the market’s eight-week win streak. Oil prices surged almost 5% on the news.
On Thursday, S&P cut Japan’s long-term sovereign credit rating to AA minus because it “expects Japan’s fiscal deficits to remain high in the next few years, which will further reduce the government’s already weak fiscal flexibility.” This news came out even as it was reported that Japan’s trade surplus more than doubled in 2010 and exports to key trade partner China hit a record high.
US GDP grew at a 3.2% annual rate in the fourth quarter, which was below the forecast of 3.5%. This was the sixth consecutive monthly expansion, and it pushed the American economy above an important psychological threshold: real output is finally above the pre-recession peak (after three years).
The Federal Reserve announced on Wednesday that interest rates will remain at record lows for the time being. They will also continue on course with the $600 billion Treasury-buying program.
Stocks:
The S&P 500 fell 7.01 points this week, or 0.55%, to 1276.34. The Nasdaq Composite fell 2.65 points, or 0.10%, to 2686.89. The Dow Industrials fell 48.14 points, or 0.41%, to 11823.70. Friday’s 1.79% drop in the S&P marked the biggest point and percentage drop since August 11, 2010.
- Netflix (NFLX) shares rose 19.72% on the week after the company issued a first-quarter forecast that easily exceeded Wall Street’s expectations. NFLX reported 63% subscriber growth YOY much to the dismay of short-sellers. As recently as December 31st, over 30% of the float was short. My NFLX long put options are also feeling the pain at this point in time.
Bonds:
| End of week bond yields: |
| 3 Month yield = 0.12%, down 1 bps from last week. |
| 2 Year yield = 0.54%, down 7 bps from last week. |
| 3 Year yield = 0.93%, down 11 bps from last week. |
| 5 Year yield = 1.92%, down 9 bps from last week. |
| 10 Year yield = 3.32%, down 9 bps from last week. |
| 30 Year yield = 4.53%, down 3 bps from last week. |
Here is a good rebuttal to Meredith Whitney’s bearish case on the muni market:
What to look for next week:
7:30 AM Monday Personal Income and Outlays
9:00 AM Tuesday ISM Manufacturing Index
7:30 AM Thursday Jobless Claims
7:30 AM Friday Employment Situation
- Economists expect nonfarm payrolls to increase by 140,000 new jobs in January, after a gain of 103,000 in December.
Earnings will also continue, with results due out from Exxon Mobil (XOM), MasterCard (MA), and Pfizer (PFE).
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