Timing & trends
The economy may finally have a clear runway for takeoff in 2014.
There are some clear signs of improvement. While still too high, the unemployment rate is now at a five-year low of 7 percent, and companies are hiring at an annual pace of 2.3 million. Consumers feel better about spending, buying big ticket items like cars, and mortgage debt rose in the third quarter for the first time since the first quarter of 2008. Auto sales in November soared to a surprise annualized selling rate of 16.4 million, the highest level since February 2007.
To be sure, there have been a series of fits and starts in the five years since the financial crisis, and there is still a mood of pessimism that the economy just can’t click into gear and that growth will not achieve a velocity higher than a sluggish 2 percent.
“We’ve had some good excuses in the last few years with the European sovereign risk and fiscal drag. The European drag has faded, and the fiscal drag is set to fade,” said Bruce Kasman, chief economist at JPMorgan. His forecast is that growth picks up in the coming year, reaching 3 percent by the second half and then staying at the higher pace for a while.
“I think if we don’t get lift this year, if we can’t get growth with a 2.83 10-year yield, and we’re not seeing the benefits of fiscal drag fading, we’re going to have to ask some very difficult questions about what’s going on beneath the surface,” Kasman said. “That’s the central story. Obviously interest rates are part of the picture; behavior is part of the picture, and the global economy is part of the picture.”
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I have divided up the cyclical seasonal strategies, such as metals & mining, materials and industrials, into two seasonal legs. The first leg starts in October/November and ends at the end of December/beginning of January, and the second leg starts in late January. Although there is only a few weeks in between the seasonal periods, in these weeks the sectors often underperform the S&P 500. This is not a call for investors to exit the markets, but for those more nimble investors to rotate into broad market exposure on a short-term basis. If the cyclical sectors have strong momentum at the end of December and are outperforming the S&P 500, seasonal investors can continue to hold positions in the sectors. There is never anything wrong with running back to the broad market on a temporary basis while the sector action establishes its seasonal patterns.
MARKET UPDATE: S&P 500 Technical Status
The S&P 500 is still reaching all time highs and is currently in an overbought condition. Despite the market being overbought, it does not mean that a correction will take place. The graph below is almost identical to the graph last month. Technically speaking, the trend of higher highs and higher lows is still in place, and until it is broken, the price pattern of the S&P 500 is still considered to be bullish. We are currently in the sweet-spot of the six month favourable season: the three strong contiguous months of November, December and January. Seasonal investors should continue to take advantage of the positive trends at this time of the year.
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(Reuters) – The euro inched higher against the dollar on Wednesday, driven by dwindling excess cash in the euro zone banking system, but fell against the yen as investors locked in profits from this year’s rally.
The euro was up 0.1 percent against the dollar at $1.3767, not far from the six-week high of $1.3795 it hit on Tuesday. It was 0.2 percent down against the yen at 141.15 yen but up 23 percent this year.
The single currency has shrugged off some poor recent economic data – particularly inFrance, where industrial output is declining – to surprise many analysts and move higher since the summer.
A key driver has been tighter money markets, as banks repay borrowing from the European Central Bank. Liquidity usually tightens towards the end of the year anyway, when banks hold off from lending to each other.
And the ECB’s unwillingness to ease monetary policy soon, despite inflation low enough to prompted talk of deflation, has seen a rise in two-year swap rates.
This year, another factor driving euro strength is European banks repatriating funds to shore up their capital bases before an ECB Asset Quality Review (AQR).
“There still seems to be decent underlying euro support,” said Simon Smith, head of research at FxPro. “We’re still seeing money market rates moving higher.”
He said the euro could hold “around the upper 1.30s level” early next year. It might weaken fall after the AQR, but Smith expects it to fall less against the dollar than other currenciesdecline when the U.S. Federal Reserve begins slowing its huge bond-buying program.
One-year risk reversals – which compare demand for options on a currency’s rising or falling – show a bias for euro puts, or bets that it will weaken. That suggests many speculators think the rally will not last.
The euro also took heart from news that euro zone countries were edging towards a deal on how to handle ailing banks. Divisions remain over key parts of the reform, which is needed to underpin confidence in the bloc’s lenders.
The Swiss franc hit a seven-month high against the euro of 1.22055 francs per euro in early trading, before falling back to 1.22150 francs per euro, as banks repatriated francs.
The yen rose for a second day as global stock markets fell and investors locked in profits. The dollar was 0.3 percent lower against the yen at 102.55 yen.
Global shares were lower on Wednesday, as investors booked profits on a range of once-crowded positions. The Nikkei .N225 and the yen tend to move in opposite directions, with a rally in the index a signal for speculators to sell the yen. A weaker currency then boosts Japanese exports, which helps shares.
Both the euro and the dollar have rallied strongly against the yen this year thanks to the Bank of Japan’s ultra-loose monetary policy and expectations that it will provide even more stimulus next year.
“It’s a bit of profit-taking from high levels,” said Peter Kinsella, a currency strategist at Commerzbank.
Analysts at Morgan Stanley said they remain bullish on dollar/yen over the longer-term but added: “We … note that the current uptrend is showing some signs of exhaustion, suggesting that it would not take too big a shock to trigger a correction of the strong gains seen over the past year.”
The dollar showed little reaction to news that budget negotiators in the U.S. Congress have reached a two-year deal aimed at avoiding a government shutdown.
U.S. stocks were little changed, with the Standard & Poor’s 500 Index near a record, as investors considered whether a Congressional budget accord will prompt theFederal Reserve to pare back stimulus.
The S&P 500 (SPX) gained less than 1 point to 1,802.82 at 9:30 a.m. in New York.
“The hurdle of the budget deal has been passed and it will affect the Fed’s decision to taper in the coming months as that uncertainty has subsided,” Chad Morganlander, a Florham Park, New Jersey-based fund manager at Stifel Nicolaus & Co., which oversees about $150 billion of assets, said by phone. “Today’s trade and in the coming weeks will be all about Federal Reserve positioning and when and how large their taper will be.”
The S&P 500 fell 0.3 percent yesterday after reaching a record 1,808.37 the day before. Fed stimulus has helped propel the benchmark gauge higher by more than 166 percent from its bear-market low in 2009. The index has rallied 26 percent this year and is challenging 2003 for the biggest annual jump since 1998.
Investors are considering when the central bank, which meets next week, may reduce the pace of its monthly bond buying. Fed officials cited the drag from fiscal policy in their Oct. 30 statement and Jeffrey Lacker, president of the Richmond Fed, said in a speech Dec. 9 that budget uncertainty is weighing on business investment decisions.
To read about the Budget Deal Go HERE
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