Acropolis is a St. Louis-based, fee-only wealth management firm. We serve individual investors, institutional investors and 401k plan sponsors. We specialize in retirement planning together with 401k and IRA rollovers.
To learn more about our financial planning services, please contact us at 1-888-882-0072.
Utilities, basic materials and industrials led the rally. It seems utilities may be back with this latest extension of the ZIRP pledge as people scramble for the dividend yields the sector provides. Financials and telecoms were the biggest laggards. The Fed’s announcement isn’t going to be kind to bank margins, which had already been on the decline, as it will cause further flattening in the curve (narrowing the difference between their cost of funds and what they earn on loans).
The commodity complex had another good day (up six of the past eight sessions). Wholesale gasoline was among the leaders, hitting a multi-month high -- up 40 cents since November.
Market Activity for January 25, 2012
|
Index |
Close |
Change |
% Change |
YTD |
1 Yr Rolling % |
|
Dow Jones |
12758.85 |
+83.10 |
+0.66% |
4.43% |
6.53% |
|
S&P 500 - Large Cap |
1326.06 |
+11.41 |
+0.87% |
5.44% |
2.70% |
|
S&P 400 - Mid Cap |
944.82 |
+10.57 |
+1.13% |
7.47% |
2.34% |
|
S&P 600 – Small Cap |
444.28 |
+3.56 |
+0.81% |
7.04% |
7.08% |
|
EAFE - International |
1475.53 |
-0.72 |
-0.05% |
4.46% |
-13.76% |
|
EM - Emerging Markets |
999.60 |
+2.00 |
+0.20% |
9.08% |
-12.51% |
|
NASDAQ |
2818.31 |
+31.67 |
+1.14% |
8.18% |
3.64% |
|
REIT |
233.89 |
+2.88 |
+1.25% |
6.12% |
5.27% |
|
Barclays Aggregate Bond |
1770.90 |
+3.83 |
+0.22% |
0.06% |
7.62% |
Sector Activity for January 25, 2012
|
Index |
Day Change |
YTD |
|
Consumer Discretionary |
+0.65% |
6.45% |
|
Consumer Staples |
+1.00% |
-0.07% |
|
Energy |
+1.05% |
4.60% |
|
Financials |
+0.24% |
9.19% |
|
Health Care |
+0.67% |
3.53% |
|
Industrials |
+1.18% |
8.08% |
|
Information Tech |
+1.00% |
7.56% |
|
Basic Materials |
+1.59% |
11.11% |
|
Telecoms |
+0.31% |
-2.18% |
|
Utilities |
+1.64% |
-2.59% |
Mortgage Apps
The Mortgage Bankers Association reported that their applications index fell 5.0% last week after the 23.1% jump in the week prior. Both refi and purchase apps led the overall index lower as the former fell 5.2% and the latter by 5.4%. This breaks a two-week string of increase.
The average contract rate on the 30-year mortgage rose back to 4.11%, after falling to a record of 4.06% in the prior week.
Pending Home Sales
The National Association of Realtors (NAR) reported that their pending home sales index (another measure of mortgage apps) fell 3.5% in December; it was expected to drop just 1.0%. While down for the month, the index is up smartly from the low hit in June 2010 (as buying plunged with the expiration of the home-buyers tax credit).
Pending sales are a measure of contract signings to purchase a home; existing-home sales are not official until the contract closes. Hence, this data is usually a good prediction of those official sales a month or two down the line. However, the figure is far from reliable these days as contract cancelations are running at 30% -- the average is about 4%. One of the biggest problems behind contracts being cancelled before the signing is the contracted sales price is not matching up with the appraisal (the appraisal is coming in lower than the contracted price).
By region, three of the four showed pending sales declined – the Midwest region was the one that bucked the trend with a 4.0% increase. The West led the decline with an 11.0% drop in contract signings.
FOMC
So as expected, the FOMC decided to keep ZIRP in place and, as was mostly expected, the policy-setting Committee decided to announce that it will remain in place at least through 2014. I say this was pretty much expected because it seems the bond market may not have been so sure by way the mid-to-long end of curve rallied immediately after the announcement.
The rest of the statement (the statement that follows adjournment of the meeting) was pretty much unchanged from the previous meeting. Such as: The labor market is showing some improvement and economic growth will remain modest over the coming quarters.
The areas of the statement that changed were important though. This time they appeared more concerned about the slowing in business fixed investment and they believe inflation is subdued (the prior statement said it had just moderated). These may not seem like big changes, but they are huge signals that more easing is on the horizon -- it’s called setting the stage. In fact, they deleted the traditional phrase that explained they’ll keep an eye on the evolution of inflation by merely stating that a highly accommodative stance will be maintained.
So with the Fed keeping ZIRP in place for at least six years (the zero interest-rate policy stance began in December 2008), there should be zero doubt that Bernanke believes the economy would be in a state of depression without this unprecedented policy stance.
I’m not even sure we should hope for an upside surprise in economic activity at this point. For if the Fed were to have to unwind this policy before 2014, the market reaction may just be violent now that it believes ZIRP through 2014 is set in stone.
Sign up to receive the Daily Insight and other Acropolis publications here.
Have a great day!
Phone: 636-449-4900
Daily Insight