Sterling Market Commentary for Friday February 1st, 2013
A Look at Thursday’s Market: The overall market moved moderately lower on Thursday in a relatively broad based move that saw the majority of the sector indices I track move lower on the day as well. In the commodities markets, Oil was lower by $0.45 to $97.49 per barrel, and Gold was lower by $19.30 to $1,660.60 per ounce. In the grain markets, Wheat was lower by $0.074 to $7.779 per bushel, and Corn was higher by $0.020 to $7.404 per bushel, while Soybeans were lower by $0.102 to $14.684 per bushel.
A Few Thoughts on Friday’s Market: The overall trend of the market remains to the upside, and my Number 1 Rule of Trends is that a trend remains in place until it is broken. However my Number 2 Rule of Trends is that the longer a trend has been in place, the greater the chances of it being broken. I would like to point out that we have seen three (3) negative economic reports this week. The 1st being the negative Gross Domestic Product (GDP) report showing a contraction of 0.1% in the 4th Quarter of2012, the 2nd being a significant increase in weekly jobless claims, and the 3rd being the increase in the unemployment rate. I just do not believe that all of this can be blamed on Tropical Storm Sandy.
My take on things is that we saw a bump in economic activity in the 3rd quarter of 2012 and consumers and business decision makers attempted to speed up activity prior to the end of 2012 due to the uncertainty over the election and the fiscal cliff issues. If I am correct, then this explains the weakness in the 4th Quarter of 2012. The concern is that there will be further contraction in 2013, partially caused by the speed up in 2012, and the continued uncertainty over the mess in Washington D.C. This combined with adjustments that people make in reaction to the perception that the economy may begin to slow in 2013; and we could see a real downturn in the 1st Quarter of 2013 with the U.S. economy dipping back into a recession.
Granted, I realize that the pre-market futures are sharply higher as a write this, I believe this is basically a result of the belief that with weak economic data the Federal Reserve will keep short term interest rates low for an even longer period of time. For those who believe that this will provide a long term boost to the U.S. economy, I suggest that they take a look at the Op-Ed article by John Taylor titled “Fed Policy Is a Drag on the Economy” in the Monday January 28th, 2013 edition of the Wall Street Journal. Sooner or later, the party from the ultra-low interest rate policy of the Federal Reserve is going to come to a crashing end, and the results are likely to be an even bigger disaster than the financial crisis of 2008.
The Bottom Line: I am continuing to expect the overall market to move sideways with an upward bias.