Market Commentary

Stocks advanced Friday as consumer confidence and retail sales increased more than expected in November.
December 14, 2009

Stocks advanced Friday as consumer confidence and retail sales increased more than expected in November.   Treasuries slumped on optimism that US consumer is weathering the worst employment slump since the early 1980s.  These reports coupled by gains in Chinese manufacturing reinforced views that the global recovery is gaining strength.

Against this backdrop there were several firms—JP Morgan and Credit Suisse--upgraded their fourth quarter growth forecast from 3.5% to 4.5%.

It is becoming more evident this recovery is stronger than many were expecting with questions of sustainability no longer the most written headline.  Several months ago I suggested the possibility that a change in monetary policy could evolve as a major market issue by year end.

Obviously this view did not come to fruition however if the economy continues improve at this rate, a rate that I think will spur jobs growth, the primary headline would perhaps be the impact of the inevitable change in monetary policy.

What are the odds at the end of January the headlines read this….Fourth quarter grows at a 4.8% annual rate.  Nonfarm payrolls increase by 98,000. Dow plummets 300 points on interest rate fears.

A continuing theme of these remarks is the velocity of change.  Expect the unexpected.  If I wrote eight months ago Banc America and Citicorp will repay TARP by year end this thought would be somewhere between outlandish and ridiculous. Perhaps the above headline is indeed possible given the nature of this crisis.

This week the economic calendar is relatively heavy.  There are several inflation indices (PPI and CPI), manufacturing data points (Capacity Utilization/Industrial Production and Empire Manufacturing/Philadelphia Fed) as well as crucial housing data.  More over the FOMC meets for the final time of the year.  Historically this meeting is a non event however in today’s environment no Fed meeting/statement is insignificant.

Last night the foreign markets were up. London was up 1.0%, Paris up 0.53% and Frankfurt up 0.78%.  Japan was down 0.02% and Hang Sang up 0.84%.

The Dow should open moderately higher as Abu Dhabi provided $10 billion Dubai to avoid a default.  Citicorp’s $20 Billion TARP repayment also increased optimism the worst financial crisis in over 70 years is in its waning days.  The 10-year is up 4/32 to yield 3.53%.