Daily – January 19 – Good isn’t good enough


Some late buying brought the Dow back from -40 to a close of -13 points. But the broader market didn’t fair as well.  The S&P had a1% selloff and the NASDAQ lost 1.5%. Traders are disappointed in the way the market has traded, but there aren’t any signs that they are ready to jump off the rally train.

Bond prices closed higher, but volume was low.  The 2-year ended at .57%, the 5-year 1.94%, and the 10-year closed at 3.34%. The 30-year gained 20/32s to yield 4.52%.

There aren’t any marquee names releasing earnings tonight or before the opening.  The economic news tomorrow includes Weekly Jobless Claims and Existing Home Sales.  Claims are expected to fall from 445k to 420k, as economists believe that last week’s big jump was related to seasonal factors.  Existing Home Sales for December are expected rise by 4%.  Remember that Existing Home Sales are reported on closing, meaning most of these sales were in November.

Update 9:20 a.m.:

It really shouldn’t be a big surprise that the stock market is struggling during earnings season.  Bullish expectations were off the charts, and traders were already positioned long heading into the season.  The Dow is down only 4 points, but that is somewhat misleading.  A rally in the shares of IBM is adding 34 points to the Dow.  The S&P is down .7%, and the NASDAQ is down a full per cent. Volume is light.

Bond prices are a tad higher.  The 2-year is .57%, the 5-year 1.93%, and the 10-year yield is down to 3.34%.  I mentioned the big seller in bonds yesterday that came out of the blue, but the story is that seller might have been a phantom.  The WSJ reported today that a “fat finger” trade was entered on a trading platform that indicated a $6 billion seller of 10-year notes.  The trade should have been for $6 million.  Dealers say that trade was quickly recognized as an error and did not go through, but the appearance on the screen of the inquiry caused panic selling.  Guess that could be true, but it sounds a little bogus.

The rally in the euro seems to have lost its magic.  The euro is up to 1.35 vs. the dollar, but it’s going largely unnoticed.

Update 6:45 a.m.:

Stocks are struggling to stay even today.  The Dow did trade up to +20 but is now up one point.  The S&P and NASDAQ are both slightly lower.  Volume is low.  Traders had high expectations coming into the day, but it looks like another slow day ahead. The euro is trading sharply higher again today, but that doesn’t seem to be having the usual positive impact on stocks.

Bond traders aren’t having any more excitement than their stock trading bretheren.  The 2-year is .58%, the 5-year 1.94%, and the 10-year yield is 3.35%.

Morning Comment:

Stock traders were looking for a big day today, but it’s not starting that way.  The boost was to come from earnings reports.  IBM and Apple did have very good earnings, but the earnings weren’t significantly above the “whisper” numbers.  Those stocks are trading higher in pre-opening trading.  But this morning the earnings of Wells Fargo and Goldman did disappoint.  Earnings merely “met” expectations, and that’s not good enough.  Dow futures are down about 18 points in pre-opening trading.

On the economic front, Housing Starts for December were released and fell to an annualized pace of 529k vs. the expected 550k.  This was the worst level in a year, and single-family starts were the lowest since May of 2009.  But you can’t really place a lot of emphasis on this number given that December is usually a slow month.  Building Permits did surge much more than expected.  That could be construed as a good sign, but it’s also common for builders to file a lot of permits in December.  These homes might or might not be built.

Bond price are opening higher today after a roller coaster ride yesterday.  The 2-year is .58%, the 5-year 1.94%, and the 10-year yield is 3.35%.  After yesterday’s surprise big seller, bond trades are very uneasy.

The Wall Street Journal had an article today that was encouraging, and it wasn’t the usual rah rah stock article. As we already know, the manufacturing sector gained jobs last year for the first time since 1997.  Given the size of the U.S. labor force, the gain of 136,000 wasn’t much more than a drop in the bucket, but it temporarily reversed a decade-long trend. The article goes on the say that several big manufacturers like Caterpillar and Whirlpool have opted for new factories here for the first time in many years.  Tax incentives, especially by state and local governments were big factors in the decisions, but the availability of a big labor pool of qualified workers also had an impact.

One year of relatively small gains isn’t exactly a trend, but it’s one positive sign that I like. Experts, including economists, have built the illusion over the decades that the U.S. doesn’t need manufacturing jobs.  Supposedly these “lesser” jobs were being replaced by better jobs in finance and technology.  While some of that has happened, the truth is that most of those irrelevant manufacturing jobs were replaced by jobs at McDonalds and the like.  That has certainly been the case the last few years. Those McJobs come with compensation levels of 50% or below the normal manufacturing wage.  The fact is that not all Americans want or can achieve the educational level required for most upmarket jobs.  We need good paying manufacturing jobs or other jobs of that sort.  For a few years we had huge growth in construction jobs that paid as well as manufacturing, and the economy did not miss those manufacturing jobs.  That masked the harm the loss of manufacturing jobs was doing. Construction is not coming back soon, and we’re years and years away from meaningful levels of construction employment. A return of manufacturing jobs to the U.S. is just what the doctor ordered.



Just retired former VP of economics at the California Credit Union League. Over 45 years of investment experience. Native Texan but happy Californian.

4 thoughts on “Daily – January 19 – Good isn’t good enough

  1. From 1994 through 2000, Housing Starts averaged 1.4 million units per year. That includes multifamily units such as apts. and condos. Single family homes ran about 1.1 to 1.2 million. The peak was 2006 with roughly 2 million starts. We’re now at 529k total and 420k single family. Existing home sales were typically 5.5 to 5.75 million per year. We’re now about 4.7. New home construction and sales are much more important to the economy because of the jobs involved and the new materials needed.

  2. From 1994 through 2000, Housing Starts averaged 1.4 million per year. That does include multi-family units such as apartments and condos. Single family homes were roughly 1.1 to 1.2 million. The

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s