Monday, February 25, 2013
Fed inspired jitters pulled the market down last week, ending the
market's 7-week long positive run. But investors appeared to
regain their composure by the week's end and will be looking for
further clarity this week from Bernanke's testimony in the
Senate (on Tuesday) and the House (on Wednesday). We don't have
much on the economic calendar today, but a number of key economic
reports this week will shed light on the health of the consumer
and factory sectors.
The budget sequester getting underway on Friday will also be of
interest, though the market doesn't seem to be too concerned
about the spending cuts. The $85 billion in spending cuts as a
result of the sequester will no doubt have a modest impact on GDP
growth this year, but the issue may actually be more political
than economic. The market's lack of 'sequester concern' is
telling us that it may actually be viewing the spending restraint
favorably. We will be watching for any fresh developments on the
sequester front, but the likely course at this stage seems to be
that the spending cuts will take effect on Friday.
Bernanke's testimony is about the economic outlook, but we can
easily envision partisan-tinged leading questions from members
about the advisability of the sequester. The market's focus will
be on the Fed chief's comments and discussion of the ongoing
quantitative easing program. Last week's minutes of the Fed's
January meeting showed a healthy debate within the FOMC about the
appropriateness of current policy, making investors concerned
that the central bank may change the program earlier than
currently expected. I don't think any changes are imminent at
this stage, but given the Fed's centrality to market's recent
momentum, the concern nevertheless served as a notable speed bump
for the market.
This week's data will give us a better handle on the impact of
payroll tax changes on consumer spending. In addition to the
January Personal Income & Outlays reading coming out on
Friday, we will get the February Consumer Confidence level on
Tuesday. We also have a host of major retailers like
Target
(
TGT
),
J.C. Penney
(
JCP
),
Kohl's
(
KSS
), and
Dollar Tree
(
DLTR
) reporting fourth quarter earnings reports this week, whose
forward looking commentary on the state of the consumer will
provide further confirmation of the impact of higher gasoline
prices, delayed IRS refunds and of course the payroll tax hikes
that were at play in the
Wal-Mart
(
WMT
) earnings report last week. While Friday's Personal Income data
is expected to show a decline to reflect these headwinds, but it
will be interesting to see to what extent consumers are dipping
into their savings to offset the income hit.
Sheraz Mian
Director of Research
DOLLAR TREE INC (DLTR): Free Stock Analysis
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PENNEY (JC) INC (JCP): Free Stock Analysis
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KOHLS CORP (KSS): Free Stock Analysis Report
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