President Obama gave the first State of the Union Address of his second term Tuesday night. The markets had a ho-hum reaction today with the Dow and S&P 500 moving less than half a percentage point one way or the other from their previous close. They saw their highs for the day early, drifted with a slight upward bias after a midday stumble, and then took a late day dip with a climb into the close. The Dow closed near a quarter point drop, and the S&P 500 eked out a .06% gain.
The market received a surprise bit of good news last week. The U.S. trade deficit in December fell to a rate that is the lowest we’ve seen since January 2010. However, we still saw a deficit of over $540 billion for 2012. The biggest contributors are still oil and trade with China. A decrease from November of Chinese imports, growth in petroleum product exports, and a services surplus helped affect the bottom line.
The U.S. real estate market turned in the top performance over the past week for the groups we track. This coincided with news that the median sales price of single family homes climbed in 133 of 152 metropolitan areas in the fourth quarter, better than the 120 areas that climbed for the previous quarter. The data also revealed the median price was $178,900, up 10% from the fourth quarter of 2011. However, that is down from $186,100 initially reported for the third quarter of 2012. As the conflicting numbers reveal, while there are some bright spots, the housing picture has a long way to go.
Even with some positive numbers and a generally positive trend, the market is still in for some headwinds. A big blow will be in just a couple weeks when sequestration is set to start. Barring any bold action by Congress, which recent rhetoric indicates isn’t very likely, budget cuts will take effect on March 1.
Our rankings had only minor movements this week with sectors either staying in their relative spot or swapping places with a neighbor. The past few weeks, the Financials sector kept hanging on the heels of Industrials. This week, the persistence paid off as Financials finally managed to take the lead away, pushing Industrials down the second place. Joining the trading-spaces groups were Consumer Discretionary climbing ahead of Health Care for fourth place, Real Estate nudging out Consumer Staples for the seventh spot, and Utilities outpacing Telecom for ninth. Health Care and Telecom lost momentum as they each fell one rank. Industrials held its momentum and Consumer Staples managed to gain a point during their relative declines, but their counterparts managed 3-4 point gains. Our place holders this week were Energy at #3, Materials at #6, and Technology in the bottom spot. Technology was our biggest momentum gainer with 5 points added to its score, but that wasn’t enough to climb out of the basement.
Mid Cap Value remains on top again this week, still sporting a 4 point lead over the second place style. The relative rankings stayed the same except for 2 pairs swapping places. Mid Cap Blend gave up the #2 spot to last week’s third place style of Small Cap Value, and Micro Cap gave up the 6th place spot to Large Cap Value. Micro Cap is the only style to show a reduction in its absolute momentum this week. There is still a near 7-way tie for second place, and at some point that compression will ease and we’ll see some styles escape the anonymity. The market is still clearly favoring Value over Growth, which is the only reason that Large Cap Value is in that mix. Mega Cap must like its reign as the lowest ranked style as it hasn’t been anywhere else since November.
Unlike the stability in the sector and style rankings, the global rankings saw quite a bit of turmoil. Last week we mentioned Europe needed a huge rally to avoid a precipitous drop in the rankings. That rally didn’t materialize, and Europe fell all the way to #6 while shedding 12 points from its momentum reading. Taking its place on the top is no other than the fast climbing Japan, jumping all the way from seventh. The U.S. climbed three more spots this week and finds itself in second place. Japan and the U.S. deserve their seats at the top as they were the only global categories to gain momentum this week. EAFE took a couple steps down while the U.K. took a couple steps up. China could feel the EU’s pain as it plummeted from fourth to dead last. China’s fall was swift as it was leading the world just three weeks ago. Canada and Emerging Markets took advantage of China’s misfortune and both climbed up one spot.
“It’s not a bigger government we need, but a smarter government that sets priorities and invests in broad-based growth.”
President Obama, State of the Union Address, 2/12/13
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