Sunday, January 29, 2012

More Mixed Messages on the U.S. Economy

This past week, firms such as Apple Inc. and Caterpillar Inc. surprised investors with strong results while others such as Ford Motor Co. and Proctor & Gamble Co. suggested that weakness in Europe contributed to their poor results.  (Note: 169 of S&P 500 companies have reported quarterly results; earnings are up 3.15% and revenues are up 6.5%).  
Additionally, the U.S. Commerce Department said fourth quarter economic growth increased 2.8% (up from last quarter’s 1.8%, but less than the expected 3.0%) and Thomson Reuters/University of Michigan’s consumer sentiment index increased to 75 in January, up from 69.9 in December. 
However, on Wednesday, the U.S. Federal Reserve provided somber comments when it said it would keep short term interest rates near zero  until late 2014 (an extension of about 18 months from its previous plan) because of heightened unemployment, a depressed housing market and Eurozone financial issues.

MY TAKE

Investors remain hopeful, but mixed economic messages increase market uncertainty. In addition, while the Federal Reserve’s actions, along with the potential for more quantitative easing (printing money) have historically been positive for risk assets such as equities, the frequency of these actions may be approaching the point of diminishing returns.

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