Weekly Economic Indicators: Equity Rally Ahead?

The schedule for the week of January 7th  includes:

 

  • Monday:  Treasury STRIPS
  • Tuesday:  NFIB Small Business Optimism Index, ICSC-Goldman Store Sales, and Consumer Credit
  • Wednesday:  MBA Purchase Applications
  • Thursday:  Jobless Claims, Wholesale Trade, Fed Balance Sheet, Esther George, James Bullard, and Narayana Kocherlakota speak
  • Friday:  International Trade, Import and Export Prices, Treasury Budget, and Charles Plosser Speaks

 I spoke with Benedict Willis III, Managing Director of Albert Fried & Company, LLC., and frequent commentator on Bloomberg, CNBC, and FOX Business, about the economic calendar for next week. Willis is focused on the overall market, 4th quarter GDP, 4th quarter earnings, and weekly jobless claims.

Willis expects a rally in the equity markets, since Congress reached a deal on the fiscal cliff negotiations. He thinks the tape was expecting some sort of a scaled down or partial deal and thus, the equity markets will trend higher in the first quarter, although 2013 will look much like 2012. The next big battle will be over the debt ceiling vote in a few weeks, which will give political leaders more time to squabble over the budget. Willis is concerned with interest rate risk around the world. All the central banks around the world have lowered rates, and it could cause a whip lash effect in financial markets. Willis pointed out, “the effects of lowered interest rates globally have been diminished, as Japan has come to realize, after having lowered rates for a decade.” He is also concerned with the euro zone, which has been on the doldrums and shaded by the fiscal cliff. In addition, China has been left undervalued given its impact on the globe, and there are indications the new regime will allow growth to continue.

4th Quarter GDP

Willis would not be surprised to see corporations use the fiscal cliff as an excuse as to why they are not expanding business by investing and hiring again. He believes companies will continue to hoard cash and operate in a very competitive environment.  He is expecting GDP to be in line with expectations, somewhere between to 2.5%-3%. First quarter GDP, he expects to be on the higher end of 3%, about where economists are forecasting, as the economy comes out of a downturn.

4th Quarter Earnings & Weekly Jobless Claims

The final quarter’s earnings have been overshadowed by the fiscal cliff negotiations. He expects 4th quarter earnings to be spotty, as the bigger, more efficient companies will continue to do better in this environment, while the less efficient companies will be the laggards. Retailers will be an interesting sector to watch, as the initial reading from the holiday shopping season was “it’s the best in history”, however, after the final numbers were tallied, the sector barely beat last year’s numbers. Housing stocks, which have performed phenomenally, will likely continue to be better performers, but he questions whether the strong trend will continue into the new year. Willis is forecasting the jobless claims numbers to keep coming down to the low 300K range, as growth picks up in 2013 and thinks the trend is starting to become encouraging.

Ben’s Gripe

Willis said he will be the first one voting out politicians who dragged their feet on the budget negotiations in Washington, and he hopes his fellow Americans will join him in voicing their concerns. Willis said its time to clean house and vote all the politician who are obstructionists out of office, and elect new responsible representatives, who will work on behalf of the people.

Buzz on the Trading Floor

Volumes continue to be low, and traders are hoping the SEC will address market structure on spreads and dark pools. When asked, how do you encourage the individual investor to return to the market place, Willis said, interest rate risk could be one way to drive individual investors back into the equity markets.