EmailPunxsutawney Phil saw his shadow today, meaning there will be six more weeks of winter. That is just fine as far as the equity market is concerned. Based on how things have gone so far this winter, the market would love nothing more than to have at least another six weeks of winter.
December 22, 2011, was the date of the winter solstice, and the S&P 500 has increased 6.5% since the close on December 21. It gained 0.9% yesterday, finishing off its highs but starting February on a solid note nonetheless.
The early indication this morning is that the market will start on a relatively flat note. That would be a diversion from Asian markets, most of which saw decent-sized gains in a catch-up trade, yet it would be consistent with the trading tone in Europe where the major bourses are mixed.
It is difficult to discern the basis for the stall, although we suspect it is an offshoot of analysis paralysis right now as a large stream of information flowing into the market at the moment ranges from discouraging to encouraging.
The discouraging is the January same-store sales reports from the retail sector. That's not to say they were all bad. They were not. Limited (LTD), Gap (GPS), Costco (COST) and TJX Cos. (TJX) all beat estimates. Still, the majority of companies tracked on Briefing.com's same-store sales calendar that have reported to this point have missed expectations.
Abercrombie &Fitch (ANF) and AnnTaylor (ANN) are not on that calendar, yet both issued disappointing guidance today and are indicated in premarket trading to open 10% lower.
The upside is that January is not typically a big month for the retailers; however, there isn't a trading tailwind for the market with the January results.
The initial claims data, on the other hand, has provided a tailwind of sorts as it brought more good news in terms of labor market trends. Specifically, initial claims for the week ending January 28 decreased 12,000 to 367,000 (Briefing.com consensus 375,000). The DOL said there were no special factors influencing the data.
The latest initial claims reading is consistent with levels seen in March 2008 and it lowered the 4-week moving average by 2,000 to 375,750, which is the second lowest level seen since 2008. This report won't have any direct bearing on the nonfarm payrolls report tomorrow, but it is apt to have some direct bearing on consumer confidence levels.
Continuing claims for the week ending January 21 declined by 130,000 to 3.437 mln (Briefing.com consensus 3.538 mln). That dropped the 4-week moving average by 43,000 to 3.526 mln, which is back to levels seen in 2008 as well.
Separately, Q4 productivity increased 0.7%, which was in-line with expectations. Output increased 3.6% in the fourth quarter. That was the strongest increase in output since Q4 2010.
The number of hours worked increased 2.9% in Q4 2011, up from only 0.9% growth in the third quarter. That was the biggest quarterly gain since Q2 2010. Compensation increased 1.9% in the fourth quarter. That led directly to a 1.2% increase in unit labor costs (Briefing.com consensus +0.7%).
Following the claims data, the S&P futures pivoted from a minor loss to a minor gain. If the market hadn't risen as much as it has already this year, and in the last four months, the headline might have had a bigger impact.
Alas, the good news has been taken in stride along with a litany of earnings results, most of which were better than expected. Mastercard (MA), Qualcomm (QCOM), Starwood Hotels (HOT), and Merck (MRK) fit the bill in that respect. On the flip side, Chipotle Mexican Grill (CMG), Cigna (CI), Dow Chemical (DOW), Royal Dutch Shell (RDS.A), and CME Group (CME) were among the notable misses.
As one can tell, the market has a lot to digest at the moment and it appears to be sitting tight -- like Punxsutawney Phil is once again -- ahead of Fed Chairman Bernanke's testimony in front of the House Budget Committee at 10: 00 a.m. ET and tomorrow's employment report.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
