Let’s start with a hearty “Merry Christmas” to all of you. This evening we have little to say about the markets because is seems like a very long time ago the last time they were open here in the US. Looking back to last Friday, there did seem to be some early morning jitters with all of the major averages dropping out of the gate. The news early Friday was that November durable goods orders were up 0.6% with expectations of 1.2% after a dismal drop in October of 8.2%. Most asset managers will tell you that the durable goods orders are difficult to use as a market gauge due to their extremely volatile nature. October is a case in point.
As we mentioned here late last week, personal income and spending would be announced on Friday morning as well and these were pretty much inline with expectations but personal spending was up more than personal income which means the savings rate continues to be negative. There is another number buried inside these reports called the PCE (personal consumption expenditures), something closely watched by the Fed for signs of inflation, ok the Fed is only interested if you take out the cost of food and energy. (Possibly the Fed is not as all powerful as they would like us to think. After all inflation is inflation isn’t it? And, shouldn’t it be the Fed’s job to contain all of it not just the part away from food and energy. But we say this all the time and you are getting tired of the constant barrage.) Anyway…while still above the Fed’s comfort zone, the PCE was up only 2.2% year over year compared to 2.4% last month.
What is truly amazing, though, is that the markets decided not to like these inflation friendly numbers and sold off quickly in the early going. This could be something if it wasn’t for the extremely low volume that accompanied the move. The day before Christmas break seems to have low volume generally and last Friday was no exception. The prices dropped on low volume and on previous low volatility. The volatility index, VIX, has been trading at multi-year lows, indicating a very complacent group of investors generally. With light volume on Friday, there was a bit of an uptick in the VIX. This could indicate some minor nervousness ahead of the long weekend.
So, stay tuned for some low volume trading this week and we will try to report on the days’ events as they go by this week. Probably not much to report but there are a few economic data points being reported this week like retail sales for December 23rd and the existing home sales report.
Dow Industrials: 12,343.22 -78.03