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February 10, 2014 - Markets Rally To Erase Some Losses

| February 10, 2014

After several weeks of gloom, U.S. stocks rallied last week to erase some losses and post the best two-day gain in four months. Both the Dow and the S&P 500 had their best week of the year thus far, gaining 0.6% and 0.8% respectively, while the Nasdaq gained 0.5%. [1]

Friday's employment situation report delivered some mixed news. On the payroll side, total jobs rose just 113,000, missing expectations of an 181,000-job boost. On the other hand, November and December job creation numbers were revised upward, for a net increase of 34,000 new jobs. The unemployment rate slipped downward another notch to 6.6% and labor force participation rebounded sharply after dropping significantly in December.[2]

The jobs report showed increased employment in construction and manufacturing, but declines in retail and government sectors. Despite some worries about slowdowns in factory activity, U.S. manufacturers stepped up hiring and added 21,000 new jobs last month, marking the sixth straight month of job gains in a sector that accounts for about 12.0% of the economy.[3]

As Q4 earnings season winds down, S&P 500 companies are on track to post earnings per share numbers nearly 10.0% higher while revenue is probably only going to be up 2.0% - 3.0%. While top line revenue numbers show that businesses are still struggling with demand, companies have delivered another quarter of strong bottom line results.[4]

New Fed Chair Janet Yellen's first testimony before Congress is the big event for markets in the week ahead as analysts pore over recent economic data to see if the softness in January's jobs report is really just about the bad weather. Yellen will be giving her first semi-annual monetary policy testimony before the Senate Banking Committee and the House Financial Services Committee.

Most analysts don't anticipate a lot of fireworks from Yellen's testimony, but rather expect her to emphasize the importance of letting the economic data guide her policy decisions. Unlike many other Fed officials, Yellen hasn't been an active part of the speaking circuit, meaning traders will be watching carefully for any surprises in her remarks.[5]

While the latest employment numbers aren't great, the six-month average is still trending between 130,000-150,000 new jobs per month, and analysts don't think that the Fed will discontinue its tapering program. The Fed has cut back its bond purchases twice and is now buying just $65 billion in bonds each month in a program that's expected to wind down before year's end.[6]

Tuesday: Janet Yellen Speaks 10:00 AM ET
Wednesday: EIA Petroleum Status Report, Treasury Budget
Thursday: Jobless Claims, Retail Sales, Business Inventories,
Janet Yellen Speaks 10:30 AM ET
Friday: Import and Export Prices, Industrial Production, Consumer Sentiment

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.


S&P cuts Turkey's rating outlook. Standard and Poor's reduced its guidance on Turkey's credit to negative, citing risks from an economic hard landing and political uncertainty. While this isn't as damaging to Turkey's sovereign credit situation as an actual ratings cut, the organization is indicating that a cut may be imminent.[7]

Consumer credit use jumps in December. U.S. consumer credit grew in December by the greatest amount in 10 years as credit card use increased sharply, in a potentially positive sign for the economy. Since consumer spending contributes significantly to GDP, higher credit use could portend greater spending in 2014.[8]

Mortgage applications stuck despite falling rates. Despite sliding interest rates driven by investors fleeing emerging market securities, weekly mortgage applications have barely budged, according to the Mortgage Bankers Association. Rates below 4.0% may spur additional refinancing and mortgage activity.[9]

Cold weather demand and tight supply pushes oil prices up. Crude oil staged a furious rally last Friday and closed just shy of $100 per barrel. Tight North Sea oil supplies, persistently cold weather across the U.S., and rising gasoline and heating oil prices stoked the surge.[10]

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.

The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Google Finance is the source for any reference to the performance of an index between two specific periods.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

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