Market Perspectives (February 2012)

by Jim Baird on February 15, 2012

Executive Summary

  • Domestic equities rallied across the board in January, marking a strong start to 2012. International equities also delivered solid gains for the month.
  • High-quality bonds were also positive, as long-term Treasury yields fell. The Fed extended its intention to maintain exceptionally low rates until late 2014.
  • Initial estimates indicate that the economy grew at a subpar pace of 1.7% in 2011, even after 2.8% growth in the fourth quarter.
  • The positive momentum in the jobs market continued in January, as the unemployment rate reached 8.3%, its lowest point in nearly three years.

Capital Markets

A season for change…

“Nature gives to every time and season some beauties of its own; and from morning to night, as from the cradle to the grave, it is but a succession of changes so gentle and easy that we can scarcely mark their progress.” – Charles Dickens

Today, seasonality is not limited to nature, and its “succession of changes” may not be so indiscernible. Seasonal variations occur in a broad scope of economic data. These seasonal effects are repeatable occurrences, reasonably stable in terms of annual timing, direction, and magnitude. Take, for example, new home construction in the Northeast in January. For obvious reasons, the result has been predictably lower each year than during the spring or summer months. Another example is employment, as temporary holiday workers are terminated each January and once again forced to look for another job. Since seasonal fluctuations can distort the bigger picture, statisticians measure and adjust the seasonal component from economic data in an attempt to smooth the results, eliminate seasonal “noise,” and isolate durable trends. But what happens when anomalies, like the Great Recession coinciding with seasonal patterns, factor into seasonal adjustments and influence (or even distort) the trend?

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