THE MARKETS
One of the popular parlor games on Wall Street these days is
trying to predict how the holiday shopping season will fare. If
sales rise from last year, that may bode well for the economy
heading into 2010. If sales drop, well, that's not such a good
sign.
Like many things related to Wall Street investing, you could do
exhaustive, detailed analysis to come up with a prediction, or, you
could pick one indicator that has some historical significance and
run with that. As it relates to predicting holiday sales, it turns
out that, "Christmas tree sales can be a good gauge of the strength
of the holiday-shopping season," according to The Wall Street
Journal.
So far, this simple indicator looks positive. Christmas tree
sales were up 6% the weekend after Thanksgiving and 3% the
following weekend when compared to the year earlier period,
according to ISI Group survey data as reported by the
Journal.
Helping to corroborate the Christmas tree indicator, the
Commerce Department reported last Friday that retail sales rose
1.3% in November, which was double the rate expected by economists
surveyed by Bloomberg. Consumers also seemed to be feeling a bit
cheerier as the Reuters/University of Michigan preliminary index of
consumer sentiment for December rose to 73.4 from 67.4 the month
before, according to Bloomberg.
The good news doesn't stop there. Credit Suisse and JPMorgan
Chase & Co. both raised their fourth-quarter GDP forecast to a
gain of 4.5% from the 3.5% pace projected at the start of the
week.
To the stock market, all this positive news was apparently old
news because for the week, the S&P 500 was unchanged. Chalk
that one up to the "wisdom of crowds."
|
Data as of 12/11/09
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500 (Domestic Stocks)
|
0.0%
|
22.5%
|
25.8%
|
-7.8%
|
-1.6%
|
-2.4%
|
|
DJ Global ex US (Foreign Stocks)
|
-1.8
|
37.8
|
40.7
|
-5.8
|
4.0
|
1.0
|
|
10-year Treasury Note (Yield Only)
|
3.5
|
N/A
|
2.7
|
4.5
|
4.2
|
6.1
|
|
Gold (per ounce)
|
-5.6
|
29.2
|
35.8
|
21.5
|
20.9
|
14.9
|
|
DJ-UBS Commodity Index
|
-1.2
|
13.6
|
16.5
|
-7.7
|
-1.5
|
4.0
|
|
DJ Equity All REIT TR Index
|
-1.5
|
23.8
|
51.5
|
-13.6
|
0.1
|
11.3
|
Notes: S&P 500, DJ
Global ex US, Gold, DJ-UBS Commodity Index returns exclude
reinvested dividends (gold does not pay a dividend) and the three-,
five-, and 10-year returns are annualized; the DJ Equity All REIT
TR Index does include reinvested dividends and the three-, five-,
and 10-year returns are annualized; and the 10-year Treasury Note
is simply the yield at the close of the day on each of the
historical time periods. Sources: Yahoo! Finance, Barron's,
djindexes.com, London Bullion Market Association. Past performance
is no guarantee of future results. Indices are unmanaged and
cannot be invested into directly. N/A means not applicable or
not available.
DOES THE CHANGE IN THE VALUE OF YOUR ASSETS
affect how much you spend? For years, economists have talked about
the concept of the "wealth effect". Simply stated, the wealth
effect suggests that consumer spending rises or falls based on
changes in an individual's assets. For example, if an individual's
assets such as their home or investments are rising, they may feel
"richer" and be more inclined to spend money. The reverse would
also be true according to the theory. But, is it really true?
Economists are split on the impact of the wealth effect on
consumer spending. Some economists say the wealth effect from
changes in housing prices is minimal, while others say it is
significant. Some say the wealth effect from changes in housing
prices is greater than the effect from changes in financial assets,
while others say the reverse is true. Knowing how the wealth effect
may or may not impact the economy is important because consumer
spending accounts for about 70% of economic activity, according to
The Wall Street Journal.
Analyzing household net worth data is one way to help determine
the trend in asset levels. So, where does household net worth stand
these days?
In the third quarter, household net worth rose to $53.4
trillion. This represents a 5% increase compared to the second
quarter, according to the Federal Reserve. On the bright side, this
net worth number is up from the recent low of $48.5 trillion in the
first quarter of 2009. By contrast, our net worth peaked at $64.5
trillion back in 2006. Not surprisingly, declines in housing prices
and the stock market are two main culprits of our loss in
wealth.
Depending on how the wealth effect plays out, this decline of
$11 trillion in our collective net worth from the 2006 peak could
impact future economic growth. The federal government is well aware
of these numbers and that's one reason why they continue to look
for ways to "stimulate" the economy.
Weekly Focus - Think About It
"Most of the shadows of this life are caused by our standing in
our own sunshine."
--Ralph Waldo Emerson
For your convenience the sources have been listed below:
http://online.wsj.com/article/SB126057696510987925.html
http://www.bloomberg.com/apps/news?pid=20601068&sid=aLdAOm6kbtEU
http://www.federalreserve.gov/releases/z1/Current/z1r-5.pdf
http://news.yahoo.com/s/ap/20091210/ap_on_bi_go_ec_fi/us_net_worth
http://www.businessdictionary.com/definition/wealth-effect.html
http://online.wsj.com/article/SB125690429096718435.html
http://www.inspirational-quotes.info/life-quotes.html
