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Market Insights

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The Data Matters

02/01/2011

After the market closed on Friday January 28, I suggested that the unrest in Egypt, and that day's troublesome market price action, placed the market in as vulnerable a position, heading into a weekend, as we had seen since early last summer.

My immediate focus beyond the discourse in Egypt was the upcoming heavy economic data due this week.  To the surprise of everyone who follows the capital markets, the S&P 500 Index closed Tuesday February 1 @ 1307.59, well above last Friday's 1276.34 troublesome close.

The catalyst, plain and simple, is global economic data that confirms a robust global economic recovery is well underway.  Let's take a look.

  • Monday January 31: European Inflation rose 2.4% from 2.2% the previous month - a two year high. For a region fighting deflation, the uptick in Inflation is welcomed. Favorable currency price action as the euro rose and U.S. dollar weakened lifted U.S. equities.
  • Monday January 31: China PMI @ 52.9 maintaining above the important 50 mark even as Chinese policy makers tighten monetary policy.
  • Monday January 31: U.S. Chicago PMI @ 68.8, the highest reading since July 1988.
  • Monday January 31: U.S. Consumer Spending +0.7% versus +0.4% prior month.
  • Tuesday February 1: U.S. ISM Manufacturing @ 60.8 versus 57.0 prior month, the highest reading since last spring.

The economic data is excellent; a recovery is well underway. I am even more confident in my expectation that 2011 is a "catch up" year that evolves into another strong performance for the U.S. equity market.

Regarding Egypt, as much as the instant gratification U.S. media and our society would like an immediate resolution to the Middle East unrest, I do not believe that will occur. Rather, I believe there will be continued flare ups throughout the region as food prices continue to rise. This belief underscores the importance of investments in commodities, in particular food and energy.

My attention near term is on Friday's U.S. jobs report with expectations for the unemployment rate to climb to 9.5% from 9.4% and weather potentially negatively impacting the overall job growth forecast - right now +140k private and +140k headline.

Finally, it is February, a colorful Red month. Historically, there is vulnerability for the markets during February. Let's hope the data remains strong enough to keep Red out of February 2011.  

S&P 500 Index Year to Date 2011

Source: Blooomberg

Euro currency Year to Date 2011

Source: Bloomberg

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.