March 13, 2012 FOMC Policy Meeting Minutes Tank Stocks, QE3 Less Likely – Car Sales Data Improves:
FOMC news trumped positive data from the car manufacturers.
The Federal Reserve Banks is still concerned about the housing market and employment. The market was already in a downtrend but the meeting minutes when released help accelerate losses from around down 50 on the Dow Jones at 2:00pm to triple digit losses after the announcement. The possibility of another round of quantitative easing has decreased today due to the Fed meeting minutes that showed the economy is moderately improving. We believe another round of easing would be “insurance” that the economy may not tailspin but that doesn’t mean the Fed would like to take out such a policy with possibilities that Europe or China could slow and this card would be already on the table. Many stocks have fallen in the past few days back to levels before Ben Bernanke spoke alluded to QE3 possibilities on Monday 26, 2012.
Households’ real disposable income increased, on balance, in December and January as labor earnings rose solidly. Moreover, households’ net worth grew in the fourth quarter of last year and likely was boosted further by gains in equity values thus far this year. Nevertheless, real personal consumption expenditures (PCE) were reported to have been flat in December and January. Although households’ purchases of motor vehicles rose briskly, spending for other consumer goods and services was weak. In February, nominal retail sales excluding purchases at motor vehicle and parts outlets increased moderately, while motor vehicle sales continued to climb. Consumer sentiment was little changed in February, and households remained downbeat about both the economic outlook and their own income and finances.
Car Sales Rise:
Chrysler and Ford both reported they sold more cars in America last month. American car sales rose last month to the highest level in four years even with gasoline prices rising. Hyundai and Nissan, reported their best single month sales ever with 13 percent increases from the prior month. Toyota’s sales were up 15 percent while GM cars were up 12 percent. Positive economic news from automobile manufacturers helped to keep traders away from stocks today, especially if they expect another round of easing.
The economic data is positive and improving, this doesn’t mean the market can’t pullback somewhat as traders rebalance portfolios coming into the second quarter of 2012. Tech stocks such as Apple are rising to new highs and bearishness is at low levels, we would be looking for some rangeboundedness for the next few weeks. Pullbacks and a possible short correction should be seen as opportunities for purchasing stocks as part of a longer term trend upward. We still believe commodities could fall further if the economy is set to improve and risk appetites increase.