As we entered the fourth week of the trading year, we saw the S&P continue in its upward movement towards the close of January. On Jan. 26, we saw the S&P 500 jump out of the gates for an intraday high of 1333. As I've said before, if the S&P penetrated the 1320 this would signal a new upward target. After the Fed’s release, the S&P climb above 1320 to close the day at 1326. If the S&P can remain above the critical level of 1320, this would signal upward target of 1330.
By mid-week, the S&P had already reached a 5.5% gain on the year which brings the index to a 23% recovery from October’s lows.
The main reason we saw S&P drop from its highs on Thursday was due to the new home sales forecast release.
The announcement reported an unexpected decline for December resulting in 2011 being the worst year on record. The 2.2% drop was the first decline over the last four months of 2011.
The U.S. Labor Department released the jobless claims which had a bit of a rise to a seasonally adjusted total of 377,000. We are still below the 400,000 mark which definitely signals improving employment conditions.
Investors are still maintaining a positive outlook on the economy’s recovery and seemed to gain more confidence after the Fed released its forecast on Wednesday. By extending the interest rates to near zero until 2014, the Fed has driven investors to lock in more risky assets.
U.S. manufactured goods also had positive news as new orders rose more than expected for December. This was another good indicator that the labor market continues to show improvement.
Greece is still in the middle of negotiations with their private bondholders; as they push to reach an agreement before the March 20th bond payment. The focus will be on whether creditors will rethink their “final offer” of a 4% coupon to accept a 50% writedown of their holdings. That would equate to a 100 billion euro write off on a 350 billion euro debt.
If Greece isn’t able to reach an agreement, this would lead the country into a hard default and in turn pushing Spain and Italy to the point of no return. Greece still faces an uphill battle, even if they push through their negotiations, with the number of labor and economic reforms stipulated as a condition for their bailout agreement.
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