February 2010 – Market Commentary

• US stocks turned back to gains in February after a very bumpy ride to the finish line, while Internatonal equities finished slightly lower. The Dow closed below 10,000 for the first time in three months on the 9th, but managed to rally to close at 10,325, gaining 2.6% for the month. Issues with Greece’s national debt sent US equities down by over 2.5% in one day, and continued concern over the state of the economic recovery weighed on investors.  The US unemployment rate dropped to 9.7%, but weekly jobless claim data is still lackluster.  The Fed re-assured investors that any changes in rates would be measured and not likely to occur in the immediate future.

Economic News:
• US housing data continued to be mixed, as prices in one third of major metropolitan areas showed gains, despite the fact that new and existing home sales dropped by 11% and 7.2% respectively.  Fannie and Freddie announced they would be buying back up to $200 billion in delinquent loan securities from the market.

• US worker productivity continued to rise, up 5.1% from a year ago, as manufacturing hit its highest level in 5 years, and industrial production gained for the seventh straight month.  Capital spending on non-military assets by companies has increased over 9% from a year ago.

• As Greek debt floundered, other Euro nations agreed to some form of a bailout for the country, putting significant downward pressure on the Euro versus the dollar.  The Greek issue is causing many to speculate about the long term viability of the Euro, and conversations about the Euro replacing the US dollar as the world’s currency has all but ceased.

Government News:
• The Obama administration announced a $3.8 trillion budget that will cause an estimated $1.6 trillion deficit this year and is projected to be paid down to $700 billion by 2013.  Bush tax cuts that benefited households making over $250,000 will likely not be renewed by the administration in an effort to increase tax revenue.

• The Chinese government sold a portion of its US Treasury portfolio in February, dropping China down to the second largest holder of US Treasury securities after Japan.

Corporate News:
• The month had some winners and losers.  Retailers Home Depot, Target, and Macy’s all had strong growth, but warned about lower forecasts as consumers continue to be reluctant buyers.  Retail sales posted a small gain of 0.5% for the month, but personal savings has continued to climb, now at 4.8% of income.

• Some deals were getting done, as Coke announced it will try and buy-out its bottlers, consolidating the business under the soda manufacturer. The deal is valued at $12 billion. The CME group announced that it will buy the Dow Jones index business for $675 million.  Mall operator Simon offered $10 billion to General Growth to buy all its operations.  General Growth went bankrupt last year on slowing consumer business.  If it goes through, Simon will increase its margin as the largest mall operator in the US, with 550 locations.

• HP, Coke, Pfizer, Cisco, and UBS were among the companies with higher earnings.  Meanwhile Exxon and Dell posted lower results.  In the auto arena, Toyota’s US sales plummeted by 16% as recalls were all over the news.  That was good news for GM and Ford, both of which posted double digit US sales growth.

Index Performance – February:
US Large Cap Stock (S&P 500) +3.10%
International Stock (FTSE AW ex US) -0.10%
US Broad Bonds (Barcap Aggregate) +0.37%
US Government Bond (Barclay’s Govt) +0.41%
Cash (ML 3 Mnth T-Bill) +0.00%


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