Swing low—and high. It was a bit of a roller-coaster this week, both in terms of the market gyrations, and in terms of economic news. We saw the Dow move more than 100 points in a day several times. Normally I would tell you that these big swings were a sign of uncertainty, even fear, and that would be a bad thing. This time, while I see some uncertainty, I don’t see much fear. Even when the market retreated, as it did dramatically a week ago Friday and on Monday, it was an orderly retreat. You could look at the news and say, “Well, the markets went down a lot, but I can see why. That made sense.”
Strong earnings. Earnings so far have been stronger than expected. Nearly 70 percent of companies have beat earnings expectations. That’s significantly higher than the 10-year average of 63 percent. Facebook’s report jumped out at me. For those who doubt that Facebook is a real company, consider this: Its revenue for the fourth quarter was $2.6 billion. Income was $780 million, and its stock price jumped 14 percent on the news.
More good news. We also saw a steady stream of positive reports from the government and other sources. The Conference Board said consumer confidence has risen to its highest point since August. Fourth quarter Gross Domestic Product, which is the total of all goods and services in the economy, came in at an annual rate of 3.2 percent for the fourth quarter. That was stronger than expected. Economists surveyed by the National Association of Business Economics agreed on a slightly lower number for the year ahead, just less than 3 percent, but even their forward-looking number was pretty good.
Not all rosy. However, durable goods orders here in the U.S. fell 4.3 percent in December. That was a surprise, and not a good one. Last week we talked about the global economy for the first time in a while. Global news is still moving the markets. The latest downdraft seems to be the result of news from Turkey. Now, Turkey is not a huge economy, but it has a problem common to a lot of countries right now—an unstable currency. Turkey’s central bank aggressively raised interest rates on Tuesday in an attempt to stabilize its currency. It hiked its overnight lending rate from 7.75 percent to 12 percent. The move is intended to slow or stop capital flight from the country and to combat inflation. Other emerging markets are watching the results closely. If it works, other countries likely will follow Turkey’s lead.
The week ahead. Earnings season continues. Stocks have been trending downward since the first of the year, on the theory that many are overvalued relative to earnings. If the current strong earnings trend continues, we could see that theory collapse under the weight of new data. We also get a lot of government reports next week that the markets care about. The big one, the unemployment rate for January, comes on Friday. We also will get two more reports that I’m going to be paying attention to: Hourly wages and the average work week. If we see wages rise and the average work week remain flat, which is where it’s been for the past few months, that tells us that it’s no longer possible to squeeze more productivity out of current workers. That data, combined with the GDP growth we’ve already mentioned, suggest that a wave of hiring is on the way. That would be a very good sign for the future of the economy.