Market Perspective for February 13, 2015

The S&P 500 reached a new all-time high in Friday trading after positive news out of Europe increased market optimism.

Dow components Coca-Cola (KO) and Cisco (CSCO) both reported strong earnings. In particular, Cisco’s turnaround is progressing nicely and although the firm saw sales slip from the prior quarter, they are up strongly year on year. As a major component in many technology funds, the stock’s 9.3 percent advance on Thursday was a big reason why the broader market and technology funds were enjoying a good week.

Retail sales fell 0.8 percent in January as consumers hoarded their gas savings. The drop in sales was mainly due to falling gas prices, but retail sales ex-gasoline was flat. Sales are up 3.3 percent since January 2014 though, showing that spending has increased over the past twelve months. In the short term, consumers have been using their gas savings to continue paying down debt, a trend that has been in place since the 2008 crisis.

There were bright spots in the retail sales report, such as auto sales, which increased 10 percent over January 2014, and food services, which saw an increase of 11.3 percent. The increase in auto sales is good news for automakers as consumers are shifting towards higher margin trucks. That’s a combination that could spell big profits for U.S. automakers this year.

Jobless claims moved above 300,000 last week, but the moving average remains in a steady downtrend over the past 12 months. Winter storms could be responsible for bumping the number up, but the higher figure is still below levels seen in early January.

In Europe, a steady diet of rumored deals surrounding Greece’s bailout kept stocks moving higher, since the news indicated both sides were at least talking. The latest headlines say the Greeks will do “whatever they can” to reach a deal with European creditors. This is a far cry from their comments last week, when they stated they didn’t want any new loans. Similarly, Germany appeared ready to deal with Chancellor Angela Merkel saying compromise is possible. However, both sides are sticking to their positions despite nicer rhetoric, so it’s still unclear what a deal will involve.

The Greeks have more to lose since they want to stay in the euro, so they’re the party most likely to fold. European creditors are also concerned about what a deal will mean for Spain, where the anti-austerity Podemos party is leading ahead of December elections. The Germans appeared ready to let Greece serve as an example to other debtors, and perhaps the Greeks have realized they have the weaker hand. If there is any type of deal, no matter how bad it may be for the long-term, it will be good news for the markets that have partially priced in an immediate crisis.

Europe also benefited from better than expected fourth quarter GDP growth. The eurozone grew at 0.3 percent quarter-on-quarter according to initial figures, with the German exports growing a robust 0.7 percent in the quarter. The eurozone is an oil importer, and the industrial German economy no doubt benefited from both declining oil prices and a lower euro, making their exports more competitive around the globe. The German stock market, measured by the DAX Index, closed at an all-time high on Friday.

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