Companies' Earnings Point Toward Economic Recovery

Mixed news pervaded the markets last week as we saw mortgage rates fall, rise, and end the week roughly where they started. Housing showed some positive signs, with existing home sales climbing 12.3% last month, and inventory levels dropping to 8.1 months of available homes at the current rate of sale. Jobless claims had previously spiked with more post-holiday cutbacks than expected, but have since fallen, and show a strong 4 week improvement overall.

With companies continuing to release 2010 earnings, signs have generally pointed toward economic recovery. Earnings releases are expected to continue heavily through the end of the week. Along with this, a flurry of news and economic data is being released. S&P will kick things off tomorrow, releasing its figures for November Home Prices. Following this, attention will focus on New Home Sales, Consumer Confidence, the President’s State of the Union address, and the Federal Reserve’s first meeting of the year. Although no change in monetary policy is expected, many will look for the Fed’s view on continuing their Quantitative Easing program, supporting the purchase of Treasuries and Mortgage-Backed Securities in an effort to foster lower rates and economic growth. Toward the end of the week, Durable Goods orders, fourth quarter GDP, and unemployment figures will be released.

Overall, look for some possible volatility in interest rates as the market digests all this new data & news. When analyzing this data, many will continue to focus on the impact on employment and the labor market……a critical driver for future economic growth.

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