U.S. Markets Weekly – February 28 – March 4, 2011

Posted March 4, 2011 by CLeahey

[private][private]MARKET DATA AND THE OUTLOOK

Equity markets took a decidedly negative of view of this week’s employment report, focusing on the flat hourly earnings result. Expectations were for a +0.2% increase. These concerns dovetail with that oil prices at $100 per barrel will erode consumer purchasing power. Higher oil prices have no doubt added an additional dimension of risk to the outlook, and gyrations in the markets are likely to follow gyrations in oil prices for the near-term. Our model-based assessment is that oil price shocks of sufficient size can cut real GDP and consumption growth – though not necessarily cause a double-dip recession – and lead to a modestly and temporarily higher rate of inflation. But these risks should be weighed against other positive signs coming out of the high frequency market data recently. In our minds, these results keep us confident in the sustainability of the expansion, corporate earnings, and the cyclical equity bull market.

IMPLICATIONS

Oil prices just north of $100 per barrel have raised the downside risk profile for the expansion. The latest jobs report, meanwhile, didn’t boost optimism substantially. Nevertheless, DE is holding to its baseline forecasts for real GDP growth and unemployment.

DE-USMW-3-4-11[/private][/private]