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Wall Street Strategies has been providing independent stock market research since 1991 to individual, retail and institutional clients through a balanced approach to investing and trading. Charles Payne, our founder and chief analyst, is routinely sought after for his stock market, political,... More
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  • STOCKS STRUGGLE TO MAKE GAINS By WSS Research Team 0 comments
    Jan 30, 2013 1:50 PM

    By Carlos Guillen

    Stocks are having an overall up day ... barely, but this comes after a rather erratic start to the trading session, which had the Dow Jones Industrial Average down over 20 points. Perhaps part of the volatility was fueled by rather mixed economic data that had better than expected jobs numbers negated by worse than expected economic growth.

    Quite encouraging this morning was the ADP report, which showed more than expected jobs added to the economy and gave hope for a stronger than expected result this Friday when the government's numbers are delivered. According to ADP, 192,000 private sector jobs were gained during January, above the Street's consensus estimate calling for a gain of 175,000 jobs and above the 185,000 added jobs in the prior month, making five months of improvement in nonfarm gains. The data showed that payroll gains were predominantly driven by small businesses, which added 115,000 jobs. Medium business payrolls increased by 79,000, but large businesses lost 2,000. As usual, most of the added jobs came from the services sector, which ADP said added 177,000 jobs, while the goods-producing sector experienced a gain of 15,000 positions. Also a bit encouraging was that January represented the 35th consecutive month in which jobs were added to the economy. At the moment, economists are predicting for this Friday that private sector businesses will have added 193,000 jobs in January, and the unemployment rate will likely decline a bit to 7.7 percent.

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    Clearly, the most negative bit of economic data today was that gross domestic product (GDP) came in worse than expected. According to the Bureau of Economic Analysis, real gross domestic product during the fourth quarter of 2012 decreased quarter-over-quarter by 0.1 percent (annualized), worse than the Street's consensus estimate calling for a 1.0 percent quarter-over-quarter rise and much lower than the 3.1 percent growth posted for the third quarter. On the positive side, it was very encouraging to see that consumption increased 2.2 percent, making 12 quarters of consistent growth. However, a sharp drop in government spending and in domestic investment more than negated the positive contribution from consumer spending. Although this result is rather backward looking and a lagging indicator, it is still a disappointment to see debilitating economic growth. Looking forward, we are not seeing a favorable backdrop for GDP growth. Given that consumption represents approximately 70 percent of GDP, it is critical that growth in this segment of the economy is maintained, but this may not be the case. Most signs are that the consumer is losing confidence, particularly in light of the recent hikes in the payroll tax that has undoubtedly dampened consumers' spirits. It is also likely that confidence will remain depressed for some time as consumers adjust to their lower paychecks. So GDP growth may remain under pressure this first quarter.

    (click to enlarge)

    At the moment equity markets are struggling to stay in the green, with the Dow up just 6 points. The rest of this week will likely be rough for stocks as more economic data and more companies continue to push and pull stocks in all directions.


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