What Last Week's Activity Could Mean Today

01/20/2014 11:30 am EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

The seemingly trendless nature of the market last week may have been in response to the Martin Luther King, Jr. holiday weekend, says MoneyShow's Jim Jubak, however, it could mean even more later on down the road.

Not surprisingly, US stocks weren't headed much of anywhere on Friday. At the close 2:30 PM, the Dow Jones Industrial Average was ahead 0.25%, largely on the strength of American Express (AXP), and the Standard & Poor's 500 stock index (SPX) was off 0.39%.

Thanks to today's Martin Luther King holiday, this is a long weekend for US markets, and traders never like to make strong portfolio moves ahead, when they're facing three days of no trading.

Especially when the economic data and earnings continue to be relatively trendless.

On the one hand, the economy continues to show decent strength. Friday morning, for example, the markets got stronger than expected numbers on housing starts—December housing starts fell to an annualized rate of 999,000, down from November's 1.11 million annualized rate, but ahead of the 985,000 rate that economists surveyed by Bloomberg had expected. The December annualized rate is significantly above the 923,000 starts for all of 2013. The 2013 total was up 18.3% from 2012 and is the most since 1.36 million starts in 2007—before the sub-prime mortgage bust and the global financial crisis.

More good news came from the Federal Reserve, which reported Friday that output at factories, mines, and utilities climbed 0.3% in December. That put the annualized gain in output at 6.8% in the fourth quarter. That's the best pace since the second quarter of 2010.

On the other hand—and just so we don't get too giddy—the Thomson Reuters/University of Michigan index of consumer confidence (IND:CONSSENT) fell in January—unexpectedly. The index dropped to 80.4 from 82.5 in December. Economists surveyed by Briefing.com had projected a pickup in the index to 83.

Earnings from General Electric (GE) Friday morning illustrate the problem that this kind of decent, but not great, growth poses for a US market that is trading near all-time highs.

General Electric reported a 16% increase in adjusted earnings from continuing operations for the fourth quarter of 2013, over the fourth quarter of 2012. The 53 cents a share the company reported matched Wall Street analyst projections. But the stock was down 2.57% as of 2:30 PM New York time, ostensibly because profit margins climbed by just 60 basis points instead of the 70 basis points that the company had confirmed as a goal, as recently as, December.

I say “ostensibly” because I suspect that the selling is actually more a reflection of, “What have you done for me lately?” After returning 37.3% in 2013, merely meeting analyst expectations isn't enough. And I worry that we might be able to say that for the US market as a whole this earnings season. (General Electric is a member of my dividend income portfolio.)

Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own shares of General Electric as of the end of December. For a full list of the stocks in the fund, see the fund's portfolio here.

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