Persistent investing continued from investors’ persistent focus on a persistent consumer sector. A second full week of broad stock market gains with only some late profit-taking on Friday lifted our Quad-City Times Key 15 by 8.59 to close at 1,258.63.
The bull market that surprises so many observers is continuing to take its cues from that consumer sector: you, me and 350 million Americans who economists tell us are responsible for the buying that creates about
70 percent of the economic output of this country. Whether we buy goods or services, the sellers of those services and the manufacturers whose products we buy are able to gear up, buy more, produce more, hire more, pay more and profit more. The multiplying effects of our own buying are the phenomenon that makes studying economics so enjoyable.
What? Economics “enjoyable?” Sure! Look at Wednesday’s retail sales figures from the U.S. Commerce Department. Investors did. Sales climbed in February on a seasonally adjusted basis, helped by a 5 percent one-month rise in sales by gas stations. We all remember the gasoline price increases that frustrated us.
And here’s where the look at retail gets “enjoyable.” Some perspective is in order. The report shows that compared with last February, total retail sales were up
4.6 percent, a pretty hearty increase, surely helping the economy. Yet, we are critical and want just the comparison without gasoline. That was up even more, 4.8 percent. So gasoline didn’t keep us from other buying, did it?
What were we buying? Cars! And light trucks (pickups). Sales of those vehicles were up an amazing 7.8 percent over last year. And building materials held up too, up 4.5 percent over last February.
So, here’s where those investors grew some of their persistence: If the payroll tax increase of 2 percent taken from all paychecks starting in January for Social Security did not slow our buying, then persistent consumers are driving economic growth throughout the country in 2013. That’s much different than the worries of December. So, investors are much different than in December.
Close to home, the Illinois Department of Employment Security’s just released January jobs report for our metropolitan area showed unemployment down from 8.5 percent last January to 8.4 percent. Frustratingly, it’s up from 7 percent in December, hurt by a normal post-holiday reduction in retail store employment. But there was an uncomfortable drop in trade, transportation and utilities that is not so seasonal. Still, there are 1,128 more folks working than one year ago. Let’s hope for February improvement, with that report out quickly.
Kraft Foods Group, parent of Oscar Mayer here, has been a persistent gainer in our Quad-City Times Key 15, last week up 56 cents to $50.27. The shares enjoyed increased visibility from the announcement that, effective Monday, Kraft shares will join the Nasdaq-100 stock index. In addition to the added attention, index mutual funds that work to replicate the performances of certain stock indexes will likely become buyers of Kraft shares.
Meanwhile, just in time for our renewed focus on spring, Monsanto’s DeKalb seed division released results of a root comparison study. The study, done at a Monsanto research center in Gothenburg, Neb., revealed that DeKalb drought-tolerant corn plants had a “deeper, more evenly spread root structure than competitive products.” The deeper, thicker root structure allows corn plants to reach moisture deeper in the subsoil according to the study. Monsanto shares gained 90 cents last week to $104.25.
The planned acquisition of Heinz by Berkshire Hathaway and 3G Capital will involve the issuance of new bonds backed by Heinz. Standard and Poor’s assigned a “BB” rating to the $12 billion in senior-secured bonds. And, S&P assigned its “BB-” (double-B-minus) rating to the proposed $2.1 billion of second-lien senior rates. The new bonds are intended to help the purchase and pay off some existing Heinz debt. Heinz shares remained quiet, off 2 cents to $72.50.
A new week brings investor focus on what is generally the biggest consumer purchase, a home. Housing starts will be reported Tuesday. Existing home sales will be reported Thursday. In between, the Federal Reserve will meet and then release comments on economic pace and on the Fed’s interest rate policy. What will they say about our enjoyable persistence?
Jim Victor is senior vice president-wealth management and financial adviser for Morgan Stanley Smith Barney LLC, Davenport. Member SIPC. The information contained herein has been obtained by the writer from sources believed to be reliable, but he does not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.