Sympathy for the Weatherman

RalphCole_032_web_ by Ralph Cole, CFA Executive Vice President of Research

Sweater Weather

As economic and market forecasters, we have a great deal in common with meteorologists. We know forecasting daily moves in the stock market is a fools game, but that over longer  time horizons, our forecasting accuracy improves greatly. Weathermen face the difficult task during snow storms of forecasting snowfalls and temperatures minute-to-minute, and hour-to-hour – to which we say... “No thanks!”

The East Coast has been battered by several snow storms over the past month, and this has had a negative impact on high frequency economic data. The reason that this has such a large effect on government data is because the Northeast megalopolis that spans from Washington D.C. to Boston is responsible for 20 percent of the nation's GDP. Largely due to poor weather conditions, retail sales in the month of January were down .4 percent. Similarly, industrial production also came in weak for the month of January, down 1.4 percent.

We believe the current slight weakness in economic data is a blip on the Doppler radar, and economic growth should accelerate as, literally, the snow thaws.

Welcome to the Jungle

One of Janet Yellen’s first duties as Federal Reserve Chairwoman was the semi-annual report to Congress. Timing of the report was helpful to both Congress and the markets because both senate and house leaders are trying to determine and understand the likely pace of tapering to expect in 2014. More specifically, what indicators will the Fed be relying upon, and are there any hard and fast rules governing the pace of tapering? As any good Fed Chairwoman would do, Janet left answers to all of those questions up in the air. Yes, she would like to continue tapering at this pace, but she is not tied to a $10 billion monthly reduction. Yes the Fed will be monitoring the unemployment rate, but it is not the only indicator they will be considering.

Despite the lack of specifics in her answers, the Fed Chairwoman’s performance was received very positively by the markets and as of this posting the S&P 500 was up 2.4 percent for the week.

Takeaways for the Week

  • Despite several weak near-term economic statistics, the economy continues to expand at a reasonable pace
  • The new Fed Chairwoman assured Congress and the markets that she will be a steady hand at the helm of the Fed