US equities

January 2012 (covering December 2011)

The US equity market, as measured by the S&P 500 index, was up 1% in US$ terms in December. The telecoms sector led the rally, along with utilities and healthcare, while energy and IT weighed on the index.

The US stock market has been underpinned by a steady improvement in economic newsflow that has now taken the US economic surprise index – a measure which gauges the rate at which data is beating or missing economist forecasts – to 85.7 and within a whisker of its all-time high seen in early March this year.

The latest, in a recent spate of encouraging economic data came from the US unemployment rate, which unexpectedly declined to 8.6% in November, the lowest since March 2009. Payroll figures climbed 120,000, but with more than half of the hiring coming from retailers and temporary help agencies, this may suggest many new jobs are only seasonal. Figures released by the Labor Department showed that lower petrol costs kept the CPI flat in November, but core prices tracked their biggest annual rise in more than three years, indicating that commodity price spikes seen earlier this year continue to affect consumers.

A stronger post-Thanksgiving equity market, lower gasoline prices and lower jobless claims data appear to have buoyed consumer sentiment, with the index rising from 64.1 to 67.7 in November, according to the Thomson Reuters/University of Michigan survey; although this remains way below its typical peak of 90 to 100.

Meanwhile, the US Fed kept its benchmark lending rate on hold at between 0% and 0.25%. The strength of the US economy was called into question by a weaker than expected reading for November retail sales – rising by a modest 0.2% as a fall in sales at food and beverage stores outweighed an upturn in car sales. US home prices continued their decline, falling 1.2% in October to take the 12-month drop to 3.4%, according to the S&P/Case-Shiller index – which is now down 32.1% from its peak in 2006.

In corporate news, the world’s largest drug-maker Pfizer, announced a US$10bn share buy-back programme, as well as an increase in its quarterly dividend. The latter is part of a broader trend as Boeing, Ford and General Electric all announced dividend increases during the month. In other news, Intel, the world’s largest chip maker by sales, cut revenue forecasts by US$1bn because of a shortage of hard disk drives created by Thailand’s devastating recent floods.

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