Friday Afternoon Cheat Sheet: 3 Stories That Moved Markets

After remaining relatively flat throughout the morning, the U.S. equity markets took a dive in the early afternoon and losses were only somewhat curbed by the end of the regular session. The day began mired in some gloomy economic news, but hope remained in the form of better-than-expected consumer sentiment. At the end of the day, evidence that economic headwinds and the expiration of the payroll tax holiday was hurting consumer spending took its toll.

At the close: DJIA: +0.06%, S&P 500: -0.10%, NASDAQ: -0.21%.

Here are three stories that moved markets on Friday:Man Measuring Money

1) The Federal Reserve’s monthly index of industrial production unexpectedly declined in January, according to new data. The preliminary reading showed a contraction of 0.1 percent for the month, below consensus expectations for 0.2 percent growth. The index was dragged by manufacturing, which accounts for 75 percent of total production and contracted 0.4 percent.

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The news was particularly hard-hitting because November and December posted such strong gains. Taken together, the two-month period yielded the highest industrial production since 1984, spurring hopes that broader economic recovery may be a reality instead of a hope. The automobile component also contracted for the month, but is expected to strengthen in the coming periods as the U.S. auto market continues to recover at a rapid pace… (Read more.)

Money Man2) While the New Year tax agreement that was reached by Congress will make a material dent in budgets all across America, perceptions of the economic climate are almost as important as the reality. Consumer sentiment has been closely watched since the financial crisis, as the ebb and flow of consumer spending dictates the health of nearly 70 percent of the economy, and fortunately for market participants a leading index of tracking this nebulous metric increased in February.

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The Thomson Reuters/University of Michigan preliminary February index of consumer sentiment increased from 73.8 in January to 76.3, ahead of median forecasts for growth to 74.8… (Read more.)

3) Speaking at Florida Gulf Coast University on Friday, Cleveland Federal Reserve president Sandra Pianalto said that she expects U.S. economic growth to surpass 2.5 percent in 2013. What’s more, U-3 unemployment could drop to 7.5 percent — a modest improvement, but an improvement nonetheless.

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But as investors well know, tremendous risks remain. The central Fed’s balance sheet has grown to over $3 trillion, and is increasing in size at a rate of $85 billion per month. It doesn’t take a market strategist to understand that such a tremendous position will be risky to unwind, and Pianalto suggests that the Fed could curb some of this risk by easing up on the monetary gas pedal a little. Her comments echo similar calls by other economists and Fed officials who want to see the rate of asset purchases decline in 2013.