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This is the "Navigator Weekly Commentary" for the week ending February 3, 2012. The full Navigator Newsletter is available through a password protected login on our web site.

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Market Commentary

U.S. equities advanced solidly on the heels of the non-farm payrolls report showing the U.S. economy added 243,000 jobs in January, far exceeding economists' expectations. Gains were reinforced by a better-than-expected reading from the ISM non-Manufacturing Index. Treasuries were solidly lower on the day's strong data, as the lone disappointment from the US economic calendar came from a rise in factory orders that only slightly missed expectations and also offered an upward revision to November's gain.

The Dow Jones Industrial Average picked up 157 points (1.2%) to 12,862, the S&P 500 Index added 19 points (1.5%) to 1,345, and the Nasdaq Composite rose 46 points (1.6%) to 2,906. In moderate volume, 905 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.35 to $97.71 per barrel, wholesale gasoline picked up $0.05 to $2.91 per gallon, and the Bloomberg gold spot price fell $34.14 to $1,725.41 per ounce. Elsewhere, the Dollar Index-a comparison of the U.S. dollar to six major world currencies- was fractionally lower at 78.96. For the week, including dividends, the DJIA was up 1.6%, the S&P 500 Index rose 2.2%, and the Nasdaq Composite gained 3.2%.

Economic Commentary

Personal income rose 0.5% month-over-month in December, compared to the 0.4% increase that economists surveyed by Bloomberg had projected, and November's 0.1% increase was unrevised. However, personal spending came in flat in December, versus the 0.1% increase that economists expected, and November's 0.1% rise was unadjusted. The savings rate as a percentage of disposable income jumped to 4.0% in December, from an unrevised 3.5% in November.

The Consumer Confidence Index surprisingly deteriorated, dropping from an upwardly revised 64.8 in December to 61.1 for January compared to the improvement to 68.0 that economists surveyed by Bloomberg anticipated. The decline in sentiment came as consumers' assessment of the current situation and expectations of business conditions both decreased. On employment, the labor differential-consumers' appraisal of jobs being "plentiful" minus being "hard to get"-deteriorated from -35.0 to -37.4. Finally, the report showed consumers expect inflation to reach 5.5% twelve months from now, up from the 5.3% projection in December.

Nonfarm payrolls rose by 243,000 jobs month-over-month in January, compared to the consensus estimate of economists surveyed by Bloomberg, which forecasted a 140,000 increase, and the upwardly revised gain of 203,000 seen in December. Also, the unemployment rate unexpectedly moved lower again, falling to 8.3%-the lowest level since February 2009-from an unrevised 8.5% in December, where economists expected it to remain. The unemployment rate has fallen 0.8 points since August. Moreover, average hourly earnings were up 0.2% month-over-month, inline with forecasts, and December's increase was revised to a 0.1% rise, from a 0.2% gain, while average weekly hours remained at an upwardly revised 34.5.

Federal Reserve Chairman Ben Bernanke gave his testimony on the state of the U.S. economy to the House Budget Committee, noting that the Federal Open Market Committee (FOMC) expects somewhat stronger growth this year than in 2011. Bernanke cited recent indicators of spending, production, and job market improvements, but cautioned that the outlook remains uncertain and the pace of recovery has been frustratingly slow, with households facing significant headwinds and the uncomfortably high unemployment rate weighing on sentiment and holding back the housing market. But he did point out that the business sector has been a relative bright spot in the current recovery, with manufacturing production increasing 15% off its trough and capital spending by businesses having expanded briskly over the past two years. Also, Bernanke added that inflation is expected to remain subdued, giving the Central Bank wiggle room to maintain its highly accommodative stance of monetary policy.

Moreover, the Fed Chairman urged lawmakers to get U.S. fiscal policy back on a sustainable path, but they should take care not to unnecessarily impede the current economic recovery. Bernanke said fiscal policymakers can promote stronger economic performance in the medium term through careful design of tax policies and spending programs. Finally, the Fed Chief did not offer any signals suggesting that further monetary policy easing was on the horizon.

Bond Commentary

Treasuries were solidly lower following the upbeat economic data. The yield on the 2-year note gained 1 basis point to 0.23%, the yield on the 10-year note jumped 12 basis points to 1.94%, and the 30-year bond rate rose 15 basis points to 3.15%.

Model Portfolios

The Navigator Team has made no changes to our Fidelity, Schwab or Vanguard oriented model portfolios.

Looking to Next Week

Economic and earnings releases out of the US will slow down a bit next week, and attention may shift back overseas. Among the central bank meetings, the European Central Bank (ECB) meeting will hold importance. Despite the survey of economists by Bloomberg expecting no change in rates, the commentary by ECB President Mario Draghi will be scrutinized, as will any other non-standard measures the central bank puts in place. Additionally, the negotiations on a second Greek bailout and possible participation by the ECB in aiding Greece through taking either a loss or transferring their holdings of Greek debt will be watched.

As for the U.S. economic calendar, releases will include consumer credit, MBA Mortgage Applications, initial jobless claims, wholesale inventories, the trade balance and the preliminary University of Michigan Consumer Sentiment Index for February.

Thank you for being a loyal Navigator reader, and enjoy your weekend.