Market Week: January 30, 2012

The Markets A rally in domestic equities in response to Wednesday's Fed announcement of plans to keep interest rates low couldn't be sustained through the rest of the week. The Nasdaq and small-cap Russell 2000 saw the bulk of the week's gains, demonstrating resilience in the face of uncertainty about Greece's talks with its bondholders. The Fed's announcement pushed intermediate-term Treasury yields down but had little effect on longer maturities.

*Equities data reflect price changes, not total return.

Last Week's Headlines

• The exception becomes the rule: The Federal Reserve's Open Market Committee announced that interest rates will remain at today's exceptionally low levels longer than previously expected. Saying economic expansion continues to be moderate, the Fed forecast low rates will last through at least late 2014.
• Greece continued to negotiate with its private bondholders over a planned writedown on its sovereign debt. The sticking point is reportedly the interest rate on the bonds that will be exchanged for existing bonds. Meanwhile, leaders attending the Davos World Economic Forum said that despite economic uncertainty, they believe the European debt crisis has begun to come under control.
• The U.S. economy grew 2.8% in the final quarter of 2011. The initial estimate of gross domestic product is higher than the third quarter's 1.8% GDP, but according to the Bureau of Labor Statistics, higher inventory levels were a major factor.
• Sales of new homes fell sharply in December, according to the Commerce Department. The 2.2% monthly decline put sales 7.7% below December 2010, and the 302,000 homes sold in all of 2011 was 6.2% below 2010's total.
• Demand for transportation-related equipment helped produce a 1.8% increase in new orders from manufacturers in November. The Commerce Department said the strongest increase came in durable goods designed to last at least three years, which saw a 3.7% increase in orders. Even excluding transportation, new durable goods orders were up 0.3%, and non-defense-related orders other than aircraft were up 1.8%.
• The International Monetary Fund cut its forecast for 2012 global growth to 3.3%, slightly lower than 2011's 3.8%. Rising interest rates on European sovereign debt and bank deleveraging could bring on a mild recession there, the IMF said, but it also warned that overly aggressive austerity programs could choke off growth.
• The Conference Board's index of leading economic indicators rose 0.4% in December to 94.3. The organization said the reading would have been stronger except that the index included for the first time a measure of credit conditions, which was negative and helped moderate positive contributions from 7 of the index's 10 indicators.

Eye on the Week Ahead

Believers in the January indicator will be eyeing the end of the month on Tuesday for clues about how the rest of the year might go. A Greek bond agreement could produce euphoria, and a failure to come up with one could produce the opposite. Little change is anticipated in Friday's unemployment figure, and data on the nation's manufacturing and services sectors also will be watched.

Key dates and data releases: personal income/spending (1/30); home prices (1/31); auto sales, U.S. manufacturing, construction spending (2/1); weekly new jobless claims, business productivity and labor costs (2/2); unemployment/payrolls, U.S. services sector, factory orders (2/3).

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Data sources: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

Market Week: January 23, 2012

The Markets Downgrades? What downgrades? Having just lowered its long-term ratings on nine eurozone sovereigns, Standard and Poor's downgraded the European Financial Stability Fund itself early last week. European equity markets responded with a four-day rally, choosing to focus instead on the renewed possibility of a deal on Greek debt, and strong bond sales by France and Spain. The rally petered out on Friday, however, as doubts about Greece began to creep back in. Domestically, equities reached six-month highs, with the S&P 500 and Dow Industrials gaining every day of the holiday-shortened week (and the Nasdaq just missing that feat with a 1.63 point loss on Friday). This third straight week of equity gains--fueled by bank earnings, encouraging economic news, and eurozone optimism--slowed, at least temporarily, the flow of funds to U.S. Treasuries, which finished the week with yields on benchmark 10-year notes rising back above the 2% level.

*Equities data reflect price changes, not total return.

Last Week's Headlines

• Standard and Poor's downgraded its long-term rating on the European Financial Stability Fund from AAA to AA+, expressing some concern about the fund's bailout capabilities in light of S&P's downgrade of member states Austria and France.
• Negotiators for Greece's private creditors left talks in Athens suddenly on Saturday, leaving the status of a possible deal unclear and resurrecting the specter of a disorderly default.
• Despite the selloff in traditional notes, the Treasury Department announced the record sale of $15 billion of 10-year Treasury Inflation Protected Securities (TIPS) last week with a "high-yield" of negative 0.046%, marking the first time 10-year TIPS have been sold with a negative yield.
• After revising the prior week's numbers back over the 400,000 benchmark, the Department of Labor reported that seasonally adjusted initial claims for unemployment benefits dropped by 50,000 to 352,000, the lowest total since April 2008. The somewhat less volatile 4-week moving average was 379,000, a decrease of 3,500 from the previous week's revised average of 382,500.
• The Federal Reserve announced that industrial production increased 0.4% in December after having fallen 0.3% in November. For the fourth quarter as a whole, industrial production rose at an annual rate of 3.1%, its 10th consecutive quarterly gain. Manufacturing production climbed 0.9% in December, the largest increase in a year, with gains widespread among major industry groups.
• The Bureau of Labor Statistics reported that the Consumer Price Index for All Urban Consumers (CPI-U) remained flat for December. The index for all items other than food and energy (core inflation) increased just 0.1% in December, after rising 0.2% in November. However, the CPI rose 3% overall in 2011, compared to a 1.5% increase in 2010.
• The Bureau also reported that the producer price index for finished goods (PPI, measuring wholesale inflation) declined 0.1% in December. Excluding food and energy, however, the index rose 0.3% in December, the largest increase since July 2011. The PPI rose 4.8% in 2011, after rising 3.8% in 2010.
• There was some positive news in the housing sector. The National Association of Home Builders reported that builder confidence in the market for newly built single-family homes continued to rise for the fourth consecutive month, reaching its highest level since June 2007. The National Association of Realtors announced that sales of existing homes rose 5% in December to an 11-month high. For all of 2011, existing home sales rose 1.7% to 4.26 million, up from 4.19 million sales in 2010. And the Commerce Department reported that new single-family housing starts rose 4.4% in December. However, 2011 ended as the worst on record for single-family home construction. Meanwhile, Freddie Mac reported that the average 30-year fixed rate mortgage edged down slightly for the week ending January 19 to 3.88%, a new all-time record low, marking the seventh consecutive week below 4%.

Eye on the Week Ahead

The first look at U.S. economic growth for the final quarter of 2011 could suggest the potential for further recovery in the coming year. Wednesday's Fed announcement is scheduled to include a forecast for the federal funds interest rate at the end of the year; any projected change could affect bond markets. But Greece may take center stage yet again, as the race to avoid a disorderly default continues.

Key dates and data releases: Federal Open Market Committee announcement (1/25); durable goods orders, new home sales (1/26); initial estimate of Q4 2011 gross domestic product (1/27).

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Data sources: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

Market Week: January 17, 2012

The Markets Two in a row: Helped along by benign economic reports, domestic equities built on last week's gains. However, market leadership migrated to the Nasdaq and small-cap Russell 2000. Friday's after-hours release of Standard and Poor's European downgrades prevented the news from having much impact last week, though rumors weighed on markets during the week's final hours.

*Equities data reflect price changes, not total return.

Last Week's Headlines

• Standard and Poor's downgraded the AAA bond ratings of both France and Austria to AA+. It also cut Spain's rating to A and Italy's to BBB+, and reduced Portugal's rating to BB (junk bond status), all of which are likely to increase the cost of borrowing for those countries. Because France is Europe's second-largest economy and a pillar of the European Financial Stability Fund, the downgrades raised concerns about the impact on the fund's bailout capabilities.
• Meanwhile, the German economy contracted by 0.25% during the fourth quarter, and the 3% growth rate for all of 2011 was lower than the previous year's. Both the European Central Bank and the Bank of England kept their benchmark interest rates at 1% and 0.5%, respectively.
• Falling exports and higher foreign oil imports helped increase the U.S. trade deficit by more than 10% to $47.8 billion in November, the Commerce Department said. That's the largest increase since May.
• The Commerce Department also reported that retail sales rose 0.1% in December, up 6.5% from last December. However, not counting a 1.5% increase in auto sales, retail sales were down 0.2%.
• The Federal Reserve turned over to the U.S. Treasury $76.9 billion in net income, derived mostly from interest earned in 2011 from purchases of U.S. Treasuries and mortgage-backed securities bought as part of its quantitative easing programs. That's slightly less than the previous year's $79.8 billion, but still well above 2009's $47.4 billion.
• The Fed's "beige book" report said economic conditions increased at a "modest to moderate pace" during late November and December. That was an improvement from earlier in the year, and was helped along by retail sales that beat last year's and strong auto sales.

Eye on the Week Ahead

Though the reaction to the European downgrades will likely steal the spotlight, a data-heavy week also will include inflation and manufacturing data.

Key dates and data releases: Empire State manufacturing survey (1/17); wholesale inflation, industrial production, international capital flows (1/18); consumer inflation, housing starts, Philadelphia Fed manufacturing survey, weekly new jobless claims (1/19); home resales, options expirations (1/20).

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Data sources: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

Market Week: January 9, 2012

The Markets So far, so good: The new year got off to a moderately encouraging start, beginning with solid reports on manufacturing and construction and ending with a fourth month of improved employment data. The Nasdaq took the lead; it was the first week since early October in which its gains outpaced those of the other three domestic indices. Not surprisingly, the Global Dow continued to be sluggish.

*Equities data reflect price changes, not total return.

Last Week's Headlines

• Unemployment fell in December for the fourth straight month, hitting 8.5%; that's almost a full percentage point from last December's 9.4%. The Bureau of Labor Statistics said employers added 200,000 net new jobs, with the biggest gains occurring in transportation/warehousing, retail, and manufacturing. The measure of unemployment that includes underemployed workers also fell; it's down from 15.6% to 15.2%.
• U.S. manufacturing growth accelerated in December, according to the Institute for Supply Management. The ISM's index hit 53.9%, its highest level since June; it was the 29th straight month of expansion. Meanwhile, the Commerce Department said new durable goods orders also rose by 3.8%. The growth, driven primarily by new orders for aircraft and other transportation equipment, represented the fourth increase in the last five months.
• The Federal Reserve will start spelling out its expectations for the direction of short-term interest rates, including when it might start to raise rates. The forecasts will be made quarterly beginning with the January 25 release of other Fed economic forecasts, which will include projections for the end of this year.
• Expansion in the U.S. services sector picked up at a faster pace in December as the Institute for Supply Management's index rose 0.6% to 52.6%. It was the 26th consecutive month of growth, with 11 of the index's 18 industries reporting improvement.
• The average interest rate on 30-year fixed mortgages fell to 3.91% during the first week of 2012. According to mortgage giant Freddie Mac, that's as low as it's ever been. It also was the fifth straight week of rates under 4%.

Eye on the Week Ahead

Bond auctions are scheduled in Italy and Spain; with Italian 10-year yields over 7%, the results will be watched. Also, Monday's Alcoa earnings announcement represents the informal kickoff for the fourth-quarter earnings season.

Key dates and data releases: Fed "beige book" report (1/11); weekly new jobless claims, retail sales, business inventories (1/12); international trade, import/export prices, consumer sentiment (1/13).

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Data sources: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

Monolith Holiday Lunch

We want to thank everyone who came out to enjoy a little celebrating with us at McCorrmick and Schmicks this holiday season. We had a packed house and a lot of prizes were given away. 

Market Week: January 3, 2012

The Markets Shortened by the Christmas holiday, the last week of 2011 saw low volumes that, despite some volatility, left the domestic equity indices little changed. The Dow was the only one of the four to end the year with a gain, due in no small part to its nearly 12% bounce in the fourth quarter. Meanwhile, the S&P 500 closed out 2011 just four-hundredths of a point below where it began, with a Q4 gain of just over 11%. The summer's volatility cost the Nasdaq and small-cap Russell 2000 dearly; at year's end, they were down 9% and 14% respectively from their April 2011 highs despite the Russell's fourth-quarter 15% gain.

Last Week's Headlines

• Home prices fell in October for the sixth straight month, according to the S&P/Case-Shiller 20-city composite index. Prices were down 1.2% from September, with all but one of the 20 cities tracked by the index showing a decline. Prices also were 3.4% lower than a year ago.
• The National Association of Realtors® said pending home sales (sales for which a contract has been signed but which have not closed) rose 7.3% in November. That represented its highest level since April 2010.
• Spain's new government announced a package of €8.9 billion worth of budget cuts and tax increases to try to attack a deficit that represents roughly 8% of the country's output.

Eye on the Week Ahead

Investors who believe that the first five days of January suggest something about the rest of the year will watch the coming week closely. Manufacturing and construction indicators as well as unemployment data on Friday could suggest whether economic recovery is likely to continue in 2012.

Key dates and data releases: U.S. manufacturing, construction spending, Federal Open Market Committee minutes (1/3); auto sales, factory orders (1/4); U.S. services sector, new weekly jobless claims (1/5); unemployment/payrolls, consumer credit (1/6).

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Data sources: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. Equities data reflect price change, not total return.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.