Market Week: March 26, 2012

The Markets Reports of weaker manufacturing data from China and Europe helped take the edge off the prior week's strong equities gains. The S&P slipped back below 1,400, but the Dow remained above 13,000 despite being outgunned by its domestic peers, while the Nasdaq continued to lead the pack. Ten-year Treasury yields slipped a bit as investors seemed to have second thoughts about the previous week's flight from quality.

Last Week's Headlines

• Housing starts fell 1.1% in February, and the Commerce Department said most of the decline came in single-family construction, which was down 9.9%. However, housing starts were still 34.7% higher than the previous February. Also, building permits--an indicator of future construction--were up 5.1% for the month and 34.3% from a year ago.
• Purchasing managers in both China and key European countries reported contraction in their manufacturing sectors, raising concerns about what that might mean for the global economy.
• A piece of Apple's pie: The tech giant finally broke down and announced it would start distributing some of its cash stockpile to investors in the form of $2.65 quarterly dividends beginning with the July-September 2012 quarter. It also will launch a three-year stock buyback program in FY 2013.
• Sales of existing homes were 0.9% lower in February than the month before, but still 8.8% higher than a year earlier, according to the National Association of Realtors®. New home sales also dipped in February, though the Commerce Department said the 1.6% decline still left sales 11.4% higher than the previous February. The median new-home sales price rose more than 8% during the month, to $233,700.
• Saudi Arabia suggested it is prepared to try to help offset any negative global economic impact of higher oil prices. Coupled with concerns about slower Chinese economic growth, the announcement helped oil prices ease slightly.
• The Federal Reserve earned slightly less in 2011 than it did the year before. However, the $77.4 billion, mostly from interest on bonds bought as part of its quantitative easing efforts, was still the second-highest amount on record. Roughly $75 billion will be turned over to the U.S. Treasury.

Eye on the Week Ahead

As the U.S. Supreme Court listens to three days of arguments on 2010's health-care reform legislation, data on personal spending and durable goods orders will help flesh out the portrait of the U.S. economy, along with the final gross domestic product numbers for 2011's last quarter. Institutional investors also will be using the week to try to protect or improve their first-quarter results.

Key dates and data releases: home prices (3/27); durable goods orders (3/28); final Q4 GDP (3/29); personal income/spending (3/30).

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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: March 19, 2012

The Markets Between the relative calm over Greece, the Fed's stand-pat stance, and a tiny bit of easing on the oil front, investors felt comfortable fleeing the low yields of U.S. Treasuries. That sent yields soaring, particularly at the shorter end of the spectrum; as bond prices fell, the benchmark 10-year yield hit a level not seen since last August. Equities benefitted across the board. The S&P 500 had its best week of the year and closed above 1,400 for the first time since May 2008, while the Dow recaptured 13,000 and tied its 2012 weekly record.

Last Week's Headlines

• No news is good news: The Federal Reserve continued to stay the course on both interest rates and its Operation Twist bond purchases. The statement said the Fed expects higher gas prices to boost inflation temporarily but not long term, and that global financial markets have eased but continue to pose significant downside risks.
• Spiking gas prices translated into spiking consumer inflation in February. According to the Bureau of Labor Statistics, most of the 0.4% increase was the result of a 6% jump in gas prices during the month; excluding food and energy, costs were up only 0.1%. Meanwhile, wholesale prices were up 0.4%, with energy once again accounting for the bulk of the increase. However, the 3.3% wholesale increase since February 2011 was the smallest yearly figure since August 2010.
• Dramatically reduced exports helped create China's largest monthly trade deficit in two decades. According to China's General Administration of Customs, a 40% increase in imports helped push February's trade deficit to $31.5 billion, though China's lunar New Year holiday in January also may have affected the monthly figures.
• The Federal Reserve's March surveys of manufacturing in the Philadelphia and New York regions showed continued expansion at a moderate pace. Meanwhile, the Commerce Department said a manufacturing slowdown and lower natural gas extraction kept U.S. industrial production relatively unchanged.
• Fifteen large banks passed the Federal Reserve's stress tests and will be able to increase dividends or institute stock buy-backs, which some have announced plans to do. However, four others--Ally Financial, SunTrust Banks, MetLife, and Citigroup--must resubmit plans that show they have sufficient capital reserves to handle a financial crisis.
• February's retail sales were up 1.1% from the previous month and 6.3% higher than February 2011, according to the Commerce Department. Not surprisingly, gas prices were up the most, but car dealers, clothing and department stores, and building/garden supplies dealers also saw 1%+ increases; building/garden materials and equipment were up 13.8% from the same time last year.

Eye on the Week Ahead

With conditions in place for Greece to make its bond payments on Tuesday, domestic housing data could suggest whether the relatively benign housing statistics of recent months were produced by mild weather or the beginning of a genuine recovery.

Key dates and data releases: housing starts, Greek bond payments due (3/20); home resales (3/21); new home sales, weekly new jobless claims (3/23).

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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: March 12, 2012

The Markets After a rough Tuesday, domestic equities nevertheless mostly managed to struggle back to even. Hurt by the year's first triple-digit one-day downdraft, the Dow was left behind as the other three domestic indices managed gains (though the S&P 500's single point barely qualifies). By Friday--the third anniversary of the bull market that began on March 9, 2009--the small-cap Russell 2000 had recaptured just over half of last week's losses.

Last Week's Headlines

• In the largest sovereign restructuring on record, 85% of private Greek bondholders agreed to "voluntarily" swap their holdings, which allows Greece to invoke collective action clauses that impose the same terms on most of the remaining creditors. The arrangement will cut the country's roughly €200 billion of debt by more than half and facilitate release of bailout funds that will permit Greece to make bond payments due next week. However, the International Swaps and Derivatives Association said the restructuring qualified as a "credit event." That means that financial institutions who sold credit default swaps on bonds will have to pay off on roughly $3 billion worth of contracts with bondholders forced by the collective action clauses to accept the deal.
• The U.S. economy added 227,000 new jobs in February, according to the Bureau of Labor Statistics. It was the third straight month in which job growth has exceeded 200,000; the BLS also said the numbers for the previous two months were higher than previously thought. However, improved employment prospects also prompted more people to try to reenter the workforce, which helped keep the unemployment rate at 8.3%.
• Economic growth declined by 0.3% in both the eurozone and the larger European Union during 2011's last quarter, according to the EU's official statistics agency, though both grew roughly 1.5% last year. European Central Bank President Mario Draghi said the ECB expects the eurozone economy to contract by 0.1% this year, followed by 1.1% growth in 2013. Both the ECB and the Bank of England left their key interest rates unchanged.
• China cut its growth rate target for the first time in eight years, lowering it to 7.5% from 8%; Chinese growth has helped fuel commodities demand in recent years.
• The U.S. services sector saw its 26th consecutive month of expansion in February. According to the Institute for Supply Management, higher inventories and prices as well as increased production were the biggest contributors to the accelerated growth.
• Orders for all manufactured goods fell in January for the first time in three months; according to the Commerce Department, orders were down 1%, with transportation accounting for most of the decline. Meanwhile, labor productivity--a measure of output per hour worked--rose 0.9% in the last quarter of 2011, putting the annual gain at 0.3%.
• The Commerce Department said that more imported cars, capital goods, and food helped push the U.S. trade deficit up 4.3% in January to $52.6 billion.
• The Treasury Department sold an additional $6 billion worth of shares in American International Group as it continues to unwind the investments made by the Troubled Asset Relief Program (TARP); roughly half the amount was purchased by AIG itself.
• Harrisburg, Pennsylvania, which was placed in receivership after attempting to file for bankruptcy last year, said it will miss $5.27 million in municipal bond payments due Thursday.

Eye on the Week Ahead

The Fed's Tuesday announcement will be watched for any discussion of so-called "sterilized" bond purchases in the future that could help keep long-term interest rates low after Operation Twist expires in June. Manufacturing, retail, and inflation data also will give a snapshot of the U.S. economy.

Key dates and data releases: retail sales, Federal Open Market Committee announcement (3/13); import/export prices (3/14); wholesale inflation, international capital flows, Philadelphia Fed/Empire State manufacturing surveys (3/15); consumer inflation, industrial production, quadruple witching options expiration (3/16).

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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: March 5, 2012

The Markets The small caps of the Russell 2000 took it on the chin last week, while the other indices more or less held their own. The Dow finally managed to close above 13,000, which it hasn't done since May 2008, but couldn't hang on through the end of the week. Meanwhile, the Nasdaq continued to outpace its domestic peers.

Last Week's Headlines

• The U.S. economy grew at an annual rate of 3% in Q4 2011, a more rapid pace than the 2.8% previously estimated. According to the Bureau of Economic Analysis, inventories, consumer spending, and commercial construction were major contributors to the increase.
• European Union leaders (other than those of the United Kingdom and the Czech Republic) signed a treaty intended to impose greater fiscal discipline in the EU. Meanwhile, the German parliament voted to support the second Greek bailout and eurozone finance ministers agreed to release new funds for the permanent European Stability Mechanism that will handle financial assistance efforts. Also, European banks refinanced almost €530 billion worth of loans as part of the European Central Bank's second long-term refinancing operation (LTRO) to maintain liquidity in the financial system.
• Orders for durable goods such as autos, appliances, and furniture fell 4% (3.2% if transportation is excluded) in January after three straight monthly increases. The Department of Commerce said transportation equipment, especially orders for commercial aircraft, fell the most (-19%). However, declines also were seen in computers and heavy machinery, both down more than 10%, while orders for cars were up 0.9%.
• U.S. manufacturing continued to expand in February for the 31st straight month, though at a slightly slower pace. The Institute for Supply Management said new orders, production, and employment also grew.
• Recent increases in housing sales didn't translate into higher prices in December. The S&P/Case-Shiller national index showed home prices at their lowest level since mid-2006; the index was down almost 34% from its Q2 2006 peak.

Eye on the Week Ahead

Global markets will watch to see whether at least 30% of Greece's bondholders formally accept its bond swap offer on Thursday. U.S. unemployment numbers and eurozone GDP data also will be of interest.

Key dates and data releases: factory orders, U.S. services sector (3/5); labor productivity/costs (3/7); unemployment/payrolls, balance of trade (3/9).

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.