Monday, July 30, 2012

Market Week: July 30, 2012

The Markets

Encouraging words from the president of the European Central Bank helped send the Dow industrials back above 13,000 for the first time since May. The other domestic equity indices also rebounded strongly, largely wiping out last week's declines, and the Global Dow managed to return to positive territory for the year. Investors felt comfortable enough to lighten up on Treasury bonds a bit, and the euro briefly strengthened to $1.21.

Last Week's Headlines

The U.S. economy grew more slowly during the second quarter. The Bureau of Economic Analysis's initial estimate of gross domestic product was 1.5% compared to Q1's 2%. While personal consumption, exports, and business investments in equipment and inventory were up, they were partly offset by higher imports and cuts in state and local government spending.
After a strong showing in May, sales of new single-family homes dropped 8.4% in June, according to the Commerce Department. Also, the National Association of Realtors®' gauge of pending home sales fell below the 100 level considered healthy, though it was 9.5% higher than a year ago. Meanwhile, mortgage buyer Freddie Mac said the average rate on a 30-year mortgage last week fell below 3.5% for the first time since record-keeping began roughly 60 years ago. The 30-year fixed rate was 3.49%, while the 15-year fixed mortgage hit 2.8%, also a new record low.
Durable goods orders were up 1.6% in June, but that was largely due to orders for aircraft, according to the Commerce Department. Excluding transportation, orders for goods designed to last at least three years were down 1.1%.
European Central Bank President Mario Draghi said the ECB will take whatever steps are necessary to preserve the euro, and suggested those might include joining forces with the eurozone's bailout fund to buy Spanish and Italian sovereign bonds.

Eye on the Week Ahead

Investors will look to the Fed on Wednesday hoping for new economic support. Friday's unemployment data is expected to show little change. Manufacturing and services data also will suggest the state of the U.S. economy. The European Central Bank meets on Thursday.
Key dates and data releases: personal income/spending, home prices (7/31); Federal Open Market Committee announcement, U.S. manufacturing (8/1); weekly unemployment data, factory orders (8/2); unemployment/payrolls, U.S. services sector (8/3).

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.

Monday, July 23, 2012

Market Week: July 23, 2012

The Markets

Despite falling roughly 1% on Friday, large-cap equities still managed to end the week in positive territory. However, that was more than could be said for the small-cap Russell 2000, which fell even more than the Global Dow. Meanwhile, oil prices rose back above $90 a barrel.

Last Week's Headlines

Despite eurozone finance ministers signing off on a €100 billion rescue package for Spain's banks, yields on the country's 10-year bonds once again rose above 7%. Spanish regional governments appealed for help, and the national government passed new austerity measures but warned that the country's recession could last into next year.
Consumer prices were flat in June, according to the Bureau of Labor Statistics; that put the annual inflation rate for the past 12 months at 1.7%.
According to the Commerce Department, the 0.5% drop in retail sales in July was the third straight monthly decline, fueled in part by lower gas prices and auto sales.
Housing data for June painted a conflicting picture of the housing market. Home resales fell 5.4%, according to the National Association of Realtors®. Meanwhile, the Commerce Department said housing starts were up 6.9% for the month, and earlier estimates were revised upward.
Federal Reserve data on U.S. manufacturing also was mixed. Industrial production at U.S. factories was up 0.4% in June, and the Fed's index of manufacturing in the New York region rose in July to 7.4 from 2.3. However, the same index for the Philadelphia region shrank for the third straight month, though the rate of loss was slightly better than in June.
The International Monetary Fund cut its estimate of 2012 global growth to 3.5%, slightly lower than its forecast of three months ago. The report also warned European and U.S. leaders that the figure could be much lower if they fail to adequately address issues such as the debt crisis in Europe and the 2013 "fiscal cliff."
Federal Reserve Chairman Ben Bernanke expressed similar concerns in his semi-annual assessment of the U.S. economy to Congress. The Fed's beige book report showed moderate but slowing economic growth, and only tepid gains in employment.

Eye on the Week Ahead

A week heavy with consumer-oriented earnings reports will precede the first look at second-quarter economic growth; a number substantially lower than Q1's 1.9% could raise hopes for additional action by the Fed.
Key dates and data releases: new home sales (7/25); durable goods orders (7/26); initial estimate, Q2 gross domestic product (7/27).

Monday, July 16, 2012

Market Week: July 16, 2012

The Markets

After six days of plodding steadily lower, equities markets rebounded strongly on Friday, helped along by lower valuations and relief about continued (though slower) economic growth in China. The large caps of the Dow and S&P 500 ended the week basically flat, while the Nasdaq, Russell 2000, and Global Dow all fell slightly. Meanwhile, the euro fell to $1.22 for the first time in two years, while the benchmark 10-year U.S. Treasury yield once again hit a record low.

Last Week's Headlines

To avoid shoving Spain's already shaky economy further into recession, eurozone finance ministers agreed to postpone until 2014 the deadline for cutting the country's deficit to less than 3% of gross domestic product. They also approved €30 billion in immediate assistance to support the country's ailing banks, with additional support postponed until after a September report on the condition of individual banks. Meanwhile, Moody's downgraded Italian sovereign debt by two notches to Baa2.
Minutes of the Federal Reserve's Open Market Committee indicated that the Fed may have the gun loaded but hasn't yet cocked the trigger on additional economic support measures. However, a divided committee said additional steps might be warranted if the economy were affected by any significant slowdown in China, the eurozone debt situation, or next year's impending budget cuts and tax increases. Members also questioned whether further reduction in Treasury yields, which are already at record low levels, would have much impact.
China's economy--the second largest in the world--expanded at an annual rate of 7.6% during the second quarter. That's a bit slower than the previous quarter's 8.1%.
The Commodities Futures Trading Commission and the Securities and Exchange Commission adopted rules defining the types of derivatives that will be regulated under provisions of the Dodd-Frank Act. They include credit default swaps that are traded separately from the risk asset underlying the derivative; financial institutions' overexposure to such derivatives played a key role in the financial crisis of 2008. Other over-the-counter swaps to be regulated include currency-related swaps, interest-rate swaps, and total-return swaps. The decision clears the way for swaps to be traded through clearinghouses and exchanges, a step toward providing greater transparency in financial markets. The CFTC also set December 31 as the deadline for compliance with the rules.
The SEC also voted to require stock exchanges and the Financial Regulatory Authority to set up a market-wide system over the next three to four years to track and audit all equities trades, executions, and cancellations. The SEC said a single audit trail would make it easier to investigate insider trading, market manipulation, and broad-based market events such as the May 2010 "flash crash."
According to the Commerce Department, the U.S. trade deficit shrank almost 3.8% in May to $48.7 billion. The decline was driven by higher exports and a drop in the value of imports, primarily industrial supplies and materials.
Wholesale prices edged up slightly in June. The Bureau of Labor Statistics said the 0.1% increase was largely the result of higher food and auto-related prices, while energy costs fell.

Eye on the Week Ahead

The tide of earnings reports may shed light on the impact of Europe's struggling economy on U.S. corporate profitability. Retail and housing data also will be watched.

Key dates and data releases: retail sales, Empire State manufacturing survey (7/16); consumer inflation, industrial production (7/17); housing starts, Fed "beige book" report (7/18); home resales, Philly Fed manufacturing survey (7/19); options expiration (7/20).

Monday, July 9, 2012

Market Week: July 9, 2012

The Markets
Even the small gains seen in equities early in the week fizzled after the holiday on discouraging economic news from around the globe. Only the Nasdaq and small-cap Russell 2000 were still in positive territory by Friday's close. U.S. Treasury prices benefited once again from the bad news as the 10-year yield headed south.

Last Week's Headlines

Unemployment remained stalled at 8.2% and the U.S. economy added just 80,000 new jobs in June. According to the Bureau of Labor Statistics, the average monthly increase in new jobs during the second quarter was only 75,000 compared to the 226,000 monthly average in Q1.
Economic news abroad wasn't encouraging. Eurostat said the unemployment rate in the European Union hit a record 11.1% in May, and there also were signs of weakening manufacturing activity in Germany. The European Central Bank cut its key interest rate to a record low 0.75%, and Spanish and Italian 10-year bond yields rose above 7% and 6% respectively. China also cut its one-year rate for the second time in two months, lowering it to 6%.
According to the Institute for Supply Management, manufacturing activity in the United States fell in June for the first time in three years. The ISM's index dropped to 49.7% from 53.5% the previous month; any number below 50% is considered a contraction. The ISM said new orders and exports also contracted for the first time since mid-2009. However, the Commerce Department said factory orders were up 0.7% in May, and durable goods orders were up even more, by 1.3%.
Meanwhile, China's manufacturing sector also slowed in June to its lowest level in seven months; the National Bureau of Statistics' 50.2 reading was just barely in expansion territory. However, China's services sector saw solid expansion with a 56.7 reading by the NBS.
The U.K. Serious Fraud Office announced it will investigate possible criminal charges in connection with manipulation of the London Interbank Offered Rate (LIBOR). Barclay's PLC was fined £290 million by the U.K.'s Financial Services Authority the previous week after it admitted that false LIBOR-related information had been repeatedly submitted since 2005. It also had previously been fined $160 million by the U.S. Department of Justice.
The International Monetary Fund urged the United States to reduce uncertainty about the impending "fiscal cliff." The IMF said the package of tax increases and government spending cuts scheduled to take effect in 2013, coupled with the anticipated renewed wrangling over an increase to the U.S. debt ceiling at year's end, could threaten an already tepid economic recovery.

Eye on the Week Ahead
The week kicks off with Alcoa's earnings release, which marks the unofficial start of the Q2 earnings season. Also, eurozone finance ministers will meet to try to figure out how to implement the recent agreement to tighten fiscal union among countries. Meanwhile, auctions of 10- and 30-year U.S. Treasury securities will suggest whether recent strong demand will continue.
Key dates and data releases: eurozone finance ministers' meeting (7/9); balance of trade, Federal Open Market Committee minutes (7/11); wholesale inflation (7/13).

Monday, July 2, 2012

Market Week: July 2, 2012

The Markets

The sight of eurozone officials agreeing to measures designed to ease the region's immediate debt crisis and promote longer-term stability helped power equities upward last Friday. The measures also boosted prices for both oil and gold, while U.S. Treasuries ended the week relatively unchanged.

Last Week's Headlines

Under pressure from Italy and Spain, European Union leaders agreed that a single body--possibly the European Central Bank--should oversee banks in all 17 eurozone countries, and that details should be finalized by year's end. Once that is in place, the current bailout fund and its replacement, the European Stability Mechanism, will be able to lend directly to struggling banks in countries whose governments have been struggling to assist them, such as Spain. The summit also reassured investors that any loans to Spain to address its immediate debt crisis would not be treated as senior to existing bonds.
Implementation of the Patient Protection and Affordable Health Care Act will continue in the wake of the Supreme Court's ruling that the health-care reform legislation is constitutional. The 5-4 decision held that the penalty to be paid by those who choose not to buy health insurance as required by the law is constitutional as part of Congress's power to tax and spend.
The final number for first-quarter GDP remained at 1.9%; that's substantially lower than the 3% of Q4 2011. The Bureau of Economic Analysis said increases in personal spending, exports, and investments in business inventories and both residential and nonresidential investments were partly offset by reduced government spending at the federal, state, and local levels. Expiration of an investment tax credit helped cut corporate profits by 0.3%, compared to Q4's 0.9% increase.
Consumers spent less and saved more in May, according to the Commerce Department. Spending was down 0.1%, while the savings rate went from 3.7% to 3.9%.
After two months of declines, orders for durable goods popped up 1.1% in May, according to the Commerce Department. Even setting aside the 4.9% jump in the commercial aircraft sector, orders for goods intended to last for three years or more were up 0.4%.
The Commerce Department said new home sales shot up 7.6% during May. That put sales at their highest level in more than two years and almost 20% higher than a year earlier. The Northeast and South saw the biggest increases, while sales in the Midwest and West were down.
There also was a bit of good news on home prices. The S&P/Case-Shiller index was up 1.3% in April, and 19 of the 20 cities measured by the index saw gains (Detroit had a 3.6% loss). However, that still left prices 1.9% below last April, though that was better than the 2.6% year-over-year decline of the previous month.

Eye on the Week Ahead

With a midweek holiday in the United States and the Q2 earnings season on the horizon, domestic trading volume could be light, though global investors will continue to assess the impact of last week's EU summit. And as always, Friday's unemployment data will be closely watched.

Key dates and data releases: U.S. manufacturing sector, construction spending (7/2); factory orders (7/3); unemployment/payrolls (7/6).

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.