Monday, August 27, 2012

Market Week: August 27, 2012

The Markets

After six straight weeks of gains, equities took a breather last week. The S&P 500 bumped up against its year-to-date high but couldn't quite manage to close above it, while the Russell 2000 took the biggest hit. Meanwhile, hopes for Fed action sparked renewed interest in gold, sending the price up $50 an ounce to $1,670.

Last Week's Headlines

Minutes of the most recent meeting of the Federal Reserve Open Market Committee showed that members are seriously considering the possibility of a new bond-buying program--QE3--and keeping interest rates at current low levels even longer than anticipated. A letter to a congressional committee from Fed Chairman Ben Bernanke also indicated the Fed feels it has more ammunition in its arsenal if additional steps are needed to support economic recovery.
News from the housing market was encouraging, particularly compared to last year. Sales of new single-family homes increased 3.6% in July, putting them 25.3% higher than in July 2011. Sales of existing homes also were up, rising 2.3% in July; according to the National Association of Realtors®, that's 8.6% higher than last July. The NAR also said the median home price was up 9.4% from last year as higher-end homes represented a greater percentage of total sales.
Durable goods orders were up 4.2% in July. It was the third consecutive month of increases, but the Commerce Department said a 14% jump in orders for commercial aircraft represented the bulk of the increase. Excluding transportation, new orders were down 0.4%.
Sixteen years after it almost went bankrupt, Apple became the largest U.S. company in history as its market cap hit $623.52 billion. That figure is more than $200 billion higher than current runner-up Exxon Mobil, and higher than the $616.34 billion that Microsoft was worth in 1999 (still the record if inflation is taken into account).
In its semiannual budgetary report, the nonpartisan Congressional Budget Office said that currently scheduled tax rate increases and cuts in federal spending--the so-called "fiscal cliff"--would likely push the U.S. economy into recession next year. The report said the changes would cut real GDP by 0.5% between December 2012 and December 2013 and push the unemployment rate up to more than 9%. Even without the spending cuts and tax increases, the CBO forecast a relatively sluggish 1.7% increase in GDP and unemployment still at 8% by the end of 2013. The CBO also said the scheduled tax increases and spending cuts would reduce the nation's budget deficit to $641 billion in the next fiscal year from an anticipated $1.1 trillion for 2012. That $641 billion would represent 4% of GDP, compared to 2012's projected 7.3%. Extending current tax provisions and eliminating budget cuts would put next year's deficit at $1 trillion and add 2.5% of GDP to the 4% projection.
Securities and Exchange Commission Chairman Mary Shapiro called off a vote on proposed rules that would have tightened restrictions on money market funds. The decision came after it became clear that most commission members opposed requiring funds to either allow a fund's $1 share price to vary depending on the market value of its holdings, or to hold greater capital reserves to cover any losses.
Economic growth in Germany, the eurozone's key economic driver, slowed to 0.3% from 0.5% during the second quarter.

Eye on the Week Ahead

When Fed Chairman Ben Bernanke and European Central Bank President Mario Draghi address the Federal Reserve's annual Jackson Hole gathering on Friday (Bernanke) and Saturday (Draghi), the dynamic duo will have traders on the edge of their seats hoping for signs of fresh policy measures to assist the economy and the euro. Data about the housing market as well as any changes to the estimate of second-quarter U.S. economic growth also will be of interest.
Key dates and data releases: pending home sales (8/27); home prices (8/28); second estimate of Q2 gross domestic product, Fed "beige book" report (8/29); weekly new jobless claims, personal income/spending (8/30).

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, August 20, 2012

Market Week: August 20, 2012

The Markets

Equities had a sixth consecutive week of gains, with the small caps of the Russell 2000 leading the way for a change. The S&P 500 ended the week only a single point away from its year-to-date closing high, and the Nasdaq continued to be the best performer of 2012. Meanwhile, renewed appetite for risk left the 10-year Treasury yield only 8 points from where it began the year.

Last Week's Headlines

The Bureau of Labor Statistics said consumer prices saw no change in July, leaving the annual inflation rate at 1.4%. Energy costs, primarily for electricity, natural gas, and fuel oil, fell 0.3%, offsetting a 0.1% increase in food prices. Not including food and energy, core consumer inflation rose only 0.1% for the month.
U.S. industrial production was up 0.6% in July, according to the Federal Reserve. That was substantially higher than the 0.1% increases seen in May and June, and 4.4% higher than last July. Also, usage of the nation's manufacturing capacity rose to 79.3%; that's the highest level since April 2008. However, manufacturing activity in the Fed's Philadelphia and New York regions contracted by 7.1% and 5.9% respectively.
U.S. retail sales were up 0.8% in July. According to the Commerce Department, that was the first increase in four months and put sales 4.1% ahead of last July. Nonstore retailers were up almost 12% from a year ago, and sales of sporting goods, hobbies, books, and music rose almost 11% in the same time; both categories also saw the strongest monthly gains.
After a 6.8% increase in June, housing starts fell 1.1% in July, though the Commerce Department said they were still 21.5% higher than the previous July. Prospects for future construction improved as the number of new building permits increased 6.8% to hit a level that was almost 30% higher than July 2011.
The Conference Board's index of leading economic indicators continued to seesaw, rising 0.4% in July after June's decline and an increase in May. The biggest contributors were growth in housing permits and lower first-time unemployment claims.

Eye on the Week Ahead

With continued low trading volumes expected, economic reports from Europe could have as much impact as domestic data, while minutes of the Fed's internal debates about further economic stimulus also will receive attention.
Key dates and data releases: Federal Open Market Committee minutes, home resales (8/22); new home sales (8/23); durable goods orders (8/24).

Monday, August 13, 2012

Market Week: August 13, 2012

The Markets

It was the fifth straight positive week for the S&P 500, which hit a level not seen since the beginning of May and managed to remain not far from its year-to-date closing high of 1419. Meanwhile, buyers of U.S. Treasuries backed off a bit, sending yields higher.

Last Week's Headlines

Slower Chinese manufacturing growth led to speculation that there might be additional efforts to stimulate the economy there. Though factory production was up 9.2% in July, it was a far cry from the 14% growth seen at the same time last year, and exports were down 11.3% from June. Meanwhile, China's National Bureau of Statistics showed that inflation continued to slow, falling to an annualized 1.9% increase compared to last July's 6.5%.
The U.S. Department of Agriculture cut its estimate of the nation's corn crop by 17% because of the widespread drought across the country. That would make this fall's harvest the worst in nearly two decades. The lower output is expected to push up the price of corn, which is used not only in many processed foods but also as feed for poultry and livestock, by almost 40% to as much as $8.90 a bushel.
Stronger exports of consumer goods, cars and car parts, and industrial supplies and materials helped cut the U.S. trade deficit by almost 11% in June, to its lowest level since December 2010, according to the Bureau of Economic Analysis. The deficit went from $48 billion to $42.9 billion and also was down $7.4 billion from the previous June. Exports were up $1.7 billion for the month, while imports fell $3.5 billion.
The Mortgage Bankers Association said 11.6% of all mortgages in the United States were either in foreclosure or behind by at least one payment in Q2. That's an increase from Q1's 11.3%, but better than the 12.5% of a year earlier. Meanwhile, new foreclosures rose 0.96% from last quarter; in many cases, proceedings had been halted by widespread problems with faulty mortgage processing.
Business output rose but hours worked by the labor force barely budged during the year's second quarter, according to the Bureau of Labor Statistics. As a result, U.S. labor productivity increased at an annual rate of 1.6%. Output was up 2% while the number of hours worked to produce it increased only 0.4%.
The U.S. Justice Department said a year-long investigation of Goldman Sachs' dealings in mortgage-backed securities did not produce enough evidence to warrant criminal charges in connection with the 2008 financial crisis.
Consumer credit was up 5% during the second quarter and up 3% in June alone, according to the Federal Reserve Board. Revolving credit, such as credit cards, fell half a percent during the quarter, while nonrevolving debt, such as student loans, was up 7.8%.

Eye on the Week Ahead

Retail sales and earnings reports from several major retailers highlight this week's economic data, while inflation figures are expected to show little change.
Key dates and data releases: wholesale inflation, retail sales, business inventories (8/14); consumer inflation, industrial production, international capital flows (8/15); housing starts, leading economic indicators, options expiration (8/17).

Monday, August 6, 2012

Market Week: August 6, 2012

The Markets

Markets that had been reassured a week earlier by words from the European Central Bank rediscovered the jitters when those words weren't followed by action at last week's meeting. However, Friday's strong rally after a better-than-expected U.S. unemployment report managed to give equities a modest gain for the week, with the S&P 500 notching its fourth straight positive week.

Last Week's Headlines

Led by manufacturing, business/professional services, and food/beverage establishments, the U.S. economy added a net 163,000 new jobs in July; according to the Bureau of Labor Statistics, that's a bit higher than the 151,000 monthly average for 2012. The private sector added 172,000 jobs while government employers cut roughly 9,000 positions. However, because more people once again sought work and were therefore counted in the statistics, the unemployment rate edged up from 8.2% to 8.3%.
Both the European Central Bank and the Federal Reserve dashed investors' hopes for fresh action to address economic problems. The Fed decided to stay its current course, keeping interest rates low through late 2014, and the ECB took no concrete action to back up its "whatever it takes" rhetoric of the week before, though it promised action would be forthcoming in the weeks ahead.
U.S. manufacturing activity remained sluggish in July, according to the Institute for Supply Management's monthly survey. For the second month in a row, the reading on the ISM's index was just under the 50% level that marks expansion. However, growth in the services sector accelerated slightly in July as the ISM's gauge registered 52.6%, a half-point higher than the previous month; it was the 31st straight month of growth.
The Bureau of Economic Analysis said personal income was up 0.5% in June; that's as much as the previous two months combined. However, Americans seemed to save rather than spend it. The personal savings rate was 4.4% of income (compared to 4.0% in May), while personal consumption spending was down less than 0.1%.
With the start of the summer home-buying season, home prices in the 20 cities measured by the S&P/Case-Shiller index rose an average of 2.2% in May. It was the second straight month of higher prices, and all 20 cities saw increases.

Eye on the Week Ahead

It's a relatively quiet week for U.S. economic data, but numbers out of China will suggest whether the world's third largest economy is slowing.
Key dates and data releases: labor productivity/costs (8/8); international trade (8/9); import/export prices (8/10).