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.
