Monday, September 24, 2012

Market Week: September 24, 2012

The Markets

Equity markets paused to digest the strong gains of the previous two weeks, but still managed to remain close to multiyear highs. Small caps, which had seen the biggest gains recently, gave back the most.

Last Week's Headlines

The housing market continued to strengthen. The National Association of Realtors® said August sales of existing homes were up 7.8% for the month and were 9.3% higher than last August. Also, the NAR said August was the sixth straight month in which prices were higher than the year before.
Another encouraging housing report came from the Census Bureau, which said housing starts were up 2.3% in August from the month before and were almost 30% higher than August 2011. And though building permits were down 1% from July, they were still almost 25% higher than a year earlier.
Manufacturing news was somewhat mixed. The Federal Reserve's Empire State manufacturing survey for September hit -10.4, its second straight negative monthly reading. However, a similar survey for the mid-Atlantic region, while still negative (-1.9), showed strong improvement in August after several consecutive months of declines.

Eye on the Week Ahead

As the end of the quarter approaches, housing and manufacturing data as well as the final estimate of the nation's Q2 gross domestic product will highlight domestic news. Spain will likely continue to dominate European news. The government is expected to release both its latest financial reform package and the results of stress tests on Spanish banks, and could also make a formal bailout request.
Key dates and data releases: home prices (9/25); new home sales (9/26); final estimate of Q2 gross domestic product, durable goods orders (9/27); personal income/spending (9/28).

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, September 17, 2012

Market Week: September 17, 2012

The Markets

Equities had a second strong week, helped along by a German court and the Federal Reserve. The S&P 500 has now gained more than 4% in the last two weeks, and all four indices are at their year-to-date highs. The renewed enthusiasm for stocks helped send Treasury yields soaring as prices fell.

Last Week's Headlines

With 11 of 12 members deciding that the economy needed a third round of economic support, the Federal Open Market Committee launched a new program to buy $40 billion of agency mortgage-backed bonds each month for an indefinite period. Including continued Operation Twist buying, Fed purchases will total roughly $85 billion a month. The Fed also said it now expects to keep interest rates at current low levels until mid-2015 instead of late 2014.
Investors heaved a sigh of relief after Germany's constitutional court refused to halt the country's participation in the European Stability Mechanism. The decision could have blocked implementation of the permanent euro bailout fund. However, the court said it would enforce the €190 billion limit on Germany's contribution to the ESM, and will not allow the ESM to borrow directly from the European Central Bank. It also reserved the right to review any additional measures and all relevant information involved in them.
Both consumer and wholesale prices saw their biggest monthly increases in more than three years, according to the Bureau of Labor Statistics. A 9% increase in gas prices sent the Consumer Price Index up 0.6% in August, while wholesale prices jumped 1.7% because of a 13.6% increase in gas at the wholesale level. Not counting energy and food prices, which can vary greatly from month to month, consumer prices were up 0.1% for the month, putting the annual inflation rate for the last year at 1.7%.
According to the Commerce Department, the U.S. trade deficit increased slightly in July as exports declined more than imports. The $42 billion gap was up from $41.9 billion in June.
The median inflation-adjusted household income fell 1.5% in 2011 to $50,054; according to a Census Bureau report on income, poverty, and health insurance coverage, the second consecutive annual decline left median household income 8.1% lower than in 2007. The report also said that 15% of the U.S. population was living in poverty (up to $23,021 a year for a family of four), and that one gauge of income inequality increased 1.6% during the year--the first increase since the bureau began tracking the data almost 20 years ago. Meanwhile, both the number (260.2 million) and percentage (84%) of people with health insurance increased from 2010.
Retail sales rose 0.9% in August, according to the Commerce Department, and were 4.7% higher than a year ago. However, manufacturing stats weren't as encouraging; the Federal Reserve's measure of industrial production fell 1.2%, affected in part by Hurricane Isaac, and utilization of the nation's manufacturing capacity was down 1% for the month.

Eye on the Week Ahead

Investors will be watching to see if the excitement over QE3 peaked last week or will lead to continued buying. Data on manufacturing both here and abroad as well as the U.S. housing market will round out the week. Equities also could be affected by quadruple witching options expiration at week's end.
Key dates and data releases: Empire State manufacturing survey (9/17); international capital flows (9/18); housing starts, home resales (9/19); Philadelphia Fed manufacturing survey (9/20); quadruple witching options expiration (9/21).
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, September 10, 2012

Market Week: September 10, 2012

The Markets

After a plan for attacking high European borrowing costs was announced on Thursday, buying was the order of the day as the Dow rose 245 points. The S&P 500 hit a level it hasn't seen since January 2008, and the last time the tech-heavy Nasdaq was at Friday's level was November 2000, not long after the tech bubble burst. Even disappointing employment data didn't dent the enthusiasm, as it raised hopes for fresh measures from the Fed. Meanwhile, Treasury yields rose as prices fell.

Last Week's Headlines

The U.S. unemployment rate fell to 8.1% in August from 8.3%, in part because more people left the workforce. According to the Bureau of Labor Statistics, the rate has now been stuck between 8.1% and 8.3% since the beginning of the year. While there were 96,000 new jobs, that's substantially lower than the 139,000 monthly average since the beginning of 2012. Private companies added 103,000 jobs, especially in food/beverage service, health care, and professional/technical services, while government employers cut 7,000 positions.
The European Central Bank launched both another alphabet-soup acronym and an offensive against high sovereign bond rates as President Mario Draghi said the ECB will begin buying one- to three-year bonds on the open market. The program of "outright monetary transactions" (OMT) is designed to help fight high interest rates in Spain and Italy; after the announcement, Spain's 10-year bond yield fell below 6% for the first time in several months. The ECB's claims won't take priority over those of other bondholders, and there are no limits on the total amount of investment as long as issuers request the purchases and adhere to the eurozone's fiscal guidelines.
The ECB also forecast an economic contraction of -0.2% to -0.6% for the region in 2012 and a growth rate of -0.4% to 1.4% for 2013, with inflation of between 2.4% and 2.6% for 2012 and 1.3% to 2.5% in 2013.
The Institute for Supply Management's index of U.S. manufacturing showed a third straight month of contraction, falling 0.2% to 49.6. Meanwhile, the Bureau of Labor Statistics said business productivity rose at a 2.2% annual rate during the second quarter.

Eye on the Week Ahead

There are several potential catalysts for volatility this week. A German court is scheduled to rule Wednesday on the constitutionality of the eurozone's bailout mechanism. An Apple press conference will be of interest, since the company is a significant factor in Nasdaq-based indices. Also, the Federal Open Market Committee's announcement could affect a Treasury auction of long-term bonds scheduled for later the same day, as well as markets hoping for new economic support.
Key dates and data releases: balance of trade (9/11); import/export prices (9/12); Federal Open Market Committee announcement, wholesale inflation (9/13); consumer inflation, retail sales, industrial production, business inventories (9/14).

Tuesday, September 4, 2012

Market Week: September 4, 2012

The Markets

With the exception of the small caps of the Russell 2000, equities continued to slump on low trading volumes. The S&P 500 remained tantalizingly close to its year-to-date high, and the Dow and Nasdaq were only a little over 1% away from hitting theirs. Meanwhile, the Global Dow benefitted from last month's promises that the euro would be preserved at all costs. Oil and gold ended the month higher, helped by a somewhat weaker dollar.

Last Week's Headlines

The U.S. economy grew at an annual rate of 1.7% in the second quarter rather than the 1.5% previously estimated by the Bureau of Economic Analysis. That's slightly higher than previously thought, but also slightly lower than Q1's 2%. Corporate after-tax profits were up 1.1% from the previous quarter, and up 3.3% from a year ago.
Consumer spending, which accounts for 70% of the U.S. economy, was up 0.4% in July after falling in June and being flat in May. According to the Commerce Department, it was the biggest increase since February. Unfortunately, the spending increase outpaced gains in income, which rose 0.3% for the third consecutive month. As a result, the savings rate edged downward to 4.2% of income after reaching a year-long high the month before.
June was the second straight month of higher sales prices for new homes; the 2.3% gain in the S&P/Case-Shiller 20-city index, which followed a similar gain in May, left it 6% higher than the recent low seen in March. Though the index is still more than 30% from its 2006 peak, all 20 cities in the index saw increases, which ranged from Charlotte's +1% to Detroit's +6%. Even better, the year-over-year change in the index (+0.5%) was positive for the first time in almost two years.
Federal Reserve Chairman Ben Bernanke defended the Fed's quantitative easing measures and said the Fed is ready to do more if needed. However, he stopped short of promising to supply additional measures at the Federal Open Market Committee's September 13 meeting.

Eye on the Week Ahead

Light summer trading volumes will likely increase as traders begin to position themselves for the end of the quarter. Unemployment data will likely get extra attention because its release date is so close to the next FOMC meeting, and the European Central Bank's September 6 action on interest rates could be of interest.
Key dates and data releases: U.S. manufacturing sector, construction spending (9/4); labor productivity/costs (9/5); U.S. services sector, European Central Bank meeting (9/6); unemployment/payrolls (9/7).