Monday, November 26, 2012

Market Week: November 26, 2012

The Markets

During a holiday-shortened trading week, equities had their best week in months. Encouraged by a more conciliatory tone out of Washington and improved economic data on Chinese manufacturing and U.S. housing, investors took advantage of light trading volumes to push stocks up, particularly the technology stocks that had been beaten up in recent weeks. The renewed appetite for risk sent the 10-year Treasury yield up as demand fell.

Last Week's Headlines

Dissension in Europe: European finance ministers failed to come to an agreement on how best to reduce Greek debt to 120% of GDP by 2020, but will meet again to try to resolve the issue so an additional €31.5 billion bailout payment can be released. Also, talks on the European Union's long-term budget broke down after British and German leaders split with France in rejecting the proposed budget for the European Commission while their domestic budgets are undergoing substantial cuts.
Moody's became the second rating service to take away France's AAA credit rating. Citing rising risks from its exposure to the problems of other eurozone countries, its prospects for long-term economic growth, and reduced resilience to potential eurozone crises, Moody's downgraded the country's debt one notch to Aa1 with a negative outlook.
A preliminary survey of Chinese purchasing managers showed manufacturing expansion for the first time in 13 months as the HSBC PMI index rose to 50.4 in November (any number above 50 represents expansion).
The stream of encouraging news from the U.S. housing market continued. The 3.6% increase in housing starts in October put them at their highest level in more than four years and 42% higher than last year, according to the Commerce Department. Building permits (an indicator of future activity) were down 2.7%, driven primarily by a 10.6% decline in multi-unit buildings; permits for single-family homes were up 2.2%. Meanwhile, the National Association of Realtors® said sales of existing homes rose 2.1% in October and were almost 11% higher than last October, while reduced inventory helped push up the median home resale price by more than 11% from a year earlier.
Based on a 0.2% rise in its index of leading economic indicators in October, the Conference Board said it expects a continued modest expansion in the U.S. economy.
The Securities and Exchange Commission filed what it said is the biggest insider trading case in its history. The SEC accused former hedge fund advisor Mathew Martoma and CR Intrinsic Investors LLC of trading based on unpublicized information about drug trials that allegedly was provided by the chairman of the committee overseeing the trial.
Preliminary reports on consumer spending over the Black Friday weekend raised hopes for a robust holiday shopping season to come.

Eye on the Week Ahead

U.S. economic data will compete with political news out of Washington and Europe for investor attention.

Key dates and data releases: durable goods orders, home prices (11/27); new home sales, Fed "beige book" report (11/28); 2nd estimate of Q3 gross domestic product (11/29); personal income/outlays (11/30).

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, November 19, 2012

Market Week: November 19, 2012

The Markets

Equities around the globe continued to slide, suffering four straight down days as both the United States and Europe grappled with fiscal cliffhangers. Despite some optimism at week's end, the Dow saw its fourth straight negative week. Meanwhile, the Nasdaq and small-cap Russell 2000 entered correction territory with declines of more than 10% since their September highs.

Last Week's Headlines

Double dip: A second quarter of economic contraction pushed Europe back into recession for the second time in four years. The European Union's official statistics agency said gross domestic product fell 0.1% during Q3 after a 0.2% contraction in the previous quarter. The pace of contraction in Spain and Italy slowed and France's GDP rose for the first time since Q3 2011, while Germany's economic growth was more sluggish than in Q2.
Greece fire: In the wake of Greece's narrow approval of new austerity measures, eurozone finance ministers and the International Monetary Fund clashed over whether to give the country a two-year extension (until 2022) to reduce its debt to the level required by its most recent bailout agreement. The extension is estimated to add €32.6 billion to Greece's tab with the IMF, the EU, and the European Central Bank.
President Obama and congressional leaders opened discussions on a deal to avert the fiscal cliff. Both sides indicated they might pursue a two-phase approach by adopting small deficit reduction measures before January 1 while trying to develop guidelines for a more comprehensive agreement next year.
The Chinese Communist Party rejected reform-minded candidates to lead its Politburo Standing Committee, considered the country's highest decision-making body, over the next decade in favor of more conservative candidates. Xi Jinping will replace Hu Jintao as party chief and China's de facto leader.
The biggest jump in housing costs since March 2008, along with higher costs for clothing and airfare, helped push up the Consumer Price Index in October, according to the Bureau of Labor Statistics. The 0.1% increase put overall consumer inflation at 2.2% for the last 12 months. Meanwhile, despite a 0.4% increase in foods, lower energy costs helped cut wholesale prices 0.2% for the month, leaving inflation at the wholesale level for the past year at 2.3%.
Despite a 3% increase in October, mortgage foreclosures were 19% lower than the same time last year, according to RealtyTrac.® Also, the Mortgage Bankers Association said the number of households that were behind on their mortgage payments in the third quarter was at its lowest level in almost four years, though the delinquency rate varied dramatically among states.
Outages caused by Hurricane Sandy hurt manufacturing activity measured by the Federal Reserve's Empire State and Philadelphia Fed November indices. The Philly Fed index hit -10.7, while the Empire State measure was at -5.2. Sandy also affected October retail sales, though the Commerce Department said it couldn't quantify how much of the 0.3% decline could be attributed to the storm. Sales were up 3.8% from a year ago.
The Fed is considering using economic indicators, such as a target unemployment or inflation rate, rather than a calendar date to determine when to begin raising interest rates. Minutes of the Federal Open Market Committee's most recent meeting showed that most members also favored extending "Operation Twist" bond purchases past the program's scheduled December expiration date.
British Petroleum will plead guilty to felony charges and pay $4.5 billion in penalties in connection with the 2010 Deepwater Horizon oil spill as part of an agreement with the U.S. Justice Department. And a House subcommittee investigating MF Global Holdings' bankruptcy said that regulatory agencies had failed to share information that might have helped prevent the eighth largest bankruptcy in U.S. history.
New technologies are expected not only to make the United States a net exporter of natural gas by 2020 but also to transform North America into a net oil exporter by 2035, according to the International Energy Agency. The agency's annual World Energy Outlook also said renewable energy sources could become the second largest global source of power generation by 2015 if development subsidies are continued. Finally, the IEA projects that as global energy demands increase by more than a third by 2035, Iraq would replace Russia as the world's second largest oil exporter and 90% of Middle East oil supplies would go to Asia.

Eye on the Week Ahead

European finance ministers will meet Tuesday to discuss whether to release €31.5 billion needed to make upcoming payments on Greek debt, and whether to disregard the IMF's concerns about relaxing the bailout agreement's terms. The Thanksgiving holiday could keep trading volumes light.

Key dates and data releases: home resales (11/19); housing starts, meeting of EU finance ministers (11/20); leading economic indicators (11/21).

Monday, November 12, 2012

Market Week: November 12, 2012

The Markets

Much as Sandy and an early winter storm delivered a one-two punch to northeastern states, equities were hit with back-to-back triple-digit losses in the Dow industrials. Whether motivated by election results, fear of gridlock in the run-up to the so-called fiscal cliff, a grim forecast for Europe's economy, the beginning of year-end tax maneuvers, or some toxic stew of them all, investors sold off equities around the globe. It was the third consecutive week of losses for the Dow. Along with the S&P 500, it's now down almost 6% from its September year-to-date high, while the Nasdaq and small-cap Russell 2000 are both down more than 8% in the same time. Meanwhile, gold recovered all of the previous week's losses and then some, ending at $1,730 an ounce.

Last Week's Headlines

With President Obama's reelection and continued leadership by the respective parties currently in charge of the Senate and the House of Representatives, implementation of the Affordable Health Care Act is expected to continue, as are battles over the same issues that led to the tax increases and spending cuts scheduled for January 1.
A worsening European economy this year is hitting even its strongest member nations and will cause many of them to miss their budget-cutting targets, according to a semiannual report from the European Union's executive body. The report forecast that gross domestic product in the EU will fall 0.3% in 2012 and grow by only 0.4% in 2013 (slightly less in the 17-member eurozone). Even the German economy is expected to slow from 3% last year to 0.8% this year and next, finally increasing by 2% in 2014. Unemployment is expected to average just under 11% for the 27 EU countries and just under 12% in the eurozone through 2014.
Despite street riots, the Greek parliament passed €31.5 billion worth of fresh austerity measures and a budget to implement them. Both are necessary to qualify for the country's next installment of bailout funds and will be reviewed by the region's finance ministers this week.
A 3.1% increase in U.S. exports helped cut the country's trade deficit in September to its lowest level since December 2010. According to the Commerce Department, the deficit fell to $41.5 billion from $43.8 billion in August, and was 6.6% lower than a year earlier.
As the Chinese Communist Party met to prepare for the transition to new leadership for the next decade, the current leaders said they expect the country to meet its goal of 7.5% economic growth in 2012.
The Institute for Supply Management's index of the U.S. services sector showed growth for the 34th straight month, though the 54.2% reading for October was slightly lower than the previous month's 55.1%.

Eye on the Week Ahead

In addition to more earnings reports, manufacturing, retail, and inflation data will shed light on the state of the U.S. economy. Also, global investors will assess Greece's bailout status and whether new Chinese leaders will be likely to pursue reforms aimed at encouraging more domestic consumption there. The European Commission's estimate of Q3 economic growth will be released Thursday, and options expiration at week's end could mean some volatility as it approaches.

Key dates and data releases: wholesale inflation, retail sales, Federal Open Market Committee minutes (11/14); consumer inflation, Empire State/Philly Fed manufacturing surveys, European Q3 GDP estimate (11/15); industrial production, international capital flows, options expiration (11/16).

Monday, November 5, 2012

Market Week: November 5, 2012

The Markets

As the East Coast struggled to recover from Sandy, financial markets came back from their two-day hiatus down but not out. Despite some volatility on Thursday and Friday, domestic indices ended the week essentially flat. Meanwhile, a stronger U.S. dollar contributed to Friday's decline of roughly $38 an ounce in the spot price of gold.

Last Week's Headlines

Estimates of the damage done by last week's superstorm, including not only property damage but lost revenue from business activity, reached as high as $50 billion. Some economists warned that Sandy's economic impact could cut as much as 0.5% from the nation's gross domestic product in the fourth quarter, though rebuilding efforts also could add to GDP in subsequent quarters.
The U.S. economy added 171,000 jobs in October and job growth in the previous two months was revised upward, according to the Bureau of Labor Statistics. However, the unemployment rate ticked up slightly from 7.8% to 7.9%, in part because more people once again sought to enter the labor force.
There was more good news from the housing market as home prices continued to rise in August, though at a slightly slower pace than the month before. The 0.9% increase in the S&P/Case-Shiller 20-city index, which followed July's 1.6% increase, put prices at their highest level since September 2010, and up 2% from August 2011.
Consumers spent more in September, according to the Commerce Department, but they may have been dipping into their savings to do so. While spending was up 0.8%, the personal savings rates fell to 3.3% of income--the third straight month of declines in the savings rate. Meanwhile, personal incomes were up 0.4%, although they were essentially unchanged after accounting for taxes and inflation.
U.S. manufacturing also saw some encouraging signs. New factory orders grew more during September--4.8%--than in any month in more than a year, according to the Commerce Department. Business productivity rose 1.9% in the third quarter--about the same pace as in Q2--and the number of hours worked was up 1.3%. Almost all of the gains came in the services sector rather than manufacturing, which has been hurt by reduced global demand. However, in October, the Institute for Supply Management's index of manufacturing activity saw a second month of accelerating expansion, rising to 51.7% (anything above 50% represents growth).

Eye on the Week Ahead

Let the games begin: Financial markets are likely to begin assessing how the election results might affect the January 1 fiscal cliff and renewed debate over the debt ceiling. Also, both the European Central Bank and Bank of England will meet, and the Greek parliament will vote on fresh austerity and budget measures.
Key dates and data releases: U.S. services sector (11/5); balance of trade (11/8).

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.