Monday, February 25, 2013

Market Week: February 25, 2013

The Markets

Equities spent Friday trying to recover from downdrafts earlier in the week. The Dow industrials managed to squeak back to 14,000, but the other domestic indices reacted more strongly to Fed discussions of how to wind down its bond-buying program. It was the first down week for the S&P 500 so far this year.

Last Week's Headlines

Stay tuned: The March meeting of the Federal Open Market Committee will focus on when and how to wind down the Fed's purchases of $85 billion worth of bonds each month. Minutes of the most recent meeting suggested that committee members are divided on how to ease out of quantitative easing without disrupting the economy. Staff members will report on the potential impact of various options, including varying the size of bond purchases from meeting to meeting and selling existing holdings gradually.
New residential home construction fell 8.5% in January, though housing starts were still 23.6% higher than in January 2012. The Commerce Department also said building permits for single-family homes were up 1.9% for the month, while permits for buildings with 5 or more units were up 1%.
Wholesale prices were up 0.2% in January. The Bureau of Labor Statistics said roughly 75% of the increase could be accounted for by a 0.7% increase in food prices, especially the 39% jump in the cost of vegetables. The January figure put the wholesale inflation rate for the last 12 months at 1.4%. The BLS also said raw materials were up 0.8% for the month. Meanwhile, the BLS said consumer prices were unchanged in January; increases in housing and apparel costs offset a 1.7% drop in energy prices, leaving the annual inflation rate at 1.6%.
The FBI said it is joining a Securities and Exchange Commission investigation of possible insider trading related to Berkshire Hathaway's recently announced intent to buy H.J. Heinz Co. A U.S. court approved continuation of an SEC-requested emergency freeze on assets in a Swiss trading account; the account's unidentified owner allegedly bought a substantial amount of Heinz call options the day before the acquisition plans were announced.
Sales of existing homes were up 0.4% in January, and were more than 9% ahead of last January. The National Association of Realtors® said tight inventory helped drive the median price for home resales up 12.3% from January 2012; the number of homes for sale fell almost 5% during the month and was at its lowest level since April 2005. The NAR said the inventory shortage is beginning to create a seller's market in much of the country.
The European Commission (the eurozone's executive body) forecast a 0.3% contraction in the eurozone during 2013, and only 0.1% growth for the entire European Union. However, the EC forecasts 1.6% EU growth in 2014, with 1.4% growth in the euro area.

Eye on the Week Ahead

A steady stream of economic data will likely be overshadowed by the approach of the sequestered budget cuts. Unless Congress surprises the country with a last-minute plan for avoiding them, the $85 billion in cuts for 2013 are scheduled to begin taking effect on Friday.

Key dates and data releases: new home sales, home prices (2/26); durable goods orders (2/27); 2nd estimate of Q4 GDP (2/28); personal income/spending, U.S. manufacturing, construction spending (3/1).

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.

Tuesday, February 19, 2013

Market Week: February 19, 2013

The Markets

Equities markets generally spent a second week digesting January's strong gains. The Dow continued to flirt with the 14,000 mark, while neither the small-cap Russell 2000 nor the S&P 500 have had a negative week so far this year.

Last Week's Headlines

U.S. retail sales bumped up 0.1% in January, according to the Commerce Department. Excluding autos, which slipped 0.1%, the monthly increase was 0.2%, with nonstore retailers and general merchandise stores performing the best. The increase put overall retail sales, which are not adjusted for price changes, 4.4% ahead of last January.
Optimism about the European Union's economy got a reality check when the region's statistics agency reported that the eurozone's GDP fell by 0.6% in the final quarter of 2012 and was 0.9% lower than a year earlier. For all of 2012, the eurozone's economy shrank 0.5%.
U.S. industrial production was down slightly in January; the Federal Reserve said a 3.9% decline in auto manufacturing contributed to the 0.1% drop. However, industrial production was still 2.1% ahead of a year earlier, though it's still only at 98.6% of its 2007 average.
The Group of Seven industrialized nations issued a joint statement saying that members' monetary policies should not devalue currencies simply to bolster an individual country's economy by encouraging exports. European leaders have expressed concern about a rising euro, and Japan recently increased bond-buying efforts that resemble the U.S. Federal Reserve's and that have reduced the yen's value.
American Airlines and United agreed to merge, forming the largest airline in the world, and Berkshire Hathaway (in conjunction with a private equity firm) announced plans to acquire H.J. Heinz.

Eye on the Week Ahead

In a holiday-shortened week, minutes of the Federal Open Market Committee's most recent meeting could shed light on members' thinking about winding down the Fed's bond-buying activity. Housing and inflation data also are on tap.
Key dates and data releases: wholesale inflation, housing starts, FOMC minutes (2/20); consumer inflation, home resales (2/21).

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, February 11, 2013

Market Week: February 11, 2013

The Markets

After suffering its first triple-digit loss of the year on Monday, the Dow fought to hang on to the prior week's 14,000 level but in the end just couldn't manage to do so. The other domestic indices managed minimal gains, and the S&P 500 hit its highest level since November 2007. Meanwhile, the Global Dow was hampered by anxiety about rising Spanish and Italian bond yields.

Last Week's Headlines

The nonpartisan Congressional Budget Office said the annual U.S. budget deficit as a percentage of the economy will shrink in 2013 for the fourth year in a row. The estimated $845 billion deficit would be less than $1 trillion for the first time in five years, and represent only 5.3% of GDP--roughly half the ratio of 2009. The bad news? Without tax and spending changes, the CBO said that the total national debt will be at 77% of GDP in 10 years and growing, largely because of rising health-care costs for an aging population and interest payments on federal debt.
The U.S. trade deficit shrank to its lowest point in almost three years as a result of record oil exports. According to the Commerce Department, the trade deficit fell more than 20% to $38.5 billion.
The U.S. Treasury said it will launch its first new investment product in 15 years when it auctions floating-rate notes sometime in 2013. The Treasury also said it plans to increase issuance of Treasury Inflation-Protected Securities (TIPS) this year.
New factory orders were up 1.8% in December, with an 11.7% jump in transportation-related orders leading the way, according to the Commerce Department. It's the third increase in factory orders in the last four months.
The U.S. services sector grew at a slightly slower pace in January. The Institute for Supply Management's index registered 55.2% for the month. That's slightly lower than December's 55.7%, but any figure above 50% represents growth, and it's better than the 53.1% of the ISM's manufacturing index.
The U.S. Justice Department filed suit against Standard & Poor's, charging that during the three years prior to October 2007, the ratings service deliberately inflated its ratings of certain mortgage-backed bonds because of its own business concerns.
Bond yields for Spanish and Italian sovereign debt rose to 5.4% and 4.5% respectively after Spanish Prime Minister Mariano Rajoy's political party was accused of taking kickbacks and as polls showed new strength by former Prime Minister Silvio Berlusconi as Italy's February 24-25 elections get closer.

Eye on the Week Ahead

As earnings season winds down, the approaching March 1 deadline for implementation of the sequestered federal budget cuts may begin to get renewed investor attention. Retail sales may give insight into the consumer mindset.

Key dates and data releases: retail sales, business inventories (2/13); industrial production, options expiration (2/15).

Monday, February 4, 2013

Market Week: February 4, 2013

The Markets

A stream of strong earnings reports helped the Dow industrials end their fifth straight week of gains by closing above 14,000 for the first time since 2007. The Nasdaq's best week since the first of the year helped it close the gap with the other domestic indices, while the small-cap Russell 2000 continued to lead the pack.

Last Week's Headlines

Hampered in part by fiscal cliff fears and Superstorm Sandy, the U.S. economy slowed substantially in 2012's final quarter. According to the Commerce Department's initial estimate, gross domestic product contracted during the quarter at an annual rate of 0.1%. That's dramatically lower than Q3's 3.1% growth, and is the first quarter of contraction since Q2 2009. A 22% decline in defense spending, lower state/local government spending, and reduced inventories and exports were major contributors to the contraction. The initial GDP estimate is subject to two revisions over the next two months.
Businesses added 157,000 new jobs in January, according to the Bureau of Labor Statistics, and the figures for November and December were revised upward. Unemployment edged upward slightly to 7.9%; it has stayed within one-tenth of a percentage point of that level since last September.
Congress passed legislation that would temporarily suspend the debt ceiling until May without requiring spending cuts. However, lawmakers' paychecks would be withheld if their chamber of Congress doesn't pass a budget resolution by April 15.
Durable goods orders leaped 4.6% in December, in part because orders for transportation equipment, which had declined for two months, soared 11.9%. The Commerce Department said new nondefense orders--an indicator of capital spending by businesses--also were up 3.8%. Durable goods orders have now risen in seven of the last eight months.
U.S. manufacturing saw solid growth in January as the Institute for Supply Management's index rose almost 3 points to 53.1 (any figure over 50 represents expansion). The ISM said that was the index's highest level since April 2012.
Going into the holiday season, home prices in the 20 cities measured by the S&P/Case-Shiller index fell 0.1% during November. They were 5.5% higher than a year earlier, though the average price nationally was still 30% below its 2007 peak.
Personal income jumped 2.6% in December. However, according to the Commerce Department, much of the increase resulted from lump-sum Social Security benefits, the rebound from Superstorm Sandy, and companies accelerating payment of dividends and bonuses because of uncertainty about 2013 tax rates; otherwise, the increase would have been 0.4%. The personal savings rate was also up dramatically, rising from 4.1% of disposable income in November to 6.5% in December; that's the highest savings rate since 2009.
Steady as she goes: The Federal Reserve Open Market Committee reaffirmed its plan to continue its bond purchases and keep interest rates at current levels until unemployment falls to 6.5%.

Eye on the Week Ahead

Data on factory orders will be watched to see if they confirm last week's encouraging manufacturing data. Also, the European Central Bank will meet on interest rates.
Key dates and data releases: factory orders (2/4); U.S. services sector (2/5); labor productivity/costs (2/7); international trade (2/8).