Monday, April 29, 2013

Market Week: April 29, 2013

The Markets

Despite major technological snafus and mixed economic data, stocks ended the week higher. Tuesday afternoon, domestic equities tumbled briefly, but dramatically, when hackers infiltrated the Associated Press's Twitter account and sent out a false report of explosions at the White House that injured the president. Although markets recovered within minutes following clear evidence that the tweet was false, the incident prompted many to ponder social media's power in influencing market movements. Two days later, Chicago Board Options Exchange traders were frustrated by computer glitches that shut down trading for several hours. Releases announcing gross domestic product (GDP), existing home sales, and durable goods orders all proved disappointing, while an increase in new home sales indicated continuing strength. On a percentage basis, technology, small caps, and global stocks led the week's gains.

Last Week's Headlines

In Friday's initial estimate, the Bureau of Economic Analysis reported that GDP posted a weaker-than-expected 2.5% uptick in the first quarter. Personal consumption expenditures, private inventory investment, exports, residential investment, and nonresidential fixed investment all contributed positively. These gains were partially offset by dips in government spending at federal, state, and local levels. Imports increased during the quarter as well. The finalized GDP figure for Q4 2012 was a paltry 0.4%.
The National Association of Realtors® released existing home sales data that showed a slight slip from February's figures, which the organization attributed to tight inventory that is also helping to increase prices. Sales declined 0.6% to a seasonally adjusted 4.92 million in March, down from 4.95 million in February. However, March sales figures were up 10.3% year over year, marking the 21st consecutive month of sales increases. Prices have been rising for 13 consecutive months.
New home sales rose 1.5% in March to a seasonally adjusted rate of 417,000, according to the Census Bureau and the Department of Housing and Urban Development. This rate is 18.5% higher than the March 2012 figures.
The Census Bureau also reported that durable goods orders dropped 5.7% in March, following a rise of 4.3% in February. The March decline was the second monthly dip in three months. Transportation equipment, specifically nondefense aircraft and parts, led the decline.
Weary air travelers grew even wearier last week as sequester cuts forced the Federal Aviation Administration to begin implementing furloughs among air traffic controllers. By week's end, the public outcry over the ever-increasing travel delays reached Capitol Hill, and both the Senate and House passed legislation providing budgeting flexibility to the FAA. President Obama signed the bill into law on Friday, and by Sunday work schedules were expected to be back to normal.
European Commission President Jose Manuel Barroso indicated he believed the continent's austerity measures may have reached their limit, as Spain joined the list of countries needing more time to meet their targets. Indicating that it needed an additional two years to meet its deficit numbers, the Spanish government unveiled a series of reform measures designed to stimulate the country's economy.

Eye on the Week Ahead

Next week's home prices data may provide further indication of the impact tight inventories are having on price levels. We'll also hear from the Fed and get fresh unemployment data.

Key dates and data releases: personal income/spending (4/29); home prices (4/30); FOMC announcement, U.S. manufacturing, construction spending, auto sales (5/1); balance of trade, business productivity/labor costs (5/2); unemployment/payrolls, U.S. services sector, factory orders (5/3).

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, April 22, 2013

Market Week: April 22, 2013

The Markets

It was a tumultuous week, though the volatility of financial markets paled in comparison to the tragedies in Boston and at a Texas fertilizer plant. Domestic equities made an attempt to recover from Monday's 266-point collapse in the Dow industrials, but quickly reversed any progress, giving the Dow its worst week in almost a year. Gold followed up on the previous Friday's fiasco by plunging $140 an ounce on Monday; the more than 9% loss cut the spot price to $1,360, which hasn't been seen since early 2011. Weak inflation data contributed to a weak auction of five-year Treasury Inflation Protected Securities (TIPS), which in turn helped spur selling of TIPS generally. Finally, oil prices hit a four-month low of $88 on reduced demand.

Last Week's Headlines

U.S. industrial production increased 0.4% in March, according to the Federal Reserve. As a result, output for the first quarter rose at an annual rate of 5%, its biggest gain in a year. Usage of the nation's manufacturing capacity also rose to 78.5%--1.2% higher than a year earlier, but still below its long-term average. However, both the Empire State and Philly Fed regional manufacturing surveys fell slightly in April.
Housing starts hit their highest level since 2008 in March, fueled mostly by multi-unit construction. The Commerce Department said the 7% monthly increase helped push new residential construction almost 47% higher than last March. Building permits, an indicator of future activity, dropped almost 4%, but were still more than 17% higher than a year ago.
Lower gas prices in March continued to lower the consumer inflation rate. The Consumer Price Index fell 0.2%, largely because of a 2.6% decline in energy costs. The Bureau of Labor Statistics said that put inflation for the last 12 months at 1.5%.
The Chinese economy showed weaker-than-expected growth during the first quarter. According to China's National Bureau of Statistics, gross domestic product fell to 7.7% from 7.9% the quarter before.

Eye on the Week Ahead

The first peek at Q1 economic growth data could suggest whether a "sell in May, go away" mentality will challenge equities' strong year-to-date performance. Housing data also is on tap.

Key dates and data releases: home resales (4/22); new home sales (4/23); durable goods orders (4/24); initial estimate of Q1 GDP (4/26).

Monday, April 15, 2013

Market Week: April 15, 2013

The Markets

Despite a brief slide early on Friday, the Nasdaq and S&P 500 had their strongest week since the first of the year, and both the S&P and Dow industrials continued to set new all-time highs. Meanwhile, gold, which had been slipping for months, plummeted more than 4% on Friday into official bear market territory; it ended the week at roughly $1,500 an ounce, its lowest close in almost two years.

Last Week's Headlines

President Obama submitted a controversial $3.8 trillion budget proposal for 2014 that the White House said would reduce the national deficit by more than $1.8 trillion over the next 10 years. That estimate would not include existing deficit reduction measures, some of which could be replaced by new budget provisions. Some of the proposals most likely to provoke debate include a change in the way Social Security and other government payments are adjusted for inflation; cuts in payments to Medicare providers; a roughly $3 million limit on tax-deferred retirement savings account balances; a 28% cap on tax deductions/exclusions for higher-income households; a requirement that households with incomes over $1 million pay at least 30% of their income (after charitable giving) in taxes; business tax credits for hiring new employees and offering retirement savings plans; a higher top estate tax rate and lower estate tax and gift tax exclusions beginning in 2018; a change in the tax treatment of carried interest; and additional spending on infrastructure projects, education, and research.
Minutes of the most recent Federal Open Market Committee meeting showed that members continue to debate how long the Fed's monthly bond purchases should continue. The minutes were released early after it was learned that the minutes had been distributed the day before to some congressional employees and many top Wall Street firms.
A 3.4% drop in energy costs after a sharp run-up the month before helped cut inflation at the wholesale level by 0.6% in March, according to the Bureau of Labor Statistics. However, not including food and energy prices, which can change greatly from month to month, wholesale prices rose 0.2%.
A decline in gas prices also helped lower retail sales, which fell 0.4% in March. The Commerce Department said spending at gas stations was down 2.2%; electronics and general merchandise also took a hit. However, overall sales were still 2.8% higher than last March.
European finance ministers agreed to let Ireland and Portugal take seven extra years to repay their bailout loans despite a Portuguese court's recent rejection of some of the government's proposed austerity measures. Meanwhile, the head of the Bank of Japan said that recent quantitative easing measures there could last longer than the scheduled two years if necessary.

Eye on the Week Ahead

As earnings season moves into high gear, several key financial and tech companies will release reports. Manufacturing and housing data also are on tap. Investors in precious metals also will watch anxiously for any sign of a halt to gold's sharp selloff.

Key dates and data releases: international capital flows, Empire State manufacturing survey (4/15); consumer inflation, housing starts, industrial production (4/16); Fed "beige book" report (4/17); Philadelphia Fed manufacturing survey (4/18); options expiration (4/19).

Monday, April 8, 2013

Market Week: April 8, 2013

The Markets

The Dow industrials and the S&P 500 set new record closing highs on Tuesday. Unfortunately, it was mostly downhill after that as investors looking for a reason to take profits found them in a disappointing jobs report, fresh geopolitical tension, and mixed manufacturing data. Domestic equities went into an early tailspin on Friday, though they had recovered most of their losses by the close. However, the small caps had their worst week since June. The renewed anxiety sent the benchmark 10-year Treasury yield to its lowest level since December as demand drove prices up.

Last Week's Headlines

The U.S. unemployment rate fell slightly to 7.6% in March, but that wasn't a reason to celebrate. The 88,000 new jobs created represented the slowest job growth in almost a year, and the drop in the unemployment rate was largely the result of roughly half a million people leaving the workforce. Meanwhile, the European statistical agency said the eurozone's 12% unemployment rate was the highest since record-keeping began in 1995.
U.S. manufacturing grew more slowly in March; the Institute for Supply Management's index fell almost 3 points to 51.3% (any figure above 50% indicates growth). Commerce Department figures showed February factory orders up 3%, driven largely by orders for commercial aircraft; excluding transportation-related orders, new orders were up just 0.3%.
The ISM's gauge also showed slowing growth in the services sector as the index fell from 56% to 54.4% in March. The business production and new orders components of the index fell even more, dropping 5.4% and 6.4% respectively.
Construction spending continued to provide some good news; the Commerce Department said construction spending was up 1.2% in February, with private construction responsible for most of the increase. February's figure also is nearly 8% higher than the previous February's.
The Bank of Japan under its new governor announced a massive expansion of its quantitative easing efforts to try to push the country out of the deflation that has plagued it for years and toward a 2% annual inflation target. The BOJ will inject money into the country's financial system by doubling its purchases of Japan's sovereign bonds over the next two years. Meanwhile, the European Central Bank left interest rates unchanged.
Higher exports helped shrink the U.S. trade deficit in February by 3.5%, from $44.5 billion to $43 billion.

Eye on the Week Ahead

The Q1 earnings season, which unofficially kicks off with Alcoa's report after Monday's close, will give investors something to focus on other than economic data. Reports will be watched not only for earnings but for management guidance about future prospects in light of tax increases and federal budget cuts. Minutes of the Federal Open Market Committee's most recent meeting will be parsed for smoke signals about the future of quantitative easing, while retail sales will suggest the state of the consumer economy.
Key dates and data releases: FOMC minutes (4/10); wholesale inflation, retail sales (4/12).

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, April 1, 2013

Market Week: April 1, 2013

The Markets

Domestic equities returned to their winning ways after the previous week's downdraft. The S&P 500 finally squeaked past its October 2007 closing high, setting a new record close--by four points--on the quarter's last trading day.

Last Week's Headlines

Durable goods orders leaped 5.7% in February, but the Commerce Department said a big part of the reason was that new orders for commercial aircraft were almost double those of the month before. Not including transportation, orders for durable goods actually fell 0.5%; it was the first such decline in six months. Business spending on capital goods was up 10%.
Home prices in 20 U.S. cities measured by the S&P/Case-Shiller index were up 0.1% in January, putting them 8.1% higher than last January. Phoenix--one of the markets hit hardest by the housing bust--saw the biggest yearly increase (23%). All 20 cities had year-over-year price increases, and in all but one, those increases were accelerating. However, that still leaves the average home price where it was almost 10 years ago.
Following the strongest month of new home sales since September 2008, the pace slowed in February. However, the longer-term trend was positive. Though sales of new single-family homes were 4.6% lower than the month before, they were still up 12.3% from last February, according to the Department of Commerce. However, according to the foreclosure tracking firm RealtyTrac®, the inventory of homes in foreclosure during the first quarter was up 9% from Q1 2012 (though the number is almost a third lower than in December 2010).
U.S. economic growth during 2012's final quarter slowed substantially. According to the Bureau of Economic Analysis, the 3.1% growth seen in the third quarter shrank to 0.4% in Q4, while corporate after-tax profits rose 3.3% during the quarter (though they were down 1.1% year-over-year).
After a sharp decline in January caused by accelerated bonuses paid a month earlier, U.S. incomes rose 1.1% in February, according to the Bureau of Economic Analysis; even adjusted for inflation, incomes were up 0.7%. Spending also rose 0.7% during the month.
The head of the eurozone finance ministers' group called the bailout agreement with Cyprus, which involved imposing a tax on large bank deposits, a "template" for managing future eurozone debt problems. The reference raised fears of a possible run on Cyprus's banks and potentially those of other troubled countries; those fears were partly responsible for a brief halt in the trading of Italian bank stocks. Cyprus's central bank said that 37.5% of deposits over €100,000 at the country's largest lender would be converted to special shares in the bank, while another 22.5% will be frozen in non-interest-bearing accounts while the country restructures its banking system.

Eye on the Week Ahead

As usual, Friday's unemployment report will be key; manufacturing, construction, and services data also are on tap. Japan's central bank will hold its first meeting under its new governor, and the European Central Bank's meeting will be of interest in light of the Cyprus situation.
Key dates and data releases: U.S. manufacturing, construction spending, auto sales (4/1); factory orders (4/2); U.S. services sector (4/3); unemployment/payrolls, balance of trade (4/5).