Monday, May 20, 2013

Market Week: May 20, 2013

The Markets

Bears were on the defensive last week as both the Dow and the S&P 500 once again set fresh record highs. Friday's close put the S&P 500 up almost 147% from its March 2009 low, while the small-cap Russell 2000 has almost tripled since then. Meanwhile, gold followed up on the previous week's losses by losing some more. The spot price fell below $1,400 an ounce last Monday and kept on going; it ended the week at roughly $1,365, having lost more than 7% in a little over a week.

Last Week's Headlines

Retail sales were up 0.1% in March, and for a change, the reason wasn't higher gas prices. The Commerce Department said spending at gas stations fell 4.7%, while building materials/garden supplies, auto/auto parts, clothing, general merchandise, and nonstore retailers all gained at least 1% for the month.
Inflation showed no signs of putting pressure on the Federal Reserve to raise interest rates. For the second straight month, falling oil prices were responsible for a drop in the Consumer Price Index. According to the Bureau of Labor Statistics, April's 0.4% decline was the steepest since December 2008, and it pushed the annual consumer inflation rate down to 1.1%--its lowest level since November 2010. Meanwhile, wholesale prices fell 0.7% (also largely because of oil prices), putting the wholesale inflation rate for the last 12 months at 0.6%, its lowest since last July.
Manufacturing data was underwhelming as both the Federal Reserve's Empire State and Philly Fed manufacturing surveys showed general business conditions declining during the month. The Empire State index for May fell to -1.4--its first negative reading since January--while the Philly Fed number sank to -5.2.
The Conference Board's index of leading economic indicators rebounded from a slight decline to rise 0.6% in April. Housing permits and the interest rate spread were the most positive of the index's 10 indicators.

Eye on the Week Ahead

Investors will parse minutes of the Federal Open Market Committee to see whether sentiment is tipping toward winding down quantitative easing sooner rather than later. Home sales and durable goods orders also are on tap.
Key dates and data releases: home resales, FOMC minutes (5/22); new home sales (5/23); durable goods orders (5/24).

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, May 13, 2013

Market Week: May 13, 2013

The Markets

And the beat goes on: Amid a week that was relatively light on economic influence, equity markets continued to set new records (except the Nasdaq, which still has a long way to go). The Dow, S&P 500, Nasdaq, and Russell 2000 all appear poised to reach the midyear point nearing or above a 15% gain, while the Global Dow is not far behind. Will the breakneck pace continue? While no one can say for sure, there is certainly no dearth of opinion on the matter. Stay tuned.

Last Week's Headlines

The U.S. monthly budget surplus reached a level not seen in five years in April, the Treasury Department said on Friday. The higher-than-anticipated $113 billion surplus is due largely to record high tax receipts. Although April surpluses are not unusual due to the month's income-tax-filing deadline, this year's figure was almost double the surplus recorded in April 2012.
The number of Americans filing new claims for unemployment insurance fell to its lowest weekly level in more than five years to 323,000, said the U.S. Labor Department. The four-week moving average was 336,750. Both figures were below the 350,000 benchmark that economists consider indicative of an improving job market.
The nearly $8 billion in new debt that American consumers incurred in March was almost half the previous month's $18.6 billion increase, according to the Federal Reserve. Most of the borrowing increase was for major purchases such as cars or education, while revolving credit such as credit card debt fell at an annual rate of 2.4%.
The dollar surpassed the noteworthy benchmark of ¥100 for the first time in more than four years on Thursday, fueling a Friday rally in the Japanese stock market and gains in the dollar versus other currencies. The surge was likely due to positive U.S. economic data combined with last month's moves by Japan's central bank to stimulate growth in that country.
During a speech at a Fed conference in Chicago, Fed Chairman Ben Bernanke said that U.S. banks could face even more stringent regulation in the future. Indicating that there is still some concern about large, interconnected financial institutions being "too big to fail," Bernanke said that banks may face higher capital requirements intended to encourage them to reduce their complexity.
For the first time, the Securities and Exchange Commission accused a local municipality of allegedly misleading investors in its municipal bonds. Harrisburg, PA settled the suit, and no criminal charges were filed against any individuals. The suit charged that city officials failed to fully disclose problems with its finances from 2009 to 2011--for example, a downgrade of the city's credit rating--after bonds were issued.

Eye on the Week Ahead

With earnings season coming to a close, investors may turn their attention to the flood of manufacturing-related data this week. And given the recent records in equities prices, options expiration at week's end could be accompanied by some volatility.

Key dates and data releases: retail sales, business inventories (5/13); import/export prices (5/14); wholesale prices, industrial production, Empire State manufacturing survey, international capital flows (5/15); consumer prices, housing starts, Philly Fed manufacturing survey (5/16); leading economic indicators, options expiration (5/17).

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, May 6, 2013

Market Week: May 6, 2013

The Markets

Records were made to be broken: Despite some volatility, generally positive earnings reports and a better-than-expected employment picture helped equities continue to power upward. The jobs report sent the S&P 500 to a new record close above 1,600 on Friday. The Dow industrials briefly topped 15,000 but couldn't quite hang on to that gain, though it also ended the week at a record level. And for a change, the tech sector helped the Nasdaq take the lead for the week.

Last Week's Headlines

The unemployment rate continued to inch downward in April. The 165,000 new jobs created during the month cut the unemployment rate to 7.5%--the lowest level since December 2008--and the February and March new jobs figures were revised upward. The loss of 11,000 government jobs partly offset the private sector's 176,000 new jobs, where the biggest gains were in professional/business services, leisure and hospitality, and education.
Americans' incomes rose in March, but the extra money didn't stay in bank accounts for long. Both personal incomes and consumer spending were up 0.2% for the month, according to the Bureau of Economic Analysis. The rise in spending was the smallest in three months, and higher utility bills caused by unseasonably cold weather were responsible for part of the increase. The savings rate remained at 2.7% of income for a second month.
As expected, the Fed will continue its bond purchases, though it may increase or decrease the amount depending on economic performance. The Fed's statement also blamed current tax and spending policies for restrained economic growth. Meanwhile, as eurozone unemployment hit a record 12.1%, the European Central Bank will attempt to stimulate the contracting economy there by cutting its key interest rate to 0.5%, and ECB President Mario Draghi hinted that it might go still further.
A 0.3% increase in home prices during February helped put prices in 20 cities measured by the S&P/Case-Shiller index 9.3% higher than a year earlier. It was the second straight month of year-over-year increases in all 20 cities.
U.S. manufacturing slowed for the fifth straight month, according to the Institute for Supply Management. The ISM's gauge of manufacturing activity hit 50.7%; though that still indicates growth, slipping below 50% would represent contraction. Meanwhile, the ISM's services index also showed slowing growth as it hit 53.1%.
A 48% drop in the volatile nondefense aircraft sector helped cut new factory orders for manufactured goods by 4% in March, according to the Commerce Department.
The U.S. trade deficit fell by 11% in March, its second major decline in four months. While exports were down, they fell less than imports, especially imports of consumer goods. However, part of the decline in imports may be tied to the Chinese lunar new year holiday and could be temporary.
The Treasury Department said reduced federal spending and higher tax receipts, in part from seasonal income tax filings, will enable it to pay off $35 billion in bonds this quarter. It's the first such payment on the national debt in six years, and could help delay another battle over the debt ceiling, though the reduction is seen as temporary.
Construction spending fell 1.7% in March, according to the Commerce Department, though it was still almost 5% higher than a year earlier. Private construction was down slightly, by 0.6%, but public construction fell 4.1% during the month.

Eye on the Week Ahead

In a week that's practically bereft of economic data, investors may focus on the few earnings reports that are left, since there will be little else to guide them in trying to assess the chances of equities continuing their spectacular run. The G8 nations are scheduled to meet Friday, and demand at two U.S. Treasury auctions will be watched.

Key dates and data releases: consumer credit use (5/7); 10-year Treasury note auction (5/8); 30-year Treasury bond auction (5/9).