Monday, July 29, 2013

Market Week: July 29, 2013

The Markets

Domestic equities essentially took a vacation last week. Earnings reports seemed to have little impact on the market as a whole; traders largely seemed to be awaiting next week's Federal Open Market Committee meeting, jobs report, and economic growth numbers. The Nasdaq saw a bit of a rebound from the previous week's tech slump, while the Dow industrials, S&P 500, and Russell 2000 ended the week basically flat.

Last Week's Headlines

Sales of existing homes fell slightly in June, but were still more than 15% higher than in June 2012. The National Association of Realtors® said the relative shortage of inventory continued to favor sellers and push prices up despite higher mortgage interest rates. Foreclosures and short sales continued to decline; in June they represented 15% of sales. That's the lowest level since October 2008 and a substantial improvement from June 2012's 26%.
Sales of new homes fared better in June than home resales. An 8.3% surge during the month put sales at their highest level since May 2008 despite rising mortgage rates. The Commerce Department said new home sales were more than 38% ahead of last June.
Strong orders for aircraft in June helped push durable goods orders up 4.2% to their highest level since tracking began in 1992, according to the Commerce Department. It was the fourth increase in the last five months for orders for manufactured goods designed to last at least three years.
Federal prosecutors filed criminal securities fraud charges against SAC Capital, one of the nation's largest hedge funds, alleging that insider trading was "substantial, pervasive, and on a scale without known precedent in the hedge fund industry."
Kevyn Orr, who is responsible for managing Detroit's bankruptcy proceedings, defended the city's decision to put general-obligation bondholders on the same footing as any other unsecured creditors, which has not generally been the case with other municipal bankruptcies. Both Orr and Michigan Governor Rick Snyder said there are no plans to request a state or federal bailout.
President Obama said he has not yet chosen a replacement for Fed Chairman Ben Bernanke but will do so in the next few months. Bernanke's term is scheduled to expire at the end of January.

Eye on the Week Ahead

Wednesday could be an interesting day in the markets, with the initial estimate of second-quarter U.S. GDP due out hours before the Fed issues a statement about monetary policy. Whatever the Fed says also could influence investors' reactions to the unemployment report two days later.

Key dates and data releases: home prices (7/30); Federal Open Market Committee announcement, initial estimate of Q2 economic growth (7/31); auto sales, U.S. manufacturing, construction spending (8/1); unemployment/payrolls, personal income/spending, factory orders (8/2).

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, July 22, 2013

Market Week: July 22, 2013

The Markets

As Federal Reserve Chairman Ben Bernanke continued to reassure investors about the Fed's future course, the Dow industrials and the S&P 500 once again set new closing records. However, weak earnings reports from some bellwether tech companies hurt the Nasdaq, while a strong week for the small caps of the Russell 2000 helped the index maintain its year-to-date lead. Meanwhile, reduced anxiety about the Fed also allowed the benchmark 10-year Treasury yield to slide for the second week as prices rose. Municipal bond markets remained relatively stable despite Detroit's decision to file for bankruptcy.

Last Week's Headlines

In his semiannual testimony before Congress, Fed Chairman Ben Bernanke continued to make soothing statements, saying that the tapering of economic support is not on any "preset course" and will depend on future economic data. He also made headlines by saying that "nobody really understands gold prices, and I don't pretend to understand them, either."
Hampered by a dramatically reduced tax base and overwhelming debt, Detroit became the biggest U.S. city in history to declare bankruptcy. Creditors, including city pensioners and holders of general obligation bonds, will now have to argue in federal court to try to claim a percentage of what they're owed. Also, Moody's cut Chicago's bond rating by three notches to A3, citing pension liabilities and worsening budget problems.
Consumer prices rose 0.5% in June, with a 6.3% increase in gas prices responsible for roughly two-thirds of the increase. The Bureau of Labor Statistics said that put the consumer inflation rate for the last 12 months at 1.8%.
Retail sales rose slightly less in June than they did a month earlier. According to the Commerce Department, the 0.4% increase was largely the result of car sales that were 2.1% higher for the month.
Industrial production accelerated in June; the Federal Reserve said the nation's factory output rose 0.3%, which was far better than May's flat reading. That meant that industrial output is up 2% from a year earlier. Also, the Philly Fed manufacturing survey hit 19.8, its highest level since March 2011, while the Fed's equivalent Empire State survey also rose to 9.5.
Housing starts tapered off in June, according to the Commerce Department. The nearly 10% decline, most of which was in the often volatile multifamily sector, could be linked to wet weather in many parts of the country, since homebuilder sentiment remains robust. Building permits also fell 7.5% for the month. However, both housing starts and building permits remained solidly higher than the previous June.

Eye on the Week Ahead

As earnings reports continue to stream in, home sales both new and used may be of extra interest this week in light of last week's weaker housing starts report and the recent jump in mortgage rates. Durable goods orders could be affected by Boeing's struggles with incidents involving its Dreamliner aircraft. Also, given last week's disappointments by some key tech companies, earnings reports will be watched for signs of a broader tech slump.

Key dates and data releases: home resales (7/22); new home sales (7/24); durable goods orders (7/25).

Monday, July 15, 2013

Market Week: July 15, 2013

The Markets

Little news is apparently great news for stocks--that seems to be the takeaway from the week ended July 12. A week that was relatively light on economic data brought insightful minutes from the Federal Open Market Committee's (FOMC's) June meeting, encouraging follow-up comments from Fed Chairman Ben Bernanke, and a few pleasant quarterly earnings reports, all of which helped drive the Dow Jones Industrial Average, the S&P 500, and the Russell 2000 to new records.

Bond investors seemed to get a bit of relief last week as well; yields dipped by 14 basis points from the previous week's close.

Last Week's Headlines

The minutes released Wednesday from the FOMC's June meeting clarified the committee's thinking on its plan to taper bond buying in 2013. Comments indicated the committee felt further strengthening in the labor market was necessary before scaling back its economic support.
Wednesday night, in comments made during a National Bureau of Economic Research conference, Ben Bernanke said that stimulus measures would remain in place for the "foreseeable future." This comment came as welcome relief to investors, and stocks surged on Thursday.
Wholesale inflation was up 0.8% in June, according to the Department of Labor, the largest increase since September 2012. The increase was largely due to a more than 7% spike in gas prices.
Oil futures marked the third straight week of increases, settling at $105.95 per barrel. This, combined with refinery problems that are causing worries about gasoline supplies, led analysts to forecast further increases in gas prices during the heavy summer travel period.
The International Monetary Fund released a more subdued outlook for the remainder of 2013 than it originally forecasted in April. The current 3.1% growth forecast is the same as in 2012, and is a 0.2% drop from the April outlook. The IMF attributes its revision to slower growth in emerging markets and continued recession in the euro region.
Fannie Mae released results from its monthly housing survey, finding that Americans expect both mortgage rates and home prices to increase. The agency said it anticipates these expectations will lead to an increase in home sales, as consumers rush to make purchases ahead of the expected increases. As if on cue, Freddie Mac reported that the rate for a 30-year fixed mortgage averaged 4.51% for the week ended July 11, the highest rate since July 2011.
The American Banking Association reported that consumer delinquencies declined in 11 of 13 categories in the first quarter of 2013, pointing to an American populace that seems to be having more success at managing its debt. The reduction in bank card delinquencies was especially impressive, falling to its lowest level since June 1990.

Eye on the Week Ahead

This week will bring a lot more information with the potential to influence market movements. Data will provide insight into business, consumer, and manufacturing behavior. We'll also get a glimpse into whether expectations for higher mortgage rates may be impacting the homebuilding sector.

Key dates and data releases: retail sales, business inventories, Empire State manufacturing survey (7/15); consumer inflation, industrial production, international capital flows (7/16); housing starts, Fed "beige book" report (7/17); Philadelphia Fed manufacturing survey (7/18); options expiration (7/19).

Monday, July 8, 2013

Market Week: July 8, 2013

The Markets

Domestic equities' recovery from their June swoon accelerated last week. However, bond values continued to take it on the chin as the 10-year Treasury yield soared after Friday's benign unemployment numbers. Gold also plummeted after the jobs report; the precious metal's almost $40 loss for the day left its price at roughly $1,213 an ounce. And the threat that Egypt's civil unrest could potentially affect oil supplies sent oil prices above $103 a barrel.

Last Week's Headlines

The U.S. economy added 195,000 jobs in June, and the Bureau of Labor Statistics estimates for April and May were revised upward. However, because more people tried to rejoin the workforce, the BLS said the unemployment rate stayed stuck at 7.6%.
Faced with a political crisis in debt-ridden Portugal, the European Central Bank said it plans to continue to keep its key interest rate there at a record low 0.5% for "an extended period," though there were discussions about whether to set it even lower. The Bank of England also will keep its benchmark rate at 0.5%.
The Institute for Supply Management's June gauge of manufacturing activity reversed three months of declines, rising almost 1% above the 50% level that marks the difference between contraction and expansion. The manufacturing index has averaged roughly 50.2% for the last three months. The ISM's index of the services sector also showed growth in June, though the 52.2% reading was slightly lower than May's figure.
Spending on residential construction rose 0.5% in May, and the Commerce Department said it is now 5.4% higher than last May. Private construction remained roughly the same as in April, while nonresidential construction declined 1.4%. Public construction was up 1.8%, with power and water supply facilities seeing the biggest gains.
The Commerce Department also had good news from the nation's manufacturers: factory orders were up 2.1% in May. An increase of almost 51% in commercial aircraft orders represented much of the increase, but business spending on equipment also rose by 1.5%.
The U.S. trade deficit rose more than 12% in May as imports rose and exports fell, according to the Commerce Department. That put the trade gap at $45 billion, its widest point since last November.
Interest rates on federally subsidized Stafford student loans went from 3.4% to 6.8% on July 1. However, Congress may tackle the issue again after the July 4 recess is over, and any change in the new rate could be applied retroactively.

Eye on the Week Ahead

Given the reaction to the Fed's June 19 announcement indicating an improving economy (and therefore implying a possible reduction in Fed support), minutes of that meeting will be closely scrutinized for any further clues to the timing of any withdrawal of quantitative easing. With little other economic data to mull over, investors may begin to focus on corporate earnings; the unofficial start of the Q2 earnings season will occur when Alcoa releases its results after Monday's close.

Key dates and data releases: Federal Open Market Committee minutes (7/10); wholesale inflation (7/12).

Monday, July 1, 2013

Market Week: July 1, 2013

The Markets

Investors seemed to regain some perspective last week. After a rocky Monday, equities began reclaiming some of the territory that had been surrendered the previous week, helped by a revision to economic growth and reassurances from Fed officials who reiterated that any tightening would depend on future economic data. The S&P 500 once again managed to top 1,600, while the Dow briefly surpassed 15,000 but couldn't hold on to it. The Nasdaq and the small caps of the Russell 2000 substantially outperformed the other two domestic indices for the week, while statements from China's central bank helped reassure investors in the Global Dow.

Bonds also saw volatility as investors continued to pull money out of bond funds, though a midweek spike in yields seemed to stabilize a bit by week's end. Gold plummeted once again, losing roughly $60 an ounce to end near $1,220 an ounce.

Last Week's Headlines

The U.S. economy grew more slowly during the first quarter than previously thought; the final figure for the increase in Q1 gross domestic product was 1.8% rather than 2.4%. The Commerce Department said that despite an improvement in residential construction, consumer spending on services rose less than expected and businesses invested less in buildings and plant facilities. Also, both exports and imports fell instead of showing gains.
In a landmark ruling that struck down the Defense of Marriage Act, the U.S. Supreme Court paved the way for same-sex couples to claim the same federal tax and other benefits as other married couples in states that recognize same-sex marriages. Some of those benefits include survivor's/spousal Social Security and military benefits, the ability to inherit a spouse's estate tax-free, family medical leave rights, spousal visas and IRA contributions, joint federal income tax filings, and certain private pension benefit options.
April home prices in the areas measured by the S&P 500/Case-Shiller 20-city index were up 12.1% over last year--their largest year-over-year gains in the last seven years. Also, April's 1.4% increase was the biggest monthly gain in the index's history.
China's central bank attempted to calm turbulent markets there by saying it would help banks with any cash shortfalls, but continued to warn against reckless lending.
Consumer spending rose 0.3% in May, almost completely reversing April's 0.3% decline, and incomes rose even more. The Commerce Department said the 0.5% gain in incomes, fueled by higher wages, investment income, and entitlement payments such as Social Security, helped push the personal savings rate up as well; the 3.2% savings rate was the highest since December.
May sales of new homes were up 2.1% and were 29% higher than in May 2012; according to the Commerce Department, that's the greatest annual increase since the summer of 2008. The increase occurred despite rising mortgage rates. Freddie Mac said the average rate for a 30-year fixed mortgage hit 4.46% last week. That was its highest level in almost two years, and represented the biggest weekly gain since 1987.
European finance ministers took an important step toward unifying banks there by agreeing on a joint framework for dealing with failing banks. The agreement provides that regulators will look to bank creditors and investors first, followed by depositors with more than €100,000, to share in the cost of any bank failures--so-called "bail-in" measures--before turning to governments for financial assistance. The agreement must win approval from the European Parliament.
New durable goods orders followed a strong April with an equally strong May; according to the Commerce Department, new orders were up 3.6% for the month. Business orders for new capital equipment were up 9.3%, with defense-related spending accounting for much of the gain.
The Commodity Futures Trading Commission charged former MF Global Holdings CEO Jon Corzine and a former assistant treasurer for the company with misdirecting more than $1 billion from customer accounts to cover corporate shortfalls shortly before the firm's 2011 collapse.

Eye on the Week Ahead

After recent gyrations in multiple markets, investors may welcome an abbreviated trading week, though light trading volumes around the July 4 holiday also could exaggerate market movements. In light of the Fed's recent announcement, the unemployment rate is likely to be of even more interest than usual, since good economic news has tended to bring down markets lately (and vice versa). Also, Thursday brings a European Central Bank meeting on interest rates.

Key dates and data releases: U.S. manufacturing (7/1); factory orders, auto sales (7/2); balance of trade, U.S. services sector (7/3); European Central Bank meeting (7/4); unemployment/payrolls (7/5).