Monday, September 30, 2013

Market Week: September 30, 2013

The Markets

The focus of investor attention remained in Washington but shifted from the Federal Reserve to Congress's budget battles. The Nasdaq and the small caps of the Russell 2000 hung on to positive territory for the week--barely--while the Dow and S&P 500 each lost more than a percentage point. Meanwhile, despite the potential threat of default after October 17, the benchmark 10-year Treasury note benefitted from the uncertainty.

Last Week's Headlines

Continuing irresolution: A partial shutdown of the federal government on Tuesday seemed likely as Congress divided over a bill that would eliminate some funding for the Affordable Care Act and delay implementation for a year. A second impending deadline arrives October 17, when Treasury Secretary Jack Lew said the Treasury will essentially run out of money to pay its bills unless Congress raises the nation's debt ceiling.
Sales of new homes came back in August, according to the Commerce Department. After falling more than 14% in July, sales were up almost 7.9% in August. Also, July home prices in the cities measured by the S&P/Case-Shiller 20-City Composite Index rose 1.8%, and were up 12.4% over the last 12 months. However, the rate of increase in both new home sales and prices has slowed since the beginning of the year.
The Commerce Department's final estimate of overall Q2 economic growth remained at an annualized 2.5%--better than both the initial estimate of 1.7% and Q1's 1.1% growth. Businesses spent more on buildings and equipment than previously thought; state and local government spending also increased slightly from previous estimates, while the 1.6% drop in federal spending and the 1.8% increase in consumer spending remained unchanged.
Led by a 0.7% increase in transportation equipment (primarily autos and auto parts), durable goods orders were up 0.1% in August. The Commerce Department said the figure would have been stronger if not for a decline in orders for aircraft and military equipment. Business spending on capital goods was down 0.2%.
August's 0.4% increase in personal incomes was the biggest increase in six months. It even exceeded the 0.3% rise in consumer spending, which was boosted by purchases of autos and back-to-school supplies. The Commerce Department said the increase helped workers save a little more; the personal savings rate rose to 4.6% of income from 4.5%.

Eye on the Week Ahead

The ongoing budget and debt conflicts in Washington will likely affect the mood of the markets, especially given the likely shutdown of some government functions starting Tuesday. As always, Friday's unemployment report will be of interest (assuming the employees who produce it aren't furloughed) and the Institute for Supply Management will supply data on the manufacturing and services sectors.

Key dates and data releases: U.S. manufacturing, construction spending (10/1); factory orders, U.S. services sector (10/3); unemployment/payrolls (10/4).

Data sources: All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: U.S. Treasury (Treasury yields); WSJ Market Data Center (equities); Federal Reserve Board (Fed Funds target rate); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold, NY close); Oanda/FX Street (currency exchange rates). 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, September 23, 2013

Market Week: September 23, 2013

The Markets

What the Fed giveth, the House taketh away: Jubilation on Wall Street after the Fed decided not to begin tapering immediately gave way to concerns about the potential impact of renewed battles over the federal budget and U.S. debt ceiling. The Dow and the S&P 500 hit record closing highs after the Fed announcement only to give back most of those gains by week's end. The small-cap Russell 2000 also rose post-Fed but was more resilient than its large-cap brethren after the House of Representatives passed a budget that virtually guarantees more fiscal infighting. Meanwhile, investors took advantage of the reprieve from Fed tapering to boost bond prices, sending yields down.

Last Week's Headlines

The Federal Open Market Committee said it will continue to buy $85 billion worth of bonds, at least until it sees whether the threat of fiscal gridlock in Washington will threaten the economy.
Increases in the cost of housing and medical care were largely responsible for a 0.1% increase in consumer prices in August. The Bureau of Labor Statistics said that put the consumer inflation rate at 1.5% for the last 12 months, which is well within the Federal Reserve's target range.
Housing starts on single-family homes--the largest segment of the residential construction market--rose 7% in August, putting overall housing starts up 0.9% for the month and 19% ahead of August 2012. However, the Commerce Department said building permits--an indicator of future construction--were down 3.8% for the month, though they were still 11% ahead of last August.
A 1.7% increase in sales of existing homes in August put home resales at their highest level in more than six years. The National Association of Realtors® said the nearly 15% increase in the median sales price since August 2012 represented the ninth straight month of year-over-year increases.
The nonpartisan Congressional Budget Office said the current level of federal debt relative to gross domestic product is higher than at any time since World War II. The budget deficit has declined to its lowest level since 2008--about 4% of GDP. However, the CBO projected that though the deficit would fall to 2% of GDP in two years, deficits would then gradually begin to rise again, primarily because of higher borrowing costs due to rising interest rates as well as the growing costs of Social Security, Medicare, Medicaid, the Children's Health Insurance Program, and subsidies provided through health insurance exchanges.
German Chancellor Angela Merkel handily won reelection, though her political party will still face a challenge in forming a coalition government with political opponents. The vote essentially ratified Merkel's strong support of financial assistance for troubled eurozone countries.
Industrial production rose 0.4% in August, according to the Federal Reserve Board, and was up 2.7% from a year earlier.

Eye on the Week Ahead

In the wake of last week's announcement, individual Federal Reserve Board speakers are likely to begin elaborating on the thinking behind the decision. Final Q2 GDP numbers will be in, and data on housing and household incomes and spending could suggest how the economy might fare in Q3.

Key dates and data releases: home prices (9/24); durable goods orders, new home sales (9/25); final estimate of Q2 GDP (9/26); personal income/spending (9/27).

Monday, September 9, 2013

Market Week: August 9, 2013

The Markets

Despite some flailing, the Dow managed its first positive week since the beginning of August, and the S&P, Nasdaq, and Russell 2000 all had strong gains. A disappointing jobs report and the intensifying Syrian dilemma fed the "bad news might be good news" syndrome that has been in place for weeks as investors hoped that both factors might help persuade the Fed not to begin tapering in September.

Last Week's Headlines

Though the U.S. economy added 169,000 jobs in August, the number was lower than expected, and the number of jobs added in July was revised downward. However, the unemployment rate fell slightly to 7.3% because 1.4 million people left the labor force.

U.S. manufacturers saw strong expansion in August, according to the Institute for Supply Management's index, whose 55.7% reading was its highest since June 2011. Meanwhile, the ISM's non-manufacturing measure for July hit its highest level since the index began in 2008; the 2.6% increase to 58.6% was driven primarily by the retail and construction industries.

The Federal Reserve's "beige book" report cited moderate expansion in most of the 12 Fed districts but also weaker lending activity resulting in part from higher mortgage rates. The anecdotal report, which covered early July through late August, did little to increase clarity about what the Fed's mindset might be at its September monetary policy meeting.

Businesses increased their productivity from April through June. According to the Bureau of Labor Statistics, productivity rose at an annualized 2.3% rate in Q2, and industrial output was up 3.7%. Though there was a 1.4% increase in hours worked by the labor force as a whole, per-person labor costs were basically flat.

Construction spending rose 0.6% in July. The Commerce Department said a more than 0.9% increase in spending on office/commercial buildings and factories as well as residential construction was partly offset by a nearly 0.4% drop in construction spending by state and local governments.

Stronger domestic spending on oil prices and auto imports as well as weaker spending overseas on U.S. products helped reverse June's sharp decline in the U.S. trade deficit, putting it 13.3% higher at $39.1 billion--roughly the monthly average so far this year. July imports were up 1.6%, while exports fell 0.6% for the month.

Both the European Central Bank and the Bank of England left their key interest rates unchanged at 0.5%. ECB President Mario Draghi said the bank now sees the eurozone economy contracting slightly less (-0.4%) than it had previously forecast, though its outlook for 2014 growth was cut slightly to 1%. Meanwhile, the BOE will continue to buy UK government bonds at its current pace.

Eye on the Week Ahead

Investor anticipation of the Fed's upcoming September monetary policy meeting will likely affect two auctions of long-term Treasury securities this week. As Congress returns to Washington, the debate over the Obama administration's proposal to intervene in Syria could have increasing impact on the mood of the markets. Retail sales will reflect back-to-school spending.

Key dates and data releases: 10-year Treasury note auction (9/11); 30-year Treasury bond auction, Treasury budget figures (9/12); wholesale inflation, retail sales (9/13).

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.

Tuesday, September 3, 2013

Market Week: September 3rd, 2013

The Markets

As some sort of U.S. military strike in Syria began to seem increasingly likely, investors had something else to worry about in addition to the Federal Reserve. That translated into weakness in equities. Heading into what has historically been a relatively weak month for stocks, the Dow industrials had lost almost 4.5% during August, while the S&P 500 was down just over 3% for the month. The Nasdaq's 1% loss gave it August's best performance. Meanwhile, bonds didn't seem to benefit much from any flight-to-quality sentiment during the week, and the benchmark 10-year Treasury yield ended the month up 18 basis points.

Last Week's Headlines

The U.S. economy grew more than previously thought in the second quarter, according to the Bureau of Economic Analysis. The 2.5% annualized growth in gross domestic product is substantially higher than either the initial estimate of 1.7% or Q1's 1.1% growth. An 8.6% increase in exports and imports that were lower than previously thought were the biggest factors in the GDP revisions. Business investments were up 9.9% and corporate profits rose 2.6%, while the sequester budget cuts contributed to a 0.9% decline in government spending. Though another revision is due in late September, this is the last GDP report before the Fed's next monetary policy meeting.
A 52.3% drop in orders for commercial aircraft cut July durable goods orders by 7.3% in July. However, even apart from the volatile aircraft sector, orders were down 0.6% for the month, according to the Commerce Department, though non-transportation orders gained more than 2.5% over the past 12 months. Business spending on capital equipment fell 3.3% after five straight months of increases.
Both consumer spending and personal incomes were up 0.1% in July, according to the Bureau of Economic Analysis; both were lower than in June.
Home prices continued to rise in June, though at a slower pace than the month before. The cities included in the S&P/Case-Shiller 20-City Composite Index saw an average 2.2% gain. Prices were 12.1% ahead of last June, which put them back at early 2004 levels. Prices in Dallas and Denver hit record highs, while New York saw its greatest monthly gains since 2002. However, 13 of the 20 cities saw weaker returns from May to June, and S&P said higher mortgage rates could be part of the reason.
BATS Global Markets, which operates electronic securities exchanges in the United States and Europe, and U.S. stock exchange operator Direct Edge Holdings will merge. The combined company will compete with the New York Stock Exchange and the Nasdaq Stock Market.
Here we go again: The federal government will hit its borrowing limit in mid-October, Treasury Secretary Jack Lew said. That raised the specter of renewed debate over raising the debt ceiling to pay the government's existing bills.

Eye on the Week Ahead

A holiday-shortened week will feature the final unemployment report before the Fed's September monetary policy meeting. Data on construction spending, imports/exports, and manufacturing also will suggest the state of the economy.

Key dates and data releases: U.S. manufacturing, construction spending, auto sales (9/3); balance of trade, Fed "beige book" report (9/4); U.S. services sector, business productivity/costs, factory orders (9/5); unemployment/payrolls (9/6).

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.