Monday, November 25, 2013

Market Week: November 25, 2013

The Markets

Another week, another record: The Dow's seventh consecutive week of gains ended with a close above the psychologically significant 16,000 level for the first time ever, while the S&P 500 surpassed 1,800 for the first time. Meanwhile, the price of the benchmark 10-year Treasury note fell midweek after minutes of the Fed's most recent monetary policy meeting were released, but managed to regain some strength by the end of the week.

Last Week's Headlines

A nearly 3% decline in gas prices cut consumer inflation by 0.1% in October, according to the Bureau of Labor Statistics. That put the annual inflation rate for the last 12 months at 1%. Gas prices also were largely responsible for a 0.2% drop in the wholesale inflation rate during October, leaving the increase in wholesale prices over the last 12 months at a mere 0.3%.
Retail spending by U.S. consumers rose 0.4% in October, and retail sales were 3.9% higher than a year earlier. The Commerce Department said sales of autos, electronics/appliances, and clothing saw the strongest monthly gains. Auto sales were up almost 12% from last October, and sales at nonstore retailers rose more than 8% during the same time.
Minutes of the Federal Reserve's most recent monetary policy committee meeting suggested that tapering of the Fed's economic support is still likely to happen sometime over the course of the committee's next few meetings. Members also suggested that once the Fed begins to cut back on its bond purchases, it may attempt to provide more guidance on the future of interest rates.
Two key gauges of U.S. manufacturing activity showed signs of slowing growth in October. The Philly Fed survey fell to 6.5% from October's 19.8%, while the Empire State survey declined 2.2%, its first negative reading since May.
Sales of existing homes were down for the second month in a row, according to the National Association of Realtors®, though sales were 6% higher than the same time last year. October's 3.2% decline was attributed to the relatively low number of homes for sale as well as double-digit year-over-year price increases for the last 11 months.
Recurring uncertainty about the U.S. debt ceiling and budget battles, as well as the anticipated impact of future Federal Reserve policy, threaten global recovery even more than financial conditions in the eurozone and Japan, according to the Organisation for Economic Co-operation and Development. The OECD's semiannual forecast for global growth fell roughly half a percent to 2.7% for 2013 and 3.6% for 2014, with the United States seeing growth at 1.7% and 2.9% over the same time frames.

Eye on the Week Ahead

Housing is likely to be the focus of the holiday-shortened week as two months' worth of data on housing starts and building permits, as well as the most recent data on home prices, will be released. Estimates of Q3 economic growth will undergo revision.

Key dates and data releases: housing starts for September and October, home prices, second estimate of Q3 GDP (11/26); durable goods orders, personal income/spending (11/27).

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, November 18, 2013

Market Week: November 18, 2013

The Markets

Another Dow record on Monday was followed by three more record closes for the index during the week, while the S&P 500 notched its 36th record closing price of the year. Meanwhile, the Nasdaq and small-cap Russell 2000 maintained their year-to-date leadership as the Nasdaq reached a level not seen in more than 13 years.

Last Week's Headlines

Growth in the eurozone was sluggish in the third quarter, slowing to 0.1%; that represents an annual rate of just 0.4%, compared to the second quarter's annualized 1.2% rate. Powerhouse Germany, which saw 2.9% growth in the second quarter, had less than half that in Q3.
President Obama said insurance companies that have cancelled existing policies that do not meet the standard of the Affordable Care Act will now be allowed under the act to extend those policies for existing policyholders into 2014. However, state insurance regulators would also have to agree to the extensions. Also, insurers must outline the coverage provisions available under the ACA that are not included in those policies, and notify the policyholders that they may also shop for another policy through an insurance exchange.
Janet Yellen reassured members of the Senate Banking Committee that if confirmed to replace Ben Bernanke to chair the Federal Reserve Board, she would continue the Fed's current "data-driven" approach to tapering Fed economic support.
Cleared for takeoff: The Justice Department agreed to settle an antitrust suit and permit the $17 billion merger of American Airlines and US Airways, which will create the world's largest airline carrier. The agreement will require a reshuffling of airline service, since the two airlines will have to relinquish some of their gates, primarily at Washington's Reagan National and New York's LaGuardia but also at five other airports.
A Miami-based mutual fund company offered to buy portions of the federal government's stake in mortgage guarantors Fannie Mae and Freddie Mac. Fairholme Capital Management, which already owns preferred shares in the two companies, said it would lead a consortium of investors interested in the mortgage-guarantee business. The companies, which have been under federal authority since the 2008 financial crisis, have become profitable; after third-quarter earnings, Fannie Mae will have paid the government almost $114 billion (after having gotten $116 billion in financial assistance), while Freddie Mac will have paid the Treasury $9 million more than the $71.3 billion worth of aid it has received.
The International Energy Agency said that OPEC countries' role in the global energy market is being diminished by increased production in the United States and Brazil. The IEA forecast that the United States could temporarily surpass Saudi Arabia as the world's largest producer of natural gas and oil by 2016, though that trend would likely reverse by the middle of the following decade. India and Southeast Asian countries will join China in helping to increase consumption by as much as one-third by 2035.

Eye on the Week Ahead

Data on U.S. manufacturing, housing, and retail sales could suggest whether the Q4 economy got off to a good start, while minutes of the Fed's most recent monetary policy committee meeting are always of interest.

Key dates and data releases: international capital flows, homebuilders survey (11/18); employment cost index (11/19); consumer inflation, retail sales, home resales, business inventories, Federal Open Market Committee minutes (11/20); wholesale inflation, Philly Fed manufacturing survey, leading economic indicators (11/21).

Monday, November 11, 2013

Market Week: November 11, 2013

The Markets

Despite some headline-driven mood swings, the Dow industrials managed to set a new record closing high for the 34th time this year, while the other domestic stock indices trailed in their wake. An unemployment report that was stronger than expected renewed fears of Fed tapering, sending the benchmark 10-year Treasury yield up for the second week in a row as prices dropped; the 10-year yield has now risen almost a quarter of a percent in the last two weeks.

Last Week's Headlines

The U.S. economy added 204,000 new jobs in October, according to the Bureau of Labor Statistics. However, the unemployment rate inched up 0.1% to 7.3%, in part because worker furloughs caused by the federal government shutdown may have distorted the figures. The BLS said the shutdown did not appear to have affected the data on new jobs, which is based on a survey of employers rather than households.
The U.S. economy grew at an annual rate of 2.8% in the third quarter, according to the Bureau of Economic Analysis. The initial estimate, which is subject to two future revisions, represents an improvement from Q2's 2.5% and matches the pace hit a year earlier.
After two months of declines, U.S. manufacturers saw a 1.7% increase in new orders in September, according to the Commerce Department. However, a nearly 58% increase in commercial aircraft orders accounted for much of the increase; excluding the notoriously volatile transportation sector, new orders were down 0.2%.
The eurozone is now forecast to grow just 1.1% next year rather than the 1.2% previously expected by the European Commission. However, that would still be better than the 0.4% contraction anticipated for 2013. The commission also sees 2014 unemployment rising slightly to 12.2%. To try to stimulate growth and combat a 0.7% annual inflation rate that is seen as too low to support economic recovery, the European Central Bank lowered the interest rate at which it lends to member banks to a record low of 0.25%. The move helped cut the euro to roughly $1.33 against the U.S. dollar.
Despite the government shutdown, growth in the U.S. services sector accelerated in October, rising a full percentage point from September's 54.4%. That represents the 46th straight month of growth for the Institute for Supply Management's index of the sector.
After more than a decade of investigation, the Securities and Exchange Commission announced that SAC Capital Advisors, one of the country's largest hedge funds, had agreed to plead guilty to five criminal charges of insider trading and to pay a record $1.2 billion penalty. The fund also will no longer be able to accept outside investors.
Technical problems with obtaining quotations once again led to a halt in trading of certain securities. The Financial Industry Regulatory Authority suspended all trading in over-the-counter stocks--so-called penny stocks--for more than three hours on Thursday because of difficulties with OTC Markets Group's quotation system. The problems followed two outages at Nasdaq the previous week.

Eye on the Week Ahead

Data on eurozone economic growth will be available, as will two Federal Reserve gauges of manufacturing strength. Investors also will pore over the testimony of Federal Reserve Chairman nominee Janet Yellen at her confirmation hearing for any insights into future Fed action.

Key dates and data releases: balance of trade (11/14); industrial production, Empire State manufacturing survey, options expiration (11/15).

Monday, November 4, 2013

Market Week: November 4, 2013

The Markets

After leading domestic equities for so much of the year, the small caps of the Russell 2000 took a hit last week, while the larger caps remained basically flat. Meanwhile, lingering worries about the timing of Fed monetary action sent the yield on the benchmark 10-year Treasury up strongly on Friday, though it still remained well below its almost 3% year-to-date high.

Last Week's Headlines

The Federal Reserve's monetary policy committee provided little guidance on when it might begin tapering other than to say it wouldn't be now. The announcement noted the recent slowing of the housing recovery and confirmed again that the unemployment rate would need to be closer to 6.5% before the Fed would begin raising interest rates.
Home prices continued to rise in August, seeing their biggest year-over-year gains (nearly 13%) since early 2006, according to the S&P/Case-Shiller 20-City Composite Index. However, the pace of those gains has begun to slow over the last several months, and August's 1.3% increase was the smallest gain of any month since March. Average home prices are back to mid-2004 levels, but are still roughly 20% below their mid-2006 peaks.
Increases in the cost of energy and housing pushed consumer prices up 0.2% in September, according to the Bureau of Labor Statistics. That put the inflation rate for the past 12 months at 1.2%, its lowest level in almost 3 years. Wholesale prices fell 0.1% during the month, leaving wholesale inflation for the last 12 months at a paltry 0.3%.
A 2.2% decline in auto sales cut retail sales by 0.1% in September, according to the Commerce Department. However, non-auto sales were up 0.4%, and total sales were still 3.2% higher than a year earlier.
The Institute for Supply Management's gauge of U.S. manufacturing saw little change in October, rising just 0.2% from October's 56.2%. However, the reading still represents the index's highest level so far this year.
And the hits keep coming: Mortgage lender Fannie Mae filed suit against nine of the world's largest banks, charging that it had lost $800 million because the banks had deliberately manipulated the London Interbank Offered Rate (Libor), which determines a variety of interest rates around the world. Bank of America, JPMorgan Chase, and Citigroup were named in the suit along with international institutions Barclays, UBS, Deutsche Bank, Credit Suisse, the Royal Bank of Scotland, Rabobank, and the British Bankers' Association.

Eye on the Week Ahead

Data on U.S. economic growth in the third quarter will finally be available, and investors will see whether the federal government shutdown affected the October unemployment rate. Also, the European Central Bank meets on interest rates and will announce its decision on Thursday.

Key dates and data releases: factory orders (11/4); U.S. services sector (11/5); initial estimate of Q3 gross domestic product, European Central Bank monetary policy announcement (11/7); unemployment/payrolls, personal incomes/spending (11/8).