Monday, January 27, 2014

Market Week: January 27, 2014

The Markets

A double whammy helped trigger a selloff in equities last week. Weaker-than-expected manufacturing data from China helped fuel concerns about the global impact of potential additional Fed tightening next week and a stronger U.S. dollar. Some lackluster earnings reports didn't help, though profit-taking in the wake of last year's strong rally also could have been a factor. After declines in several emerging-market currencies, the Dow and S&P 500 dropped below their 50-day moving averages; the Dow lost 318 points on Friday alone. The Nasdaq, the small caps of the Russell 2000, and the Global Dow joined them in negative territory for the year. The global jitters had investors seeking the relative safety of Treasury bonds as the benchmark 10-year yield fell for the fourth straight week.

Last Week's Headlines

Global markets became concerned about the potential implications of a tightening in China's monetary policies after a survey showed that the manufacturing sector there contracted in January for the first time in six months. The Markit/HSBC Purchasing Managers' Index dropped to 49.6 from 50.5 (anything below 50 represents contraction).
After three months of declines, sales of existing homes rose 1% in December, according to the National Association of Realtors®. Even better, the NAR said sales for all of 2013 were higher than they've been in any year since 2006, and were up 9.1% from 2012's annual figure.
The Argentinian peso joined several other emerging-market currencies in declining last week. The Argentine government devalued the country's currency in an attempt to stimulate growth, but other currencies, including the Turkish lira and the Indian rupee, have suffered recently because of fears about the global impact of future tighter monetary policies.
The International Monetary Fund raised its forecast for global economic growth this year by 0.1% to an annual rate of 3.7%, saying that projected U.S. growth of 2.8% in 2014 will be extremely important to that forecast.

Eye on the Week Ahead

The whole world's watching: Wednesday's Fed announcement--Ben Bernanke's last as chairman--could include further cuts in the Fed's bond purchases and have repercussions in global markets. Also on tap are more earnings reports, the first look at Q4 economic growth, and data on the U.S. housing market, manufacturing, and personal spending.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprices.org (spot gold/silver); Oanda/FX Street (currency exchange rates). 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 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

Tuesday, January 21, 2014

Market Week: January 21, 2014

The Markets

Domestic indices were mixed last week. The Nasdaq and Russell 2000 ended with slight gains, the Dow was basically flat, and the S&P 500 wound up with a slight loss after briefly returning to the level at which it started the year. The benchmark 10-year Treasury yield also saw a little dip.

Last Week's Headlines

Slower auto sales didn't prevent overall retail sales from rising 0.2% in December, according to the Commerce Department. Excluding the 1.8% decline in auto sales, retail sales were up 0.7%.
Driven by increases in the cost of housing and energy, consumer prices rose 0.3% in December, putting the inflation rate for the last 12 months at 1.5%. The Bureau of Labor Statistics said wholesale inflation also was up in December; the 0.4% monthly increase put the annual rate at 1.2%. However, both remain well below the level that would raise concerns at the Federal Reserve Board.
There was good news about manufacturing from the Federal Reserve. The Empire State index showed accelerating growth and hit its highest reading in more than a year (12.5), while the Philly Fed index went from 6.4 to 9.4 and has now shown growth for eight straight months. The Fed's measure of industrial production also was positive. December's 0.3% increase--the fifth straight month of gains--put industrial production 3.7% ahead of the previous December and 0.9% higher than its pre-recession high of December 2007.
Housing starts froze in December, according to the Commerce Department. However, the nearly 10% decline for the month still left them 1.6% ahead of December 2012, and the 923,400 housing starts for all of 2013 represented the highest annual total since 2007. Building permits--an indicator of future activity--also fell by 3% during the month but were 4.6% higher than a year earlier.
A federal appeals court voted to give providers of broadband internet services greater ability to charge content providers higher rates for faster service to their customers. The ruling overturned the FCC's so-called "net neutrality" regulations, but left open the possibility that the FCC could regulate service in other ways--for example, by classifying broadband as a telecommunications service, which would put it in the same category as telephones.
The Federal Reserve's "beige book" reported continued moderate economic expansion in most districts.

Eye on the Week Ahead

With little fresh economic data available, investors may concentrate on the ongoing stream of earnings reports. The World Economic Forum at Davos also could produce some headlines.

Monday, January 13, 2014

Market Week: January 13, 2014

The Markets

Believers in the so-called January indicator--the concept that the first five trading days suggest the stock market's overall direction for the rest of the year--were likely discouraged last week. The S&P gave up roughly half a percentage point during 2014's first five trading days. The other three domestic indices also slipped during those five days, with losses ranging from the Nasdaq's quarter of a percentage point to the Dow's nearly seven-tenths of a percent. A rebound at week's end gave three of the four domestic indices a gain for the week. However, the small-cap Russell 2000 was the only one to see a slight gain for both the week and the year so far. Meanwhile, the yield on the benchmark 10-year Treasury fell as the new year saw a new interest in bonds.

Last Week's Headlines

Only 74,000 new jobs were added to U.S. payrolls in December; that's the lowest number since January 2011, according to the Bureau of Labor Statistics. However, the unemployment rate fell from 7% to 6.7%, largely because of people dropping out of the workforce.
Minutes of the meeting at which the Federal Reserve's monetary policy committee decided to begin scaling back its bond purchases emphasized once again that tapering will be done gradually and will depend on economic data. Members also forecast stronger economic growth in coming years and a gradually declining unemployment rate.
The Senate made it official that Janet Yellen will oversee the Fed's tapering efforts. Members confirmed her appointment as the first woman to chair the Federal Reserve Board. She will take over when Ben Bernanke steps down January 31.
Record exports helped cut the U.S. trade deficit to $34.3 billion in November. According to the Bureau of Economic Analysis, that was the lowest level since September 2009.
Orders placed with U.S. factories in November surged 1.8% for the month, putting them at their highest level since the Commerce Department began tracking the figures in 1992. Inventories, which have risen 11 of the last 12 months, were partly responsible, but new orders for durable goods, particularly transportation equipment, also have risen 3 of the last 4 months and were up 3.4% in November.
Growth in U.S. service industries slowed slightly in December as the Institute for Supply Management's gauge fell almost 1% to 53% during the month. The ISM survey also showed new orders falling to 49.4% in December, which represents actual contraction.

Eye on the Week Ahead

The Q4 2013 earnings season will get into high gear as several major financial and tech companies release reports. Data on retail sales for the holiday season will shed light on the state of consumers' wallets.

Monday, January 6, 2014

Market Week: January 6, 2014

The Markets

Equities rang in the new year by taking a bit of a breather. As investors decided to take some of the profits that the Santa Claus rally had left in their stockings, the Dow lost 135 points on 2014's first trading day, though it regained much of that the following day. The other three domestic indices fared slightly worse, though not as badly as the Global Dow. Meanwhile, gold showed signs of new life after its disastrous 2013, jumping nearly 3% in the first two days of the year.

Last Week's Headlines

Home prices rose 0.2% in October, putting them 13.6% higher than 12 months earlier. The year-over-year gain in the S&P/Case-Shiller 20-City Composite Index was the strongest since February 2006, and October's monthly increase represents the 17th straight month of gains. However, S&P warned that the monthly increases were showing signs of slowing.
Construction spending was up 1% in November, according to the Commerce Department, and was almost 6% higher than the previous November. Strength in both residential and nonresidential private construction fueled the growth as spending on public works projects fell 1.8% during the month.

Eye on the Week Ahead

Last week's light trading volumes should be back to normal this week, and those who believe that the first five trading days of January indicate something about equities' subsequent direction during the coming year will have a better basis for making that assessment. Friday's jobs numbers will be of interest, as always, as will the minutes of the meeting at which the Fed's monetary policy committee decided to start tapering.