Monday, February 24, 2014

Market Week: February 24, 2014

The Markets

Domestic equities had a mixed week. The small-cap stocks of the Russell 2000 managed to reclaim positive territory for the year while the Nasdaq continued to lead the pack year-to-date. The large caps didn't fare quite as well, though the S&P 500 has now managed to erase all but 12 points of the 5.7% it had lost since January 15.

Last Week's Headlines

January's dismal weather across much of the country helped cut housing starts by 16% and building permits for future construction by 5.4%, according to the Commerce Department. The worst declines were seen in the Midwest, while starts actually rose in the Northeast.
Consumer prices rose 0.1% in January, according to the Bureau of Labor Statistics, largely because of home energy demands connected to the brutal winter over much of the country. The BLS said the 1.8% increase in the cost of electricity was the biggest since March 2010, while natural gas and heating oil also were up sharply. Wholesale prices rose 0.2% during the month; that was a slight acceleration from December and put the year-over-year increase at 1.2%.
Home resales didn't escape winter's ill effects. According to the National Association of Realtors®, weather plus higher mortgage rates and the ongoing shortage of homes for sale brought January sales down 5.1% during the month to their lowest level since July 2012. Sales also were 5.1% lower than the previous January.
China's manufacturing sector shrank for the second straight month, according to February's Markit/HSBC Purchasing Managers' Index, which fell to 48.3 (any number below 50 represents contraction). However, the extended Lunar New Year festival traditionally has slowed manufacturing there at this time of year. U.S. manufacturing reports also showed a decline. The Philly Fed survey fell from 9.4 in January to -6.3, and though the Fed's Empire State survey remained positive at 4.5, it was down 8 points for the month.
A report by the Congressional Budget Office assessing the impact of an increase in the minimum wage found that while higher pay for 16.5 million workers would lift anywhere from 300,000 to 900,000 families above the poverty line, it also could also mean some job losses. The CBO estimated that a $9 minimum wage could cut an estimated 200,000 jobs (less than 0.1%), while a $10.10 minimum wage--the level proposed by President Obama--could result in an estimated 500,000 fewer jobs (or 0.3%).
The International Monetary Fund warned that emerging-market economies need to continue tightening their monetary policies to combat the impact of tighter money in the developed world. It also urged the eurozone to implement new lending programs and lower interest rates to fight inflation that is so low that it raises the risk of turning into deflation.
Minutes of the Federal Reserve's monetary policy committee's most recent meeting suggested that investors could soon begin hearing guidance about when and how the Fed will begin raising its target interest rate.
The Federal Communications Commission said it will try once again to write rules that prevent broadband Internet providers from blocking or slowing access to certain customers. The FCC's so-called "net neutrality" regulations were overturned by a federal appellate court ruling last month that would allow broadband companies to charge content providers higher rates for faster service.
Facebook stunned the tech community by agreeing to pay $19 billion in cash and stock to acquire mobile messaging startup WhatsApp (after having previously turned down one of the company's founders for a job). The deal was reported to be the largest tech merger since the AOL-Time Warner deal in 2001. WhatsApp in turn stunned its roughly 450 million users by undergoing a three-hour outage just days later.

Eye on the Week Ahead

In light of recent weaker Fed manufacturing reports, the Commerce Department's report on durable goods orders for January could be closely watched. Final numbers for U.S. economic growth in both Q4 and all of 2013 also will be available.

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 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, February 18, 2014

Market Week: February 18, 2014

The Markets

Stability ball: A congressional accord on the debt ceiling plus fresh reassurance about Fed policy seemed to outweigh lackluster economic news, helping domestic equities follow through on the previous week's late rally. The Nasdaq's week was its best since late October, while the Russell 2000's gain was the best for any of the four domestic indices listed below so far this year. Meanwhile, the Dow edged above 16,000 once again.

Last Week's Headlines

The contentious issue of the debt ceiling was resolved (at least until March 2015) after President Obama signed the bill passed by both the House and Senate, which contained none of the additional provisions that had created conflict in recent years.
Many Americans apparently spent much of January shoveling instead of shopping. Though retail sales were 2.6% ahead of January 2013, the Commerce Department said sales for the month fell 0.4%, with a 2.1% drop in auto-related sales a major factor. However, severe weather couldn't account for the downward revision in December sales, which went from a 0.2% gain to a 0.1% loss, and January sales outside brick-and-mortar stores also fell 0.6%.
Weather also was a factor in a 0.8% drop in U.S. industrial production in January, according to the Federal Reserve. Construction took the biggest hit with a 1% decline.
A report by China's exports administration showed that Chinese exports accelerated in January, rising 10.6% compared to January 2013. The data from China's official General Administration of Customs contradicted earlier private reports showing manufacturing slowing in January and raised questions about the true state of the world's second largest economy.
Steady as she goes: New Federal Reserve Chair Janet Yellen told Congress that absent any unexpected economic downturns, the Fed will continue to wind down its bond purchases while maintaining its target interest rate at its current low level.
Eurozone countries experienced slightly higher growth in Q4 2013 as the region's gross domestic product rose 0.3%. That would represent annualized growth of 1.1% and an improvement from Q3's 0.1%. However, the official European Union statistical agency said actual eurozone GDP for all of 2013 shrank 0.4%. German GDP, which rose at an annualized 1.5%, was responsible for almost one-third of the quarter's total growth. Meanwhile, Q4 growth in the 28-member European Union was slightly higher at 0.4%.
The largest cable provider in the United States (Comcast Corp.) signed an agreement to acquire the second largest cable provider (Time Warner Cable). However, the deal must receive regulatory approval from the Federal Communications Commission and could face antitrust scrutiny by the Justice Department or the Federal Trade Commission.
Two of the world's largest exchanges of bitcoins--the five-year-old virtual currency created entirely on computers--temporarily halted withdrawals in the wake of hack attacks on their systems. The attacks followed the announcement of similar problems at a third major exchange, which had also frozen customer accounts after being hit with fraudulent transaction requests.

Eye on the Week Ahead

With the bulk of earnings season largely in the rear-view mirror, investors will have to dig their way through a blizzard of economic data.

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.

Monday, February 3, 2014

Market Week: February 3, 2014

The Markets

It's a small, small world: Despite various attempts at propping up local currencies, emerging markets continued to suffer from concerns that 1) assets being moved to stronger currencies could undermine already fragile economies, and 2) a slowdown in Chinese manufacturing could reduce demand for commodities, exports of which are crucial to many emerging-market countries. Fueled by additional Fed tapering, risk aversion also spread to markets in developed countries, hurting large caps that derive a large portion of their revenues overseas. The Dow's losses gave the index its worst January since 2009. Traditional safe-haven refuges such as U.S. Treasuries continued to benefit from the turmoil.

Last Week's Headlines

For the second month in a row, the Federal Reserve's monetary policy committee will cut $10 billion a month from its bond purchases. That will leave the total at $65 billion a month instead of the $85 billion it had been buying as recently as December.
Durable goods orders fell 4.3% in December, according to the Commerce Department; that's the second decline in the last three months. Aside from the volatile transportation sector, new orders for U.S. manufactured goods fell 1.6%, and business spending on equipment was down 5% for the month.
Some emerging-market countries whose currencies have been hurt in recent months attempted to fight back. Turkey hiked its key interest rate from 7.5% to 12% to try to halt a decline in the country's lira, while South Africa's central bank raised its interest rate to 5.5% and India's repo rate went to 8% from 7.75%. The moves came in the wake of Brazil's decision to raise its key interest rate by a half-point to 10.5% and Venezuela's recent attempt to impose currency controls indirectly by limiting the amount of airline tickets that can be exchanged for U.S. dollars.
The Bureau of Economic Analysis said personal incomes were basically flat in December, though after adjusting for inflation, they were down 0.2% for the month. Meanwhile, holiday spending helped push consumer spending up 0.4%, cutting the personal savings rate to 3.9% from November's 4.3%.

Eye on the Week Ahead

In addition to the ongoing focus on emerging markets and earnings reports, Friday's unemployment numbers will be of interest. And in light of currency concerns around the world, the European Central Bank's announcement on Thursday could receive extra attention.