For the third straight week, both large- and small-cap indices surged
upward. Once again, the S&P 500 and the Dow industrials set new
record highs, while the small caps of the Russell 2000 returned to
positive territory for the year. The enthusiasm for equities took a toll
on the benchmark 10-year Treasury note, whose yield rose as prices
fell.
Last Week's Headlines
- The U.S. economy has finally regained all of the jobs lost during
the recession that officially began in December 2007. The 217,000 jobs
created in May put total employment at 138.4 million--higher than the
previous peak recorded in January 2008. It was the fourth straight month
in which the number of new jobs has exceeded 200,000. However, the
Bureau of Labor Statistics said the unemployment rate remained unchanged
at 6.3%. Also, including workers who are underemployed would put the
unemployment rate at 12.2%, down from a peak of 17.2%.
- Going negative: To encourage lending, the European Central Bank cut
the interest rate it pays banks for holding their deposits to -0.1%;
rather than paying interest on deposits, it's essentially charging banks
for holding their cash. The ECB also cut its refinancing rate--the rate
banks must pay when they borrow from the ECB--from 0.25% to 0.15%.
President Mario Draghi said the ECB will offer targeted long-term
refinancing operations (TLTROs) in September and December, which will
allow banks to borrow up to three times the amount they lend out, and
may also buy certain asset-backed securities. Draghi also said the ECB
is prepared to do more if these measures don't do enough to stimulate
the economy.
- The Environmental Protection Agency announced a sweeping plan to
cut carbon pollution nationwide from existing power plants by 30% below
2005 levels. The plan would give individual states a year in which to
identify how they would meet the target between now and 2030, and give
the public 120 days to comment on the EPA's proposal.
- U.S. manufacturing continued to rebound. The Commerce Department
said the 0.7% increase in factory orders in April (fueled in part by
orders for military equipment) was the third straight monthly increase.
Meanwhile, the Institute for Supply Management's manufacturing index
also showed acceleration, rising 0.5% to 55.4% in May. The ISM said the
services sector, which represents a larger segment of the economy, saw
even stronger gains, rising 1.1% in May to 56.3%.
- Construction spending also was up in April, according to the
Commerce Department. The 0.2% increase from March put spending 8.6%
above the same time last year. Residential construction was up 0.1% for
the month, while commercial construction slid 0.1%. Spending on public
projects such as schools and highways rose 0.8%.
- The U.S. trade deficit rose more than
6% in April as imports hit a record high of more than $240 billion and
exports slowed for the fourth month out of the last five. According to
the Bureau of Economic Analysis, the growth in imports stemmed largely
from spending on foreign autos, computers, food, and consumer goods.
- Anecdotal reports from the Federal
Reserve's "beige book" report showed the economy continued to improve
along with the weather. All 12 districts reported economic expansion,
and upward pressure on wages, which could trigger inflation, remained
subdued.
Eye on the Week Ahead
In a week light on economic data that could serve as a catalyst for
market movements, trading volumes that also have been light in recent
weeks could magnify any volatility. Investors--at least those that
aren't on vacation--will try to assess whether recent upward movement
reflects an economy emerging from winter worries or a last surge before
summer doldrums set in.
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.goldprice.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. All investing involves risk, including the potential
loss of principal, and there can be no guarantee that any investing
strategy will be successful.
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. |
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