The Markets
Investor indecision about the future of equities prices, coupled with
light summer trading volumes, led to volatility across the board last
week. Friday's 186-point rally gave the Dow some relief after two down
weeks, though not enough to nudge the index into positive territory for
the year. The small caps of the Russell 2000 had their strongest week
since early July, though they also remained down year-to-date.
Meanwhile, geopolitical tensions increased demand for the relative
security of the benchmark 10-year Treasury bond, sending its yield down.
However, riskier high-yield bonds saw some selling pressure.
Last Week's Headlines
- Growth in the U.S. services sector
accelerated in July. The Institute for Supply Management's gauge of
activity in service industries rose 2.7% to 58.7%--its highest level
since the index was launched in 2008.
- New orders at U.S. manufacturers were
up 1.1% in June. The Commerce Department said the gain boosted factory
orders to their highest level since record-keeping began in 1992 and
that June was the fourth month of the last five to see an increase.
- A drop in oil imports helped cut the
U.S. trade deficit by 7% in June, according to the Commerce Department.
U.S. exports rose 0.1% to their highest level on record, while imports
dropped 1.2%.
- Italy's economy fell back into
recession, falling 0.2% in Q2; it was the second consecutive quarterly
contraction. The GDP of the eurozone's third largest economy also was
down 0.3% from the same quarter a year earlier.
- In retaliation for new European Union
and U.S. economic sanctions, Russia imposed a one-year ban on a variety
of food imports and said it's considering prohibiting EU and U.S.
flights from Russian airspace over Siberia.
- As expected, the European Central Bank
left key interest rates unchanged. President Mario Draghi said measures
already adopted are having an effect and that it was too early to
assess the potential impact of Russia's ban on European food imports.
- Eleven of the largest U.S. banks must
rewrite their proposed plans for handling a potential bankruptcy. The
Federal Reserve and Federal Deposit Insurance Corp. said the plans
contained "no credible or clear path" to achieve an orderly failure and
avert any need for the type of bailouts provided during the 2008
financial crisis. The banks have until July 2015 to submit revised
so-called "living wills."
- Fair Isaac Corp. said it will change
the way it calculates credit scores, underweighting unpaid medical bills
and excluding overdue bills that are subsequently paid or settled with a
collection agency. The changes could make it easier to get credit.
Eye on the Week Ahead
With the Q2 earnings season winding down, retail sales and wholesale
inflation data will vie with global conflicts for investor attention.
Speeches by two members of the Fed's monetary policy committee are
likely to review the arguments for and against accelerating an interest
rate hike. Finally, options expiration at week's end plus trading
volumes that are likely to remain relatively low could mean additional
volatility.
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.
