The Markets
Investors brushed off geopolitical fears last week and regained their
appetite for risk, taking the S&P 500 to its 32nd record high of the
year and returning the small-cap Russell 2000 to positive territory for
2014. Meanwhile, the yield on the benchmark 10-year Treasury hit a
level it hasn't seen in more than a year as higher demand pushed prices
up.
Last Week's Headlines
- The U.S. economy grew slightly faster
during the second quarter than previously thought. The Bureau of
Economic Analysis said the 4.2% figure for gross domestic product was
revised upward from 4% primarily because of a higher figure for
commercial construction and business investment in equipment. Meanwhile,
corporate after-tax profits rebounded from a -16.3% decline in Q1,
rising 8.3% during Q2.
- A 318% increase in orders for
commercial aircraft led to a 22.6% surge in durable goods orders in
July. The Commerce Department said that excluding transportation, orders
actually fell 0.8%, while business investment in equipment was down
0.5% after a strong gain the previous month.
- Sales of new homes fell 2.4% in July,
according to a Commerce Department report. That raised questions about
the state of the housing market, especially since the National
Association of Realtors® had reported the previous week that home resales had actually risen 2.4% during the month.
- Meanwhile, home prices showed
continued signs of leveling off in cities measured by the
S&P/Case-Shiller 20-City Composite Index. Though the index gained 1%
in June and was up 8.1% year-over-year, all 20 cities experienced
slower annual growth rates for the first time since February 2008. An
S&P spokesman predicted that mortgage rate increases, anticipated
next year, "will further dampen price gains."
- Americans spent less and saved more in
July as income growth slowed. The Commerce Department reported that
consumer spending was down 0.1%, in part because of reduced auto and
department store sales, while incomes rose 0.2% rather than the 0.5%
seen during the previous two months. As a result, the savings rate hit
5.7%--its highest level since late 2012.
- Burger King became the latest company
to draw fire for so-called "tax inversion" by announcing it is
negotiating to buy Canadian chain Tim Hortons. The agreement would allow
Burger King to move its headquarters to Canada and reduce its corporate
tax burden.
- The inflation rate in the eurozone
continued to slide, hitting 0.3% in August. The decline, coupled with
European Central Bank President Mario Draghi's stated willingness to
consider additional economic stimulus, prompted speculation that the ECB
could take action at its next meeting on September 4. The eurozone
unemployment rate was 11.5%, down only slightly from a year earlier.
Eye on the Week Ahead
In addition to monitoring an onslaught of economic data, global
investors will look to the European Central Bank's Thursday meeting for
possible stimulus measures similar to the ones the Federal Reserve has
been winding down.
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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