Market Week: December 12, 2011

The Markets Domestic equities saw their second straight week of gains. Though it couldn't match the previous week's strong rally, the upswing left the S&P 500 just short of flat for the year, while the Dow extended its year-to-date lead. Meanwhile, the 10-year Treasury yield continued to hover around 2%.

Last Week's Headlines

• European Union leaders adopted measures intended to impose greater fiscal discipline among members. The new agreement would impose automatic penalties on countries that violate deficit limitations; require members to pass balanced-budget legislation; accelerate into 2012 the creation of a permanent €500 billion European Stability Mechanism to replace the current bailout fund; and contribute €200 billion to the International Monetary Fund. The agreement was adopted in lieu of amending the EU treaty itself, which was vetoed by the United Kingdom.
• Standard and Poor's warned that 15 eurozone countries, including even Germany and France, could soon be in line for a downgrade. The ratings agency followed the announcement of a negative credit watch with similar warnings for the European Financial Stability Fund (the bailout fund supported by six of those countries) and for several of the region's largest banks, which have heavy exposure to sovereign debt.
• European Central Bank President Mario Draghi downplayed the possibility of a more robust bond-buying program by the ECB, which he said would violate the European Union treaty by essentially creating money to finance budget deficits. However, the central bank did lower its benchmark interest rate to 1%, cut bank reserve requirements, and made it easier for banks to borrow from the ECB.
• The U.S. trade deficit shrank 1.6% in October to its lowest level of the year. The Commerce Department said both exports and imports declined, but imports fell more due to lower oil demand.
• The U.S. services sector continued to grow in November, though the pace of growth slowed by 0.9%, according to the Institute for Supply Management.

Eye on the Week Ahead

Investors and ratings agencies will continue to digest the results of Friday's European summit. Also, Tuesday's Fed announcement will be watched for any signs that QE3 might be on the horizon. Domestic data will focus on retail sales, regional manufacturing, and inflation, while the year's final quadruple witching options expiration hits at week's end.

Key dates and data releases: Federal Reserve Open Markets Committee announcement, retail sales, business inventories (12/13); import/export prices (12/14); wholesale inflation, Empire State/Philadelphia Fed manufacturing surveys, international capital flows, industrial production (12/15); consumer inflation, quadruple witching options expiration (12/16).

_______________________________________________________________

Data sources: Includes data provided by Brounes & Associates. 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. Equities data reflect price change, not total return.

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 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

Market Week: December 5, 2011

The Markets Santa showed up early this year thanks to a 490-point leap in the Dow on Wednesday, fueled by holiday shoppers and six of the world's central banks. The rally helped give the S&P its best week since March 2009 and the Russell 2000, which has suffered much of the year, its fifth best week ever. It also pushed the Dow back into positive territory for the year as it once again surpassed the 12,000 mark. The Nasdaq came closer to breaking even year-to-date, and even the Global Dow saw solid gains.

Last Week's Headlines

• The addition of 120,000 jobs in November cut the unemployment rate to 8.6%. That's the biggest single monthly decline in more than 13 years, and puts unemployment at its lowest level since March 2009. However, roughly half of the decline in unemployment resulted from people leaving the workforce altogether. Including workers who are underemployed, have stopped looking for jobs, or are working part-time involuntarily, the unemployment rate is still 15.6%, though that also is lower than October's 16.2%. The Bureau of Labor Statistics said private employers added 140,000 jobs, many of them in retail, leisure/hospitality, and services, while 20,000 local, state, and federal government jobs were cut.
• The Federal Reserve agreed to make it easier for central banks in Europe, Japan, Canada, the United Kingdom, and Switzerland to swap local currencies for dollars. The move is designed to increase liquidity in the global financial system, particularly in Europe. Meanwhile, both German Chancellor Angela Merkel and French President Nicolas Sarkozy called for revisions to the European Union treaty that would permit greater fiscal oversight of member countries' budgets and impose stronger sanctions against lax fiscal discipline.
• Italy had to pay almost 8% on three-year bonds auctioned last week; it was the third time in a week when yields at auction were higher than 7%. However, French bond yields declined and Spain was able to sell out its auction of sovereign debt.
• The National Retail Federation said 17 million more shoppers hit Black Friday weekend sales this year, and they spent an average of 6.4% more than they did last year. Estimates of Cyber Monday sales also were up.
• American business productivity was up 2.3% in the third quarter, and 0.9% higher than a year ago, according to the Bureau of Labor Statistics. Both worker hours and hourly compensation were 1.4% higher than in Q3 2010; however, when inflation is factored in, hourly compensation was actually 2.3% lower than last year.
• Home prices as measured by the S&P/Case-Shiller national index remained lackluster during the third quarter. Though they were up 0.1% from the previous quarter, they were 3.9% lower than in Q3 2010. Even so, that was less than Q2's 5.8% year-over-year decline. Meanwhile, new home sales were up 1.3% in October compared to the previous month, and 8.9% ahead of October 2010.
• After attempting to rein in inflation over the last year by repeatedly increasing both interest rates and the amount of reserves its banks must hold, China unexpectedly changed course and cut its bank reserve requirement by half a percent for the first time since 2008, which could potentially stimulate lending.

Eye on the Week Ahead

German Chancellor Angela Merkel and French President Nicolas Sarkozy will meet in advance of Friday's eurozone summit to discuss tighter regulation and integration of budget oversight among eurozone countries. Also, the European Central Bank will meet Thursday, and some action on interest rates could result. Finally, after last month's disappointing results, German bond auctions will be watched.

Key dates and data releases: factory orders, U.S. services sector (12/5); international trade, consumer sentiment (12/9).

____________________________________________________________________________

Data sources: Includes data provided by Brounes & Associates; historical performance based on data from the Stock Trader's Almanac 2011 . 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. Equities data reflect price change, not total return.

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 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

Market Month: November 2011

The Markets Europe's ongoing debt problems hurt domestic equities last month, causing them to reverse much of October's strong gains. The tech-heavy Nasdaq took the biggest hit, while a strong rally on the month's final day helped bring the S&P 500 and Russell 2000 up to just below even. The Dow--the sole gainer for the month--bounced in and out of positive territory for the year, managing once again to regain the 12,000 threshold it has been criss-crossing for weeks. Not surprisingly, the situation in Europe continued to weigh on the Global Dow. Demand nudged the yield on the 10-year Treasury downward to just over 2%. Meanwhile, anxiety about the euro's future caused the currency to fall from $1.41 to $1.33 against the dollar. Despite that dollar strength, oil prices rose, once again closing in on $100 a barrel. And after a brief bounce back up to $1,800, gold retreated before recovering to roughly $1,740 an ounce.

Market/Index 2010 Close Prior Month As of 11/30 Month Change YTD Change DJIA 11577.51 11955.01 12045.68 .76% 4.04% Nasdaq 2652.87 2684.41 2620.34 -2.39% -1.23% S&P 500 1257.64 1253.30 1246.96 -.51% -.85% Russell 2000 783.65 741.06 737.42 -.49% -5.90% Global Dow 2087.44 1898.33 1822.42 -4.00% -12.70% Fed. Funds .25% .25% .25% 0 bps 0 bps 10-year Treasuries 3.30% 2.17% 2.08% -9 bps -122 bps The Month in Review Despite bond-buying by the European Central Bank, the overseas debt debacle spread from Greece, Portugal, and Ireland to larger economies, costing the Greek and Italian prime ministers their jobs in the process. Yields on Italian and Spanish debt neared or exceeded the 7% level that triggered the need for bailouts in the smaller countries. As investors became more reluctant to lend in Europe, even France and Germany showed signs of weakness. By the end of the month, six central banks, including the Federal Reserve, adopted measures that would facilitate currency exchanges among the banks to increase liquidity in the global financial system, especially in Europe. The congressional supercommittee charged with finding ways to cut the national deficit by $1.2 trillion admitted it had been unable to do so. As a result, $1.2 trillion in across-the-board budget cuts, split roughly evenly between defense and other programs, are slated to be implemented in 2013. The dissent among committee members also raised questions about the potential for resolution of other issues, such as payroll tax cuts and unemployment benefits that are scheduled to expire at year's end. The U.S. economy grew 2% during the third quarter, a bit slower than the Bureau of Economic Analysis had previously estimated but still ahead of Q1's 1.3%. However, that didn't do very much for the unemployment rate, which the Bureau of Labor Statistics said edged down to 9%--exactly where it was in January. Strong sales of electronics and appliances helped push retail sales up 0.5% in October, according to the Commerce Department. Also, the National Retail Federation said there were 6.6% more shoppers hitting the Black Friday weekend sales this year, and they spent an average of 9.3% more than they did last year. Clothing and electronics were some of the most popular purchases. However, durable goods orders fell 0.7%, hurt by lower demand for commercial aircraft. Lower energy costs helped reduce inflation at both the consumer and wholesale levels, the Bureau of Labor Statistics said. The Consumer Price Index fell 0.1%, while the wholesale index was down 0.3%. Also, the Bureau of Economic Analysis said that personal incomes and spending rose by 0.4% and 0.1% respectively, while the savings rate edged up to 3.5% of income. Housing starts dipped by 0.3% after strong growth the previous month, but were still 16.5% higher than the same time last year, and the Commerce Department said building permits were up 10.9%. Meanwhile, home prices as measured by the S&P/Case-Shiller national index remained lackluster during the third quarter, up a scant 0.1%. Those prices helped bring out buyers, as the Commerce Department said sales of new homes rose 1.3% from the previous month and 8.9% from last year. Eye on the Month Ahead Domestic equities will continue to react to the eurozone's struggles and/or progress with a solution to its debt problems. However, positive data suggesting that economic recovery might be picking up steam could fuel optimism. The fate of the payroll tax cuts and unemployment benefits that are scheduled to expire at the end of the month also could influence investors' assessment of the recovery's prospects in 2012, as could any sign of new supportive measures from the Federal Reserve. Key dates and data releases: U.S. manufacturing, construction spending (12/1); unemployment/payrolls (12/2); factory orders, U.S. services sector (12/5); international trade, consumer sentiment (12/9); Federal Reserve Open Markets Committee announcement, retail sales, business inventories (12/13); import/export prices (12/14); wholesale inflation, Empire State/Philadelphia Fed manufacturing surveys, international capital flows, industrial production (12/15); consumer inflation, quadruple witching options expiration (12/16); housing starts (12/20); home resales (12/21); final Q3 gross domestic product (12/22); durable goods orders, personal income/spending, new home sales (12/23); home prices, consumer confidence (12/27); pending home sales (12/29). ____________________________________________________ Data sources for non-equities performance: 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, NY close); 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. Equities data reflects price changes, not total return. 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 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indexes listed are unmanaged and are not available for direct investment.