Market Week: June 11, 2012

Downs and ups: Helped along by an easing of monetary policy in China, domestic equities had their best week of the year, more than reversing the previous week's losses. The renewed comfort with risk sent Treasury yields up.

Last Week's Headlines

• As Greece prepared for next Sunday's elections, the focus in Europe shifted to Spain. Though a Spanish bond auction saw adequate demand, the interest rate on the 10-year bond was higher than at the previous auction. After Treasury Minister Cristobal Montoro said that Spain had in effect been cut off from global capital, a weekend consultation with European finance ministers led to an agreement that Spain will request as much as €100 billion in loans from the European bailout fund to help the country's ailing banks.
• China's central bank took steps to spur the country's slowing economy by lowering the target benchmark interest rate on loans by 0.25% to 6.31% and cutting the rate paid on deposits. However, it also will allow banks new flexibility to offer slightly higher deposit rates and charge slightly less for loans if they choose.
• Nasdaq OMX Group Inc. said it will offer $40 million in cash and trading discounts to compensate financial firms that lost money as a result of the technical problems with trading in Facebook's May 18 IPO.
• The U.S. services sector's growth increased slightly in May. The Institute for Supply Management's index registered 53.7% in May--0.2% higher than April's reading. Thirteen industries reported growth, while arts/entertainment/recreation, health care, and mining saw contraction.
• Orders at U.S. factories fell 0.4% in April. According to the Commerce Department, it's the first time in more than three years that there have been two straight months of declines.
• Increases in output and the number of hours worked led to a 0.9% decline in labor productivity in Q1 2012, according to the Bureau of Labor Statistics. Labor costs were up 1.3%, and though hourly compensation rose 0.4%, inflation-adjusted compensation fell 2% during the quarter.
• Federal Reserve Chairman Ben Bernanke told Congress the European situation poses significant risks to the U.S. financial system. He also warned that though the Fed continues to foresee moderate growth, the so-called "fiscal cliff"--the January 1 expiration of tax cuts and start of federal spending cuts--also poses a "significant threat to the recovery."
• A decline in both imports and exports of capital goods and industrial materials and supplies cut the U.S. trade deficit in April by almost 5%, according to the Bureau of Economic Analysis. The decline in exports was the first since November.

Eye on the Week Ahead

Greek elections next Sunday might clarify whether the country is likely to abandon austerity programs required by its bailout agreement, a decision that could affect its eurozone membership. Domestically, retail sales and manufacturing data could shed light on the state of the economy. Finally, volatility could accompany Friday's quadruple witching options expiration, especially given its proximity to the weekend's Greek elections.

Key dates and data releases: wholesale prices, retail sales, business inventories (6/13); consumer prices (6/14); industrial production, Empire State manufacturing survey, international capital flows, quadruple witching options expiration (6/15); Greek elections (6/17).

---

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.

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.

'Waiting Till You're 80 To Retire': Are you serious?

On Monday, an interesting article released with the opinions of Chief Executive Officer Robert Benmosche of AIG. You might remember AIG as the world's largest Insurer before the 2008 Crisis, during which American Insurance Group (AIG) took a multi-billion dollar bailout from the US Government. With the Crisis now into its 3rd year and AIG's bailout shoring up its books, Mr. Benmosche makes the case that there is no bailout coming for retirees (or hopeful retirees).

The article states:

“Retirement ages will have to move to 70, 80 years old,” Benmosche, who turned 68 last week, said during a weekend interview at his seaside villa in Dubrovnik, Croatia. “That would make pensions, medical services more affordable. They will keep people working longer and will take that burden off of the youth.”

Well that's nothing new. We all take into account we may need to work longer to make up from the losses incurred during the Crisis.

But the truth of Mr. Benmosche's message is the false belief that retirement is a choice. The simple fact is retirement comes at different times for different people due to age related illness and other personal situations. Not to mention that at a time when the younger generation is having problems finding long-term employment, those who are 60+ have even more problems finding work. A convenient point he misses from that villa in Dubrovnik.

Market Week: June 4, 2012

The Markets

Signs of a slowing economy both here and abroad brought back investor pessimism last week--especially on Friday, when a disappointing employment report gave equities their worst day of the year and a loss of more than 2%. The week left both the Dow and Russell 2000 in negative territory for the year. However, the Dow's 8.7% loss since its year-to-date high in early April is better than either the S&P 500's 9.9% slide in the same time or the Nasdaq and Russell 2000's declines of 12% and 12.8% respectively.

The recent flight to quality turned into a stampede, sending the 10-year Treasury yield to a record low level as demand pushed the price up. And as the dollar strengthened--the euro was below $1.24 by week's end--oil prices plunged to just over $83 a barrel.

Last Week's Headlines

• Only 69,000 new jobs were added to the economy in May. It was the lowest number since last May, and it nudged the unemployment rate from 8.1% to 8.2%. The Bureau of Labor Statistics said the increase, the first in 11 months, is partly the result of more people once again seeking employment. The jobs numbers for March and April also were revised downward, and including the number of underemployed and discouraged workers would put the unemployment rate at 14.8%.
• U.S. economic growth was even slower during the first quarter of 2012 than the 2.2% initial estimate. The Commerce Department's revised figure for gross domestic product was 1.9%, substantially lower than the previous quarter's 3%. Consumer spending picked up 2.9% in Q1, but business spending was off.
• Spanish bond yields rose once again, hitting roughly 6.6% and spurring concern about the government's ability to continue to aid the country's troubled banks.
• Discouraging overseas economic data also contributed to last week's anxiety. According to Eurostat, the European Union's statistical agency, unemployment in the eurozone hit its highest level on record (11%) in April. Also, surveys of purchasing managers in both China and Europe indicated either virtually flat growth or actual contraction.
• Home prices in the 20 cities measured by the S&P/Case-Shiller index were up 0.1% in March--the second increase in a row--though they were down 2.6% from a year ago. However, increases were seen in some of the areas that have seen the biggest declines, including Detroit and Phoenix.
• Freddie Mac said mortgage rates last week hit a low not seen since it began keeping records in 1971. The rate on a 30-year fixed mortgage fell to 3.75% (it was 4.55% a year ago), and the 15-year rate fell below 3% for the first time to 2.97%.
• U.S. manufacturing growth continued to slow as the Institute for Supply Management's index fell to 53.5% in May from April's 54.8% (any number over 50 represents growth).
• The Commerce Department said April construction spending rose 0.3% and was up 6.8% from last year. The 2.8% growth in private residential construction was responsible for most of the April increase, while public construction spending was down 1.4%.

Eye on the Week Ahead

Central banks both here and abroad may be in the spotlight. With the approaching expiration of QE2 at the end of June, the Fed's "beige book" report will be parsed to see whether it might make a case for additional monetary stimulus, and the European Central Bank is one of four central banks meeting on interest rates. Data on GDP for both the eurozone and Japan also will be released.

Key dates and data releases: factory orders (6/4); U.S. services sector (6/5); labor productivity/costs, Fed "beige book" report (6/6); balance of trade (6/6).

__________________________________________

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.

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.