Monday, October 8, 2012

Market Week: October 8, 2012

The Markets

Encouraging manufacturing and employment data helped the Dow hit a level less than 4% below its pre-2008 high, while the S&P 500 was roughly 6.5% away from achieving the same target. Meanwhile, oil slipped below the $90-a-barrel mark, offering some hope for a little relief on gas prices down the road.

Last Week's Headlines

The unemployment rate fell in September to 7.8%, its lowest level since January 2009. The Bureau of Labor Statistics said the addition of 114,000 jobs to the nation's payrolls cut the unemployment rate by 0.3%, the biggest monthly decline since January of last year. The greatest job gains were seen in health care, transportation/warehousing, finance-related companies, and business and professional services.
After a three-month summer slump, U.S. manufacturing showed growth in September. The Institute for Supply Management's index of manufacturing activity hit 51.5% (any figure above 50% indicates growth), while a more than 5% monthly gain put new orders at 52.3%. The ISM's measure of the services sector also was up; the 55.1% reading represented the fastest pace of growth in six months.
A nearly 35% decline in demand for transportation-related equipment--primarily aircraft--helped cut U.S. factory orders by 5.2% in August. However, the Commerce Department said that excluding the volatile transportation sector, orders were up 0.7%.
Construction spending fell 0.6% in August, according to the Commerce Department, but was still 6.5% higher than a year earlier. A 1.7% drop in private nonresidential construction was responsible for the monthly decline; residential construction rose 0.9%.
Members of the Federal Open Market Committee have discussed using numerical thresholds for unemployment and inflation to determine when to begin raising the Fed's target interest rate. The FOMC has said it anticipates keeping interest rates low through mid-2015. Minutes of the committee's most recent meeting also indicated the Fed expects moderate economic growth for the next few quarters that will accelerate sometime in 2013.

Eye on the Week Ahead

Tuesday's announcement by Alcoa--the unofficial start to the Q3 earnings season--will give investors something to mull over other than politics and economic data. Wholesale inflation numbers could show the impact of energy prices.
Key dates and data releases: balance of trade (10/11); wholesale inflation (10/12).

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.

Monday, October 1, 2012

Market Week: October 1, 2012

The Markets

As investors reviewed mixed U.S. economic data and waited for news on Spain's financial stability, equities fell for the second straight week. The anxiety helped boost U.S. Treasury prices once again.

Last Week's Headlines

The rate of U.S. economic growth continued to slow in the second quarter. The Commerce Department's final estimate of Q2 GDP was 1.3%; that's less than the 1.7% previously estimated and lower than Q1's 2% rate. The Commerce Department said lower crop yields caused by the severe summer drought in the Midwest were a major factor in the downward revision. Corporate profits after tax were down 0.4% after a 6.7% increase in Q1, but were up 14.5% from a year earlier.
Home prices were up 1.6% in July and were 1.2% higher than in July 2011, putting them at their highest level in nearly two years. It was the third straight month in which all cities measured by the S&P/Case-Shiller 20-city index saw increases, and 16 of those cities also were up from last year.
Meanwhile, August sales of new single-family homes fell 0.3% during the month, the Commerce Department said, though they were still almost 28% higher than a year ago. The median home price--$256,900--was the highest it's been since March 2007 and 17% higher than last August.
Half of the 14 Spanish banks that underwent stress tests to determine their stability could need as much as €59 billion in fresh capital, while the other half (which represent roughly 62% of all 14 banks' total credit obligations) are okay. The Spanish government also unveiled a budget that includes new tax increases and austerity measures, which set off a fresh round of protests.
Americans spent more in August, but they cut back on savings to do so. According to the Commerce Department, personal spending was up 0.5% during the month, but because incomes were up only 0.1% (and down 0.3% after taxes), the savings rate fell to 3.7% from 4.1%. Meanwhile, the Bureau of Labor Statistics' yearly snapshot of consumer expenditures showed consumer spending up 3.3% last year. It was the first yearly increase in three years (though the 3.2% increase in consumer prices might account for much of it), and the average income before taxes was up 1.9% to $63,685.
Plummeting sales of commercial aircraft helped cut orders for durable goods--those intended to last at least three years--by 13.2% in August, according to the Commerce Department. That was the largest decline since January 2009. However, excluding the nearly 35% drop in transportation-related equipment, new orders were down only 1.6%.

Eye on the Week Ahead

As the final quarter of 2012 kicks off and the days to the November election tick down, unemployment data will be even more closely watched than usual. Minutes of the discussion that led up to the Federal Reserve's QE3 decision also will be of interest. Finally, global investors will wait to hear whether Spain's new budget and banking report will affect its credit rating or the likelihood of a request for financial assistance.
Key dates and data releases: U.S. manufacturing, construction spending (10/1); auto sales (10/2); U.S. services sector (10/3); U.S. factory orders, FOMC minutes (10/4); unemployment/payrolls (10/5).

Monday, September 24, 2012

Market Week: September 24, 2012

The Markets

Equity markets paused to digest the strong gains of the previous two weeks, but still managed to remain close to multiyear highs. Small caps, which had seen the biggest gains recently, gave back the most.

Last Week's Headlines

The housing market continued to strengthen. The National Association of Realtors® said August sales of existing homes were up 7.8% for the month and were 9.3% higher than last August. Also, the NAR said August was the sixth straight month in which prices were higher than the year before.
Another encouraging housing report came from the Census Bureau, which said housing starts were up 2.3% in August from the month before and were almost 30% higher than August 2011. And though building permits were down 1% from July, they were still almost 25% higher than a year earlier.
Manufacturing news was somewhat mixed. The Federal Reserve's Empire State manufacturing survey for September hit -10.4, its second straight negative monthly reading. However, a similar survey for the mid-Atlantic region, while still negative (-1.9), showed strong improvement in August after several consecutive months of declines.

Eye on the Week Ahead

As the end of the quarter approaches, housing and manufacturing data as well as the final estimate of the nation's Q2 gross domestic product will highlight domestic news. Spain will likely continue to dominate European news. The government is expected to release both its latest financial reform package and the results of stress tests on Spanish banks, and could also make a formal bailout request.
Key dates and data releases: home prices (9/25); new home sales (9/26); final estimate of Q2 gross domestic product, durable goods orders (9/27); personal income/spending (9/28).