Monday, December 17, 2012

Market Week: December 17, 2012

The Markets

As the lack of progress on fiscal cliff talks left investors wondering whether to batten down the hatches, equity markets continued to produce more vacillation than direction. Even a fresh infusion of quantitative easing from the Fed and decent economic data failed to lift investors' spirits. Of the domestic indices, only the small-cap Russell 2000 ended in positive territory. However, the Global Dow saw its fourth straight week of gains.

Last Week's Headlines

The Fed said it will keep interest rates at current low levels until employment falls below 6.5% as long as projected inflation for the next 1 to 2 years doesn't exceed 2.5%. It's the first time the Fed has announced formal economic targets as guidelines for monetary policy decisions. Unfortunately, the Fed doesn't see unemployment reaching its target until mid-2015, and predicted the jobless rate would remain between 7.4% and 7.7% next year. The Fed also sees economic growth of 2.3% to 3% in 2013, and will continue into next year its monthly purchases of $85 billion in Treasury bonds and mortgage-backed securities.
A 7.4% drop in gas prices cut consumer inflation by 0.3% in November, according to the Bureau of Labor Statistics. Excluding food and energy, which can be volatile from month to month, prices were up 0.1%. The decline left the annual inflation rate for the last 12 months at 1.8%. Wholesale prices fell even further in November; they were down 0.8% for the month, leaving the Producer Price Index up only 1.5% for the last 12 months.
After spending 0.3% less in October, shoppers hit the cash registers again in November. Retail sales were up 0.3% for the month, and would have been higher if not for the sharp drop in gas prices. The Commerce Department said annual retail sales were 3.7% ahead of the year before, with nonstore retailers gaining more than 11% from last November.
After losing 0.7% to Hurricane Sandy in October, U.S. industrial production rose 1.1% in November, according to the Federal Reserve Board. The rebound was helped not only by hurricane-related recovery but by a 4.5% increase in auto manufacturing.
HSBC agreed to pay a record $1.92 billion to end a federal and state investigation into charges that the bank laundered money for drug cartels and terrorist organizations. In return, prosecutors agreed not to pursue criminal charges against the bank.
And we're out: The Treasury Department sold the last remaining shares of stock in American International Group that it acquired as part of the largest single bailout of a financial institution during the 2008 financial crisis. The Treasury said it made $22.7 billion more than the $182 billion it took to bail out AIG.

Eye on the Week Ahead

Down to the wire: A data-heavy week may not make much difference to investors keeping an anxious eye on Washington. Anyone not doing last-minute holiday shopping will face the final Q3 GDP figure, housing and consumer spending numbers, and options expiration at week's end. And here's hoping the Mayans were a little overly pessimistic about the world's prospects after this week.

Key dates and data releases: Empire State manufacturing survey, international capital flows (12/17); housing starts (12/19); final estimate Q3 gross domestic product, home resales, Philadelphia Fed manufacturing survey (12/20); personal income/spending, options expiration (12/21).

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, December 10, 2012

Market Week: December 10, 2012

The Markets

The tech-heavy Nasdaq suffered from a drop in Apple's stock. However, other indices managed small gains for the week as investors tried to balance anticipation of any potential Santa Claus rally with uncertainty about fiscal cliff talks in Washington.

Last Week's Headlines

The unemployment rate continued to fall in November, hitting its lowest point since December 2008. Hurricane Sandy had minimal impact, but the addition of 148,000 jobs and an increase in the number of people halting job searches cut unemployment to 7.7% from 7.9%. According to the Bureau of Labor Statistics, that's a full percentage point lower than a year ago.
U.S. manufacturing contracted for the fourth time in six months, according to the Institute for Supply Management, whose manufacturing index fell to 49.5% in November (any number below 50 indicates contraction). However, the ISM's measure of the services sector for November grew for the 35th straight month; the 54.7% reading showed growth increasing more rapidly than in October.
The Census Bureau reported that construction spending rose 1.4% in October and was nearly 10% above October 2011. A 3% increase in private residential construction played a large role in October's growth, though nonresidential construction also was up by 0.3%.
Greece offered to pay private bondholders anywhere from 30% to 40% of face value (depending on maturities) to buy back sovereign bonds in order to reduce its debt burden, and extended its deadline for a response until Tuesday, December 11. Greece needs a successful buyback program in order to receive its next installment of financial aid.

Eye on the Week Ahead

The Fed will issue its most recent forecasts for the economy, while the clock continues to tick on discussions about the fiscal cliff that will help determine the accuracy of those forecasts.

Key dates and data releases: balance of trade (12/11); Federal Open Market Committee meeting/forecasts, import/export prices (12/12); wholesale inflation, retail sales, 30-year Treasury bond auction (12/13); consumer inflation, industrial production (12/14).

Monday, December 3, 2012

Market Week: December 3, 2012

The Markets

Domestic equities seemed to fluctuate with every new fiscal-cliff report out of Washington. Despite the uncertainty, investors seemed willing to take on more risk, giving the tech-heavy Nasdaq and small-cap Russell 2000 solid gains while leaving the S&P 500 and Dow industrials little changed and bond yields down a bit. Gold plummeted roughly $30 an ounce before a modest rebound to end the week at roughly $1,727.

Last Week's Headlines

Saying that passage of austerity measures showed a good faith effort to cut spending, Greece's three primary creditors reached an agreement that will pave the way for receipt of another €43.7 billion in financial assistance. The so-called troika--the International Monetary Fund, eurozone finance ministers, and the European Central Bank--agreed to a longer timetable for reduction of Greece's debt burden.
After initial conciliatory noises, participants in discussions over the so-called fiscal cliff seemed to retreat to their respective positions. Congress is not scheduled to adjourn until December 14, leaving plenty of time for more drama.
Third-quarter economic growth was better than previously thought. The Bureau of Economic Analysis said its second estimate showed gross domestic product rising by 2.7%. That's substantially better than either the initial 2% estimate or the 1.3% growth of the previous quarter, and was helped by higher private inventory investments and exports. Meanwhile, after-tax corporate profits rose $48.1 billion, or 3.3%; that's an improvement over Q2's 2.2% increase. Net dividends were up 1.5% for the quarter and were 7.5% ahead of Q3 2011.
Home prices across the country continued to improve with a sixth consecutive month of increases. The 0.3% gain in September put the 20-city S&P/Case-Shiller index at its highest level in two years and 3% ahead of last September, though it's still down roughly 29% from its summer 2006 peak. Meanwhile, the Commerce Department said sales of new homes slipped 0.3% in October, though they were 17.2% higher than a year earlier.
Orders for durable goods other than autos and aircraft were up 1.5% in October, though the Commerce Department said declines in those two major categories left overall orders essentially unchanged. Nondefense capital goods orders (not including aircraft), an indicator of businesses' willingness to invest in growth, were up 1.7%.
Securities and Exchange Commission Chairman Mary Schapiro will leave that post a year early as of December 14. Current commission member Elisse Walter will assume Schapiro's role until a permanent successor is named.
Consumer spending was down 0.2% in October, though the Commerce Department said Hurricane Sandy likely played some part in the decline. It was the first spending decline since May. Meanwhile, incomes rose less than 0.1%, though it was the 11th straight month of increases, and the personal savings rate rose slightly to 3.4% of income.

Eye on the Week Ahead

Investor sentiment will likely continue to fluctuate based on how optimistic Washington seems about a tax deal, but unemployment also will be a focus, as will data on the U.S. manufacturing and services sectors.

Key dates and data releases: U.S. manufacturing, construction spending (12/3); business productivity, factory orders, U.S. services sector (12/5); unemployment/payrolls (12/7).