Monday, March 17, 2014

Market Week: March 17, 2014

The Markets

Disappointing economic data across the board from China plus the escalating tug-of-war over Crimea helped send equities south last week. The S&P 500's decline put it back into negative territory for the year, while the instability in Ukraine sent investors scrambling for the relative security of U.S. Treasuries, sending the benchmark 10-year yield down as prices rose.

Last Week's Headlines

Retail sales rose 0.3% in February, according to the Commerce Department, putting them 1.5% higher than in February 2013. The strongest gains were seen in sporting goods/hobby/music stores, which were up 2.5% for the month, nonstore retailers (up 1.2%), and health/personal care stores, also up 1.2%.
Multiple signs that China's economic growth slowed in January and February raised concerns that demand for many emerging markets' exports could decline. Figures from the country's National Bureau of Statistics continued to show growth year-over-year; retail sales were up almost 12%, investments in fixed assets rose almost 18%, and industrial production was up 8.6%. However, all of those numbers were lower than in previous months, even after being adjusted for the impact of the Lunar New Year's vacation time. And sales of commercial buildings, which have helped fuel China's overheated economy in recent years, have fallen 3.7% since December.
U.S. wholesale prices continued to give the Federal Reserve plenty of leeway to keep interest rates low. According to the Bureau of Labor Statistics, the wholesale inflation rate fell by 0.1% in February, its lowest level since last November. Most of the 0.3% decrease in prices for wholesale services was attributed to a 9.3% drop in margins for sales of clothing, footwear, and accessories. Demand for wholesale goods actually rose 0.4% during the month, led by a 0.9% increase in pharmaceutical prices.
Shares of Fannie Mae and Freddie Mac plunged after bipartisan leaders of the Senate Banking Committee announced plans to phase out the mortgage giants, which have been operating under government conservatorship since the 2008 financial crisis. If adopted, the legislation would establish government-backed mortgage insurance administered by a new Federal Mortgage Insurance Corporation. Insurance payments would be triggered only after private lenders had suffered a loss of 10% or more on the loans involved. The measure also would require homeowners to put up at least a 5% down payment (3.5% for first-time buyers) to qualify for an FMIC loan, and would create a mechanism for standardizing mortgage-backed securities based on such loans.

Eye on the Week Ahead

Markets will assess Crimea's vote Sunday to secede from Ukraine, which could mean economic sanctions against Russia that could affect oil prices and threaten Europe's economic recovery. Wednesday's announcement by the Fed's monetary policy committee--its first guided by Janet Yellen--will be monitored for any shred of guidance on the timing of changes in the Fed's target interest rate.

Data sources: All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. News items are based on reports from multiple commonly available international news sources (i.e., wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: U.S. Treasury (Treasury yields); WSJ Market Data Center (equities); Federal Reserve Board (Fed Funds target rate); 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). 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.

Monday, March 10, 2014

Market Week: March 10, 2014

The Markets

Fab five: The S&P 500 marked the fifth anniversary of the stock market's post-2008 low by recording another all-time record close. Once again, the Dow couldn't quite manage to break even for the year, though it came close, while the small caps had the week's strongest gains. The benchmark 10-year Treasury yield rose as investors seemed to place more importance on better-than-expected domestic economic data than on potential fallout from the tension over Ukraine.

Last Week's Headlines

The unemployment rate edged upward to 6.7% and away from the 6.5% that would have led to increased speculation about the Federal Reserve possibly accelerating an increase in interest rates. According to the Bureau of Labor Statistics, the increase--the first since December 2012--occurred despite the U.S. economy adding 175,000 jobs in February. The BLS noted that severe weather could have had an impact on its survey results.
Spending rose faster than personal incomes in January, according to the Bureau of Economic Analysis. Personal income was 0.3% higher for the month, while consumption was up 0.4%.
Construction spending was up 1% in January, primarily because of gains in the housing sector, but gains were much lower than December's 2.2% increase. The Commerce Department said residential building was led by a 2.3% gain in construction of single-family homes, while nonresidential construction was down 0.2% and government construction fell 0.8% during the month.
U.S. manufacturing rebounded a bit in February as the Institute for Supply Management®'s gauge rose by 1.9% to 53.2%. Meanwhile, the ISM's services survey showed growth slowing by 2.4%, though the 51.6% reading still represented growth.
The European Central Bank declined to adopt fresh stimulus measures to combat a less-than-desirable 0.8% inflation rate there. The ECB left its key interest rate unchanged at 0.25% and the rate on overnight bank deposits at 0%. Meanwhile, economic recovery accelerated in both the 18-member eurozone and Europe as a whole; European GDP rose 0.3% during Q4 2013 and was up 0.4% in the eurozone.
China announced a 2014 target growth rate of 7.5%--slightly lower than 2013's 7.7%--and a target inflation rate of 3.5%. Also, China's General Administration of Customs said exports fell 18.1% in February, leading to a nearly $23 billion trade deficit; the sharp decline in exports was surprising given January's 10.6% increase.
The frigid weather that socked in much of the nation in February made an accurate assessment of economic data more difficult, according to the Federal Reserve's "beige book" report. However, the report expressed optimism that the economy will show improvement once the weather does.

Eye on the Week Ahead

In a week that's light on economic data, the Ukraine situation could assume greater importance in market psychology. Investors also may begin anticipating the following week's Federal Reserve monetary policy meeting.

Monday, March 3, 2014

Market Week: March 3, 2014

The Markets

Equities recovered from January's losses in fine style. The Nasdaq continued to lead the pack year-to-date, but by the end of the month the S&P 500 had set a fresh all-time closing high. The small caps of the Russell 2000 also had a strong month, leaving the Dow industrials the only one of these four domestic indices down for the year despite its February gains. Unlike its domestic counterpart, the Global Dow barely managed to squeak into positive territory for 2014.

Last Week's Headlines

The U.S. economy grew a bit more slowly in Q4 2013 than previously thought (2.4%). According to the Bureau of Economic Analysis, that put growth for all of 2013 at 1.9%.
The 113,000 new jobs added to the U.S. economy nudged the unemployment rate down 0.1% to 6.5%. Meanwhile, the Bureau of Labor Statistics said the labor force participation rate rose slightly to 63%, and the number of long-term unemployed fell by 232,000 during the month.
Congress agreed to avoid renewed conflict over an increase in the debt ceiling by passing legislation that resolves the issue until March 201
Tokyo-based Mt. Gox, at one time the largest Bitcoin exchange, filed for bankruptcy after days of suspense after its website went dark. The company said hackers may have made off with roughly 750,000 bitcoins owned by customers and 100,000 of its own--the equivalent of nearly half a billion dollars' worth of the virtual currency. Meanwhile, Federal Reserve Chair Janet Yellen told a congressional committee that the Fed has no authority to regulate Bitcoin but suggested that Congress could look into doing so.
Manufacturing showed signs of slowing in the United States, where durable goods orders were down for the third of the last four months thanks to a decline in transportation-related orders and the Institute for Supply Management's gauge fell more than 5%. Meanwhile, Markit/HSBC's survey of Chinese purchasing managers showed contraction there, though seasonal distortion may have played a role.
Housing suffered from frigid weather throughout much of the country. Housing starts, building permits, and sales of existing homes all saw declines, though new-home sales were up slightly for the month and construction spending also rose.
Inflation remained well within the Fed's comfort level. The biggest monthly increase in the cost of electricity since March 2010 pushed up consumer prices by 0.1% for the month, putting the annual rate for the last 12 months at 1.6%. Meanwhile, the Bureau of Labor Statistics said the wholesale inflation rate was up 0.2% in January, but the annual rate was only 1.2% over the last year.

Eye on the Week Ahead

The Fed will meet again in March and may have to decide whether weaker economic reports in the last month or so were a function of bad weather or signs of something more significant. Also, the situation in Ukraine could affect the psychology of the markets.

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.
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.