Market Matters…
|
Market/Index |
Year Close (2012) |
Qtr Close (03/31/13) |
Previous Week (06/07/13) |
Current Week (06/14/13) |
YTD Change |
|
Dow Jones Industrial |
13,104.14 |
14,578.54 |
15,248.12 |
15,070.18 |
15.00% |
|
NASDAQ |
3,019.51 |
3,267.52 |
3,469.21 |
3,423.56 |
13.38% |
|
S&P 500 |
1,426.19 |
1,569.19 |
1,643.38 |
1,626.73 |
14.06% |
|
Russell 2000 |
849.35 |
951.54 |
987.62 |
981.38 |
15.54% |
|
Global Dow |
1,995.96 |
2,110.73 |
2,165.00 |
2,149.37 |
7.69% |
|
Fed Funds |
0.25% |
0.25% |
0.25% |
0.25% |
0 bps |
|
10 yr Treasury (Yield) |
1.76% |
1.85% |
2.16% |
2.13% |
37 bps |
When Ben Bernanke talks …actually he doesn’t even have to talk to move the markets. For the past few weeks, investors have speculated about the next Fed moves and the possibility of a “tapering” of the $85 billion a month bond purchase program, perhaps as early as next week. Markets have been jittery (to put it mildly) as global stocks have fallen (thanks Japan) and international bond rates have been on the rise. Investors began over-analyzing each economic release, each comment by a Fed official, each forecast by a regulatory body or related agency. Speculation has ruled the day and fundamentals seem to matter less than the perceived mindset of the Fed chairman.
Board rooms remained active during the week as Google looks to be improving its navigation system with the purchase of Waze for $1 billion. Indian tire (or is it tyre?) manufacturer Apollo Tyres is buying rival Cooper Tire for $2.2 billion. Gannett is purchasing media giant Belo for $1.5 billion. Safeway is moving south and selling off its Canadian operations to Empire Co. (Sobeys Inc.) for $5.7 billion. Typically, enhanced M&A activity is a positive sign about the state of the corporate world as management looks optimistic in establishing a growth plan for the future. In the IPO world, perfume maker Coty bucked the recent favorable trend of strong debuts by falling 1% in its initial day of trading, though the stock rebounded in day two. In other biz news, IBM and Amazon.com are locked in a “mano a mano” battle for a $600 million government contract as the Central Intelligence Agency upgrades it cloud computing capabilities. McDonalds experienced stronger-than-expected same-store sales as its expanding menu attracts new health conscious customers. (Any trans fats in that McCafé Blueberry Pomegranate Smoothie?) Apple announced an operating system upgrade to be available in the fall.
Oil prices remained volatile as OPEC cuts is demand growth forecast for 2013, though the US Energy Information Administration projected that total demand will increase by almost 4% on the year. Domestic production climbed almost 15% last year, a favorable development for a country often thought to be too reliant on foreign oil. Crude traded lower early in the week on concerns about a future fed move and its impact on the global economy (so what else is new?), but jumped late in the week to levels not seen since January on newfound concerns about turmoil in the Middle East (Syria) and the role the US may be playing in this crucial oil-rich region.
Stocks ended a dismal week on another triple-digit down note as investors focused almost exclusively on the upcoming Fed meeting and their (irrational?) fears that any change in policy will send the economy and markets into a tailspin. The week was highlighted by the first three-day losing streak of the year as well as the best one-day showing for the S&P 500 index since early January (that unfortunately proved to be short-lived). Just a few days and counting until Bernanke and friends end the speculation and confirm Fed policy and the thought-process behind it (though such speculation never really ends these days).
Economic Calendar
|
Date |
Release |
Comments |
|
June 13 |
Jobless Claims (06/08/13) |
Fell for the second straight week to near five-year lows |
|
Retail Sales (05/13) |
Beat expectations on solid auto sales |
|
|
June 14 |
PPI (05/13) |
Wholesale inflation remains subdued |
|
Industrial Production (05/13) |
Another sign that manufacturing is struggling |
|
|
The Week Ahead |
||
|
June 18 |
Housing Starts (05/13) |
|
|
CPI (05/13) |
||
|
June 19 |
Fed Policy Meeting |
|
|
June 20 |
Jobless Claims (06/15/13) |
|
|
Existing Home Sales (05/13) |
||
|
Leading Eco. Indicators (05/13) |
USA…USA…USA…We’re back, baby. Early in the week, Standard & Poor’s upgraded the US credit rating to “stable” (from “negative”), despite the potential for weaker activity given the budget gap, automatic spending cuts, and few signs that politicians have much wherewithal to do anything about it. Still, the International Monetary Fund reduced its projections for 2014 domestic growth to 2.7% on the budgetary concerns. The IMF added that the recovery is becoming more “durable” led by the housing sector and an improved labor market. The euro-zone got a bit of good news this week as overall industrial production grew by a better-than-expected 4%, though China’s mere 9.2% output growth was actually slightly lower than that in April. The Bank of Japan rained on the global parade by leaving its stimuli intact for now when investors were clearly hoping for a positive adjustment to its bond buying program. (Sound familiar? Does it seem that investors are becoming a tad too dependent on central bankers these days?)
Analysts got a mixed signal about that all-important consumer activity as retail sales bested forecasts on continued strength from auto/truck sales, though the Thomson Reuters/University of Michigan fell slightly in its recent release. Jobless claims dropped again and now stands close to five-year lows, another solid sign that the recent labor concerns may have been a bit premature. Industrial production was unchanged last month as manufacturing remains lackluster at best. Inflation rose on higher energy prices, but the “core” reading was little changed which means very few price pressures.
While some analysts have predicted that the Fed may begin to wind down the bond buying stimulus at the next policy meeting, others point out that Bernanke and Co. have plenty of ammunition to keep the program intact in its entirety. Currently inflation stands below the Fed’s target with no signs of escalating any time soon; the jobless rate remains well above the desired 6.5% level; the budget cuts (sequester) are beginning to have negative impact on certain areas of the economy as manufacturing moved into contraction mode last month; even the IMF veered into the debate by urging the Fed to refrain from shifting policy until at least the end of 2013. (Does the Fed Chair tend to take advice from the IMF?) For those investors worried that the policymakers would begin to taper bond purchases, they should remember that Bernanke has emphasized that such moves do not mean that the fed fund rate will increase anytime soon (as long as inflation is low and unemployment is too high).
On the Horizon… Bernanke enjoys more time in the limelight as his tenure approaches an end (most likely) and investors eagerly await his comments from the Fed meeting and direction for future monetary policy. While he clearly would prefer not to play all of his cards, he surely realizes that investors have been acting irrationally in advance of the meeting and he should address their concerns in some meaningful way. (But will it be enough to end the speculation and market volatility, at least for the time being?) Housing releases highlight the economic data of the week, but most eyes will be on the Fed. Once the over-meting (and the over-analysis) ends, the summer doldrums can begin in earnest.
© Brounes & Associates
