Market Matters…
|
Market/Index |
Year Close (2012) |
Qtr Close (06/30/13) |
Previous Week (07/05/13) |
Current Week (07/12/13) |
YTD Change |
|
Dow Jones Industrial |
13,104.14 |
14,909.60 |
15,135.84 |
15,464.30 |
18.01% |
|
NASDAQ |
3,019.51 |
3,403.25 |
3,479.38 |
3,600.08 |
19.23% |
|
S&P 500 |
1,426.19 |
1,606.28 |
1,631.89 |
1,680.19 |
17.81% |
|
Russell 2000 |
849.35 |
977.48 |
1,005.39 |
1,036.52 |
22.04% |
|
Global Dow |
1,995.96 |
2,110.64 |
2,124.88 |
2,201.99 |
10.32% |
|
Fed Funds |
0.25% |
0.25% |
0.25% |
0.25% |
0 bps |
|
10 yr Treasury (Yield) |
1.76% |
2.48% |
2.72% |
2.60% |
84 bps |
After weeks of naysaying and fear-mongering about the Fed, investors finally embraced news from Bernanke and friends and equities moved back into record-setting territory. While most accept the fact that the Fed has entered the “beginning-of-the-end” of its bond-buying stimuli, the minutes from the latest policy meeting and a few “comforting” comments from Dr. B. himself helped calm the masses that the program would not end “yesterday.” Investors ultimately will need to come to grips that the economy can survive (and thrive) without the artificial stimulus and the next few months will prove telling.
Earnings season began with a bang as Alcoa ’s core earnings bested expectations and news from key financials showed that trading activity and improved credit quality have benefited the “too big to fail” banks. Yet both Wells Fargo and JP Morgan Chase also offered signs that home lending has begun to weaken and the recent increase in rates looms large for future performances. Meanwhile, Congress is working on a revised Glass-Steagall Act that would again build a wall between the commercial and investment banking arms of financial institutions. The original 1933 law was repealed in 1999 and some analysts have blamed that political move for the financial crisis that followed less than a decade later. In other earnings news, bellwether UPS reduced its profit forecast for the year, citing weakness in the industrial sector of the domestic economy.
Transaction news may have trumped the start of earnings season as the Dell saga nears a head. This week, shareholder advisory firm Institutional Shareholder Services recommended that Dell investors approve the $24.4 billion private buyout offer from founder Michael and friends. Meanwhile, activist investor Carl Icahn proved that he will not go away without a fight as he enhanced his bid for the company with a stock warrant that he claims will up its value to over $15.50 a share. Shareholder meet to vote on a plan on July 18th. AMR (American Airlines) moved close to emerging from bankruptcy protection as US Airways shareholders approved merger plans in a $12.8 billion stock deal. Grocery giant Kroger is looking to expand its southeastern presence by purchasing Harris Tweeter for just under $2.5 billion. Microsoft announced a major company reorganization plan that will (hopefully) allow it to better compete in the quickly changing world of technology. In other corporate news, Citigroup raised its rating on HP, noting an improved cost structure and earnings outlook.
Oil prices shot passed $105/barrel to levels not seen in 14 months on news of declining supply reported by the Energy Information Administration and increased global demand growth projections by the friendly (and honest) folks from OPEC. Stocks climbed early and often as the tech-heavy Nasdaq jumped to a 12-year high and both the Dow Jones and S&P 500 indexes hit new records. While investors breathed a collective sigh of relief about a quick Fed policy shift, they still must accept the inevitable. Time will tell how the markets hold up as the “inevitable” draws closer.
Economic Calendar
|
Date |
Release |
Comments |
|
July 8 |
Consumer Credit (05/13) |
Consumer borrowing jumped more than expected |
|
July 10 |
Fed Meeting Minutes |
Generally upbeat about economy |
|
July 11 |
Jobless Claims (07/06/13) |
Larger than expected increase |
|
July 12 |
PPI (06/13) |
Core rate remains tepid |
|
The Week Ahead |
||
|
July 15 |
Retail Sales (06/13) |
|
|
July 16 |
CPI (06/13) |
|
|
Industrial Production (06/13) |
||
|
July 17 |
Housing Starts (06/13) |
|
|
Fed Beige Book |
||
|
July 18 |
Jobless Claims (07/13/13) |
|
|
Leading Indicators (6/13) |
The Fed released minutes from the big policy meeting and, as expected, bond buying dominated the debate. The officials remain upbeat about the economy and its continued growth and some would like to see the program end by the end of the year. Others expect it to continue into 2014, though perhaps in a more limited (tapered) form. The policymakers seem near unanimous that ending the bond buying program is an entirely separate decision from raising short-term rates from their current near-zero level (since 2008). Most agree than any move in rates will not occur until the unemployment falls to or below 6.5% (from its current 7.6%). The minutes also focused on the Fed’s communications efforts and comments that sent markets into a tailspin as analysts and investors attempted to determine the next moves, though no strategic decisions were reached. For his part, Bernanke improved his standing among investors by stating that “highly accommodative policy” will be needed for the foreseeable future. (How’s that for effective communications?)
Investors could focus on the Fed minutes because they had few economic releases to (over-)analyze. PPI soared by 0.8% in June, the largest gain in nine months, though much of the price moves came as a result of surging energy prices. Once the volatile food and energy components were removed from the equation, the “core” wholesale inflation release rose a mere 0.2% so the policymakers can remove so-called price pressures from their equation when debating bond buying and other stimulus. Jobless claims rose a tad in the latest weekly release and the labor market remains a key cog in the Fed’s decision. The Thomson-Reuters/University of Michigan sentiment index fell a bit in early-July, but the consumer is still expected to remain reasonably active for the time being.
Shifting abroad, China’s GDP slowed to 7.5% growth in the second quarter, the weakest pace since the third quarter of 2012 (though much of the developed world wishes their economies would be so weak). Additionally, its finance minister implied that full-year growth could slow below the current targeted pace (7.5%) and analysts are looking for signs of future stimulus to improve the picture. Japan kept its monetary policy unchanged, claiming that its economy is recovering moderately. S&P downgraded Italy’s debt rating to BBB, inching it closer to junk territory, while its May industrial output rose at a much smaller-than-expected pace. Overall, the IMF reduced its forecast for global growth in 2013 and 2014, warning that emerging economies are facing diminished growth and the Fed’s future monetary moves remain a wildcard to the overall picture.
On the Horizon … Goldman Sachs and Bank of America follow their rivals to the earnings podium next week as do tech-behemoth Intel and economic bellwether GE. Analysts may begin to focus more on future projections than past results. The Fed stays in the limelight as it releases its Beige Book and latest assessment of the economy across the regions. Investors clearly will view the report as a predictor of future policy decisions. Retail sales also gives another glimpse into the mind of the almighty consumer.
© Brounes & Associates
