Market Matters…
|
Market/Index |
Year Close (2012) |
Qtr Close (06/30/13) |
Previous Week (07/12/13) |
Current Week (07/19/13) |
YTD Change |
|
Dow Jones Industrial |
13,104.14 |
14,909.60 |
15,464.30 |
15543.74 |
18.62% |
|
NASDAQ |
3,019.51 |
3,403.25 |
3,600.08 |
3587.61 |
18.81% |
|
S&P 500 |
1,426.19 |
1,606.28 |
1,680.19 |
1692.09 |
18.64% |
|
Russell 2000 |
849.35 |
977.48 |
1,036.52 |
1050.48 |
23.68% |
|
Global Dow |
1,995.96 |
2,110.64 |
2,201.99 |
2233.17 |
11.88% |
|
Fed Funds |
0.25% |
0.25% |
0.25% |
0.25% |
0 bps |
|
10 yr Treasury (Yield) |
1.76% |
2.48% |
2.60% |
2.49% |
73 bps |
Well, at least, the Tigers are leading the AL Central. The city of Detroit filed for Chapter 9 bankruptcy protection this week and pension owners and creditors are lining up to ask for pennies on the dollars on unpaid moneys owed. Detroit officially becomes the largest city in US history to file for such protection as it continues to suffer from a falling tax base after losing 250k residents between 2000 and 2010. Despite the negative sign from a large “metropolitan” city, Moody ’s raised its outlook on the US’s overall credit rating to stable and affirmed its AAA status as budget deficits look to be on the decline (no thanks to politicos in DC). While S&P similarly increased its outlook several weeks ago, its rating stands at AA+ and remains one notch below AAA.
Financials kicked off the earnings parade of the week with some stellar trading results from the likes of “too big to failers” Citigroup, Goldman Sachs, and Morgan Stanley. The latter also announced a sizable share buyback program had been approved by the Fed. On the other hand, techs disappointed again as Intel and Microsoft continued to struggle from weakness in the personal computer market. Google ’s results missed analysts’ expectations as ad prices for mobile devises prompted a decline in margins. IBM was an outlier as its earnings bested estimates and the tech giant raised its forecast for the year. In health-care related earnings news, Johnson & Johnson benefited from strong prescription drug sales and managed-care company UnitedHealth ’s profits surpassed forecasts and management confirmed its outlook for full-year revenue.
Indecisive Dell shareholders got a few days’ reprieve as the company postponed the vote on founder Michael’s buyout proposal until July 24 as major holders T Rowe Price, Vanguard, State Street, and Blackrock expressed opposition to the deal. While financials were basking in the glow of favorable earnings reports, JP Morgan-Chase faced what could become the largest fine ever levied to settle claims that the banking behemoth manipulated the electricity markets in California. British bank Barclays currently holds that dubious distinction as it was fined $435 million by the Federal Energy Regulatory Commission (FERC) this week over similar allegations.
Stocks resumed their record-setting ways on the financial giants’ earnings and some comments by Dr. Bernanke that seemed to put bond buying (and rate raising) on hold for the time being. (Looks like the Fed is now engaging in a new game of “kick the can.”) For those technicians in the crowd, the Dow Jones Transportation Index set an all-time high at the same time as the Industrial Average, a milestone considered a bullish signal by those who look at charts all day. Oil prices surged above $108/barrel to levels not seen in 16 months on the perception that the economy remains solidly in growth mode, perhaps a precursor for stronger crude demand. Supplies also suffered a larger-than-expected decline in the latest government release. Will the city of Detroit be able to afford the rising gasoline prices?
Economic Calendar
|
Date |
Release |
Comments |
|
July 15 |
Retail Sales (06/13) |
Lower-than-expected consumer activity |
|
July 16 |
CPI (06/13) |
Sharpest rise in five months |
|
Industrial Production (06/13) |
Best showing in four months |
|
|
July 17 |
Housing Starts (06/13) |
Significant decline led by drop in multi-family construction |
|
Fed Beige Book |
Fairly optimistic tone |
|
|
July 18 |
Jobless Claims (07/13/13) |
Sharp decline though summer numbers may be skewed |
|
Leading Indicators (6/13) |
Flat and below expectations |
|
|
The Week Ahead |
||
|
July 22 |
Existing Home Sales (06/13) |
|
|
July 24 |
New Home Sales (06/13) |
|
|
July 25 |
Jobless Claims (07/20/13) |
|
|
Durable Goods Orders (06/13) |
While housing has offered key support and been the primary growth facilitator for the economy as of late, some analysts are growing concerned that the “friendly” trend may not continue indefinitely. With mortgage rates on the rise and standing a full percentage point above early May levels, some buyers are choosing to sit on the sidelines and wait for another “correction.” Similarly, many homebuilders have plenty of not-so-fond memories of 2008 and beyond and some are hesitant to construct at will as they may have been prone to do in the past. In fact, the data of the week showed that housing starts actually fell sharply in June as builders faced their first encounter with rising rates. Multi-family activity led the decline and building permits suffered their largest drop in over two years. Still, a recent industry confidence survey revealed that conditions are continuing to improve, home prices are rising, and certain material costs such a lumber have been falling.
In other economic news, retail sales climbed by a lower-than-expected 0.4% last month, a potentially troublesome sign for the consumer. CPI surged by its largest percentage in five months as gas prices are soaring, though the less volatile core index was much milder and well-below the Fed’s targeted levels. Without serious price pressures, Bernanke and Co. may be able to buy more time before tapering the bond purchases (though don’t forget to watch oil these days). Jobless claims fell by a sizable 24k last week, though some analysts have cautioned that the summer data is often skewed by factory shutdowns and other isolated occurrences. Looking abroad, China’s GDP expanded at a 7.5% pace, down from last quarter, but still the envy of the free (and not-so-free) world.
Bernanke greeted his dear friends in Congress for perhaps the last time (his term expires in January) and remained adamant that the Fed has no timetable to end the bond buying stimulus. He further stressed that an accommodative monetary policy will continue for the “foreseeable future.” He also made another clear distinction between bond purchases and the low rate environment and reiterated that no changes will occur in fed funds for quite some time. The Fed’s Beige Book showed an economy growing at a moderate pace and maintained a relatively positive tone about the second half of the year (though a continued rise in rates and a slowdown in housing could prove damaging).
On the Horizon …Earnings season plugs along as economic bellwether Caterpillar reports as do a few consumer-related biggees ( McDonalds, Starbucks). United leads the airlines into the season and provides a glimpse into the (pre-)summer travel months, while forecasts will include thoughts about the impact of higher gasoline prices. Home sales data lends some insight on housing activity after the recent uptick in rates as the economy has grown accustomed to solid sector results as of late. Fed watchers remain focused on any words of wisdom from the policymakers as they project the “beginning of the end” of the bond buying stimuli. As always, China and Europe keep their lofty spots atop the headlines as related news impacts the global economy and markets. (Can Detroit learn any lessons from Greece?)
© Brounes & Associates
