Market Matters…
|
Market/Index |
Year Close (2012) |
Qtr Close (06/30/13) |
Previous Week (07/19/13) |
Current Week (07/26/13) |
YTD Change |
|
Dow Jones Industrial |
13,104.14 |
14,909.60 |
15543.74 |
15558.83 |
18.73% |
|
NASDAQ |
3,019.51 |
3,403.25 |
3587.61 |
3613.16 |
19.66% |
|
S&P 500 |
1,426.19 |
1,606.28 |
1692.09 |
1691.65 |
18.61% |
|
Russell 2000 |
849.35 |
977.48 |
1050.48 |
1048.51 |
23.45% |
|
Global Dow |
1,995.96 |
2,110.64 |
2233.17 |
2250.40 |
12.75% |
|
Fed Funds |
0.25% |
0.25% |
0.25% |
0.25% |
0 bps |
|
10 yr Treasury (Yield) |
1.76% |
2.48% |
2.49% |
2.57% |
81 bps |
This week, the Economist in Chief turned his attention to the domestic economy and urged his fellow politicos to make job creation their “top priority” with initiatives designed to strengthen the middle class. As is customary in DC, Obama was short on specifics and long on rhetoric as he complained about the gridlock in Congress and focused on the perceived income inequity that he believes is being exacerbated through the mandatory spending cuts. He did specifically mention past pet proposals like raising the minimum wage, infrastructure investments, and “new and improved” preschool programs.
Earnings season plugged along with results that were mixed at best. Ford’s and GM’s numbers showed continued strength among automakers (Detroit’s bankruptcy notwithstanding). Apple ’s earnings declined, but iPhone sales beat forecasts. Amazon.com suffered a quarterly loss as the e-commerce giant continues in full expansion mode and is sacrificing short-term profits for long-term successes. Starbucks showed that consumers are alive and kicking when it comes to drinking coffee, though McDonalds saw its margins shrink as it emphasized its Dollar Menu at home and abroad. Surprisingly, home builders DR Horton and PulteGroup posted weaker earnings, a concerning sign for housing as the results were largely derived prior to the uptick in mortgage rates. Old-economy bellwether Caterpillar missed its earnings expectations and the equipment maker also reduced its forecast for the full-year.
In the transaction world, the Dell saga continues with Michael and his friends at Silverlake trying to change the rules of the game prior to the delayed shareholder vote on their proposed deal to privatize the PC company. They believe that abstentions should not count as votes at all as opposed to being treated as “no votes.” Cisco Systems is looking to enhance its security portfolio with the purchase of Sourcefire for $2.7 billion. In all-too familiar regulatory fine news, Swiss lender UBS settled for misrepresenting (allegedly) mortgage-related securities during the financial debacle.
With interest rates on the rise, investors have been shifting out of bonds and most analysts expected stocks to be the primary beneficiary. In fact, the Investment Company Institute reported that a record $43 billion flowed out of bond funds last month. In reality, many investors have allocated those proceeds from fixed income sales into money market funds that promote safety (at the expense of much yield). Given the recent rise in equity prices and the uncertainties surrounding Fed bond buying policy, they are holding off on reallocating into risk assets for now, though most analysts expect those dollars will ultimately end up in stock funds. For the week, equities traded relatively flat as investors were unimpressed with the lackluster corporate earnings and took some profits from the recent record-setting performances. Of course, that bullish market sentiment may very well return now that the Investor-in-Chief has made the economy his top priority.
Economic Calendar
|
Date |
Release |
Comments |
|
July 22 |
Existing Home Sales (06/13) |
Surprise decline for June, but still robust sales |
|
July 24 |
New Home Sales (06/13) |
Highest pace since May 2008 |
|
July 25 |
Jobless Claims (07/20/13) |
Volatile in summer months |
|
Durable Goods Orders (06/13) |
Gains due to large jump in aircraft orders |
|
|
The Week Ahead |
||
|
July 30 |
Consumer Confidence (07/13) |
|
|
July 31 |
GDP (2nd qtr) |
|
|
Fed Policy Meeting Statement |
||
|
August 1 |
Jobless Claims (07/27/13) |
|
|
ISM – Manu (07/13) |
||
|
Construction Spending (06/13) |
||
|
August 2 |
Nonfarm Payroll (07/13) |
|
|
Unemployment Rate (07/13) |
||
|
Personal Income/Spending (06/13) |
||
|
Factory Orders (06/13) |
And the survey says…While the equity have performed in ways that depict a rapidly growing economy as of late, the news on the expansion front is far from euphoric. According to the latest Wall Street Journal survey, economists expect domestic GDP to grow at just 1.5% in the second quarter, a downward revision from the forecast made in June. Manufacturing continues be impacted by weaker trade with ailing partners and housing growth looks uncertain with rates pushing upward. Still, if labor gains continue, economists expect the second half of the year to look stronger with growth projected to come in at 2.4% in the third quarter and 2.7% in the fourth. (Then again, look how quickly those projections can change.)
For the week, existing home sales dropped in June, but the activity still represented the second best month since November 2009. Meanwhile, new home sales jumped to a five-year high, though the higher mortgage rates (and back-to-school) threaten to reduce purchases in the months to come. Though durable goods orders soared last month, much of the gain came from major aircraft sales and once transportation was taken from the equation, the data was unchanged from the prior month. Despite the concerns about future housing and manufacturing activity, the Thomson-Reuters/University of Michigan consumer sentiment index registered its highest reading since July 2007.
Shifting abroad, the euro-zone’s purchasing manager’s index climbed back into expansion mode and depicted its highest reading in 18 months with Germany and France reporting better-than-expected sector growth. China’s HSBC ’s manufacturing index, on the other hand, dropped to an 11-month low and remains firmly in contraction. China also announced some relatively minor stimulus measures that disappointed investors who were looking for a larger statement from its central bank. Still, the Chinese premier stated that the government will not allow its economic growth rate to fall below the crucial 7% level, a comment many took to mean that additional stimulus moves could be on the way.
On the Horizon …Big Oil takes its turn on the earnings podium with Exxon-Mobil, Chevron, and Conoco-Phillips reporting results. Of particular interest will be managements’ interpretations of the future impact of rising oil and gas prices. The Fed gets together to talk about bond buying ad nauseam, though most watchers do not expect any policy shifts for now, but will instead be looking for hints for actions the upcoming meetings. In the meantime, the latest odds show Janet Yellen and Lawrence Summers in a too-close-to-call battle for next Chairman of the Federal Reserve. The new month rings in a plethora of key economic data including news from manufacturing and labor. Certainly the policymakers are closely monitoring the nonfarm additions and unemployment rate. (Bear in mind, anything too good could be taken as bad news for the beginning of the end of the bond buying.)
© Brounes & Associates
