Market Matters…
|
Market/Index |
Year Close (2012) |
Qtr Close (06/30/13) |
Previous Week (07/26/13) |
Current Week (08/02/13) |
YTD Change |
|
Dow Jones Industrial |
13,104.14 |
14,909.60 |
15558.83 |
15658.36 |
19.49% |
|
NASDAQ |
3,019.51 |
3,403.25 |
3613.16 |
3689.59 |
22.19% |
|
S&P 500 |
1,426.19 |
1,606.28 |
1691.65 |
1709.67 |
19.88% |
|
Russell 2000 |
849.35 |
977.48 |
1048.51 |
1059.86 |
24.78% |
|
Global Dow |
1,995.96 |
2,110.64 |
2250.40 |
2277.30 |
14.10% |
|
Fed Funds |
0.25% |
0.25% |
0.25% |
0.25% |
0 bps |
|
10 yr Treasury (Yield) |
1.76% |
2.48% |
2.57% |
2.60% |
84 bps |
What’s the surefire cure for the doldrums of summer? How about a hectic week that includes 1) some key earnings releases from the likes of Big Oil; 2) a crucial meeting between Dr. B. and the Fed policymakers; 3) a vast array of economic data that depicts the state of the manufacturing and labor sectors as well as the economy as a whole. Throw in some news on the transaction front (thanks Dell), global releases from key trading partners, and an attempt at corporate tax bipartisanship from Economist in Chief Obama. Certainly, many investors and traders alike cut vacations short to monitor the releases, announcements, and market reaction. When the dust has settled, they know little more than when the week had begun (and headed back to the Hamptons or wherever high profiled investment professionals vacation these days…where did you go, former Goldman Sachs trader Fabrice Tourre?)
Exxon Mobil highlighted the earnings parade of the week as the behemoth posted a 57% decline in profits and the eighth straight drop in oil-and-gas production. Management also announced another reduction in its share buyback program. Fellow energy giant Royal Dutch Shell confirmed the challenging production environment and reported a similar 60% profit decline. On the other hand, health care fared a bit better with both Pfizer and Merck besting earnings estimates. From a consumer standpoint, MasterCard posted a 20+% earnings gain as credit and debit card spending continues to soar. When the week began, about half of the S&P companies had reported and 70-ish% had beaten forecasts, though cumulative profits were tracking just 1.7% year-over-year growth.
In other corporate news, car sales remained impressive in July as each of the Big Four ( GM, Ford, Chrysler, and Toyota ) recorded double-digit gains from last year. On the transaction front, Perrigo is acquiring Irish biotech Elan for $8.6 billion, Omnicom and Publicis are merging to create the largest global advertising company; Canadian retailer Hudson Bay is buying Saks for just under $3 billion. Finally, Michael (Dell) and friends sweetened their privatization deal in exchange for a revision in the voting rules and another delay in the shareholder vote (now September 12).
Market activity was lackluster at best early in the week as investors awaited the key data, much of which was scheduled for release late. Surprising strength in domestic manufacturing brought equity buyers back, while Europe’s and China’s purchasing managers’ results were stronger-than-expected as well. The labor data showed mixed results that left investors more confused about the future of the Fed’s bond buying policy. Oil prices fell early in the week as some traders took profits from the recent solid run, but the better-than-expected global manufacturing news and turmoil in Libya sent crude back into the recent record territory of two weeks prior. Additionally, Saudi Prince Alwaleed warned that the Arabian Kingdom is more vulnerable to US production today than in years past and its oil-dependent economy must brace for some challenging times ahead. So, now back to the summer doldrums.
Economic Calendar
|
Date |
Release |
Comments |
|
July 30 |
Consumer Confidence (07/13) |
Slight decline, but prior month revised higher |
|
July 31 |
GDP (2nd qtr) |
Sluggish pace by historic standards |
|
Fed Policy Meeting Statement |
No substantive changes to bond program |
|
|
August 1 |
Jobless Claims (07/27/13) |
Fell to a five-year low |
|
ISM – Manu (07/13) |
Fastest pace in 13 months |
|
|
Construction Spending (06/13) |
Fell by the largest amount in five months |
|
|
August 2 |
Nonfarm Payroll (07/13) |
Weaker job growth |
|
Unemployment Rate (07/13) |
Lowest level since December 2008 |
|
|
Personal Income/Spending (06/13) |
Both increased reflecting consumer activity |
|
|
Factory Orders (06/13) |
Rose for the third straight month |
|
|
The Week Ahead |
||
|
August 5 |
ISM – Services (07/13) |
|
|
August 6 |
Balance of Trade (06/13) |
|
|
August 7 |
Consumer Credit (06/13) |
|
|
August 8 |
Jobless Claims (08/03/13) |
While most investors braced for a hectic week on the domestic economic calendar, the global headlines caused some delight and excitement during the week. The euro-zone’s purchasing managers index climbed into expansion territory and, similarly, the UK’s related manufacturing index rose at its fastest clip in two years. In Germany, consumer sentiment jumped to a six-year high. European Central Bank Prez Draghi, performing his best Bernanke impersonation, proclaimed that the ECB will leave rates at current low levels “for an extended period of time.” Similar, the Chinese gov reiterated its intent to promote steady growth in the second half of the year. Its factory activity surprisingly moved from contraction to expansion, a sign that manufacturing is strengthening, despite its recent trade “challenges” as many of its key partners continue to battle economic weakness.
Closer to home, second quarter GDP grew at a steady 1.7% pace, slow by historical standards, but still better than some analysts feared given the early year budget cuts and tax increases. Reports of the demise of the housing sector may be somewhat premature as the S&P/Case-Shiller reports showed that home prices rose by 12% from last year’s levels. Though consumer confidence fell a tad in July, the prior month’s reading was revised upward. The ISM manufacturing index expanded at its strongest pace in 13 months. On the labor front, the ADP/Moody’s Analytics private jobs report showed better-than-expected additions and last month was revised higher as well. Claims for jobless benefits fell to a five-year low, another solid sign for labor, though naysayers point out that summer figures are often volatile, misleading, and subject to future revisions. Finally, the late-week labor data depicted a slightly weaker (if not contradictory) labor market as job additions missed expectations and the prior two months were revised lower, though the jobless rate fell to 7.4%, the lowest level since December 2008.
Bernanke and friends got together mid-week to discuss policy and debate stimulus. For now, the Fed will keep its bond buying program fully intact and the policymakers gave little insight into their thought-process for ending it in the near (or distant) future. While they called the pace of economic growth in the first half of the year “modest,” they expressed some concern about the low level of inflation and the higher mortgage rates that could impact the previously solid housing sector. Most officials seem to expect economic growth and inflation to pick up in the latter part of the year as “sequester” and the tax increases have less of an impact.
On the Horizon… The doldrums return in earnest as the economic calendar takes a considerable break from the recent fast pace week and many investors are looking well beyond earnings releases. (What will Disney say about consumer activity?) After oil resumed its climb upward, analysts may need to consider the impact on future inflation and how the Fed may react in setting policy. (Maybe after their vacations.)
© Brounes & Associates
