Market Matters…
|
Market/Index |
Year Close (2012) |
Qtr Close (06/30/13) |
Previous Week (08/02/13) |
Current Week (08/09/13) |
YTD Change |
|
Dow Jones Industrial |
13,104.14 |
14,909.60 |
15658.36 |
15,425.51 |
17.71% |
|
NASDAQ |
3,019.51 |
3,403.25 |
3689.59 |
3,660.11 |
21.22% |
|
S&P 500 |
1,426.19 |
1,606.28 |
1709.67 |
1,691.42 |
18.60% |
|
Russell 2000 |
849.35 |
977.48 |
1059.86 |
1,048.40 |
23.44% |
|
Global Dow |
1,995.96 |
2,110.64 |
2277.30 |
2,268.48 |
13.65% |
|
Fed Funds |
0.25% |
0.25% |
0.25% |
0.25% |
0 bps |
|
10 yr Treasury (Yield) |
1.76% |
2.48% |
2.60% |
2.58% |
82 bps |
With friends like this… After Russia decided to grant asylum to Ed Snowden, the former National Security Agency contractor who leaked classified information, Prez Obama has given his counterpart, Prez Putin, the cold shoulder and canceled next month’s bilateral meeting scheduled in Moscow. The diplomatic relationship between US and Russia has not ended entirely as Defense Secretary Hagel and Secretary of State Kerry are meeting with key Russian officials to discuss a broad range of other issues (including the asylum decision?). For now, the domestic economy should not be affected by the “snub,” but the geopolitical tensions are worth watching. (Anyone remember the Cold War?)
The resurgence in housing showed itself in earnings season as both Freddie Mac and Fannie Mae reported very strong profits just a few years removed from the near-collapse (and “bailout”) of the semi-government enterprises in the midst of the financial crisis. Still, Congress continues to debate the futures of the firms (and the entire mortgage industry) and the two giants may not be exist in their current forms for much longer. In other earnings news, Groupon showed solid revenue improvement and announced a $300 million share repurchase, while electric car maker Tesla revealed that the surging auto sector is not limited to the Big Three ( Ford, GM, Chrysler). In transaction news, Blackstone appearslikely to be moving hotel chain Hilton toward IPO (again) to capitalize on the growing real estate market. Once upon a time, Blackstone took Hilton private for $18 billion (plus assumed debt), the largest private-equity buyout in the hotel industry. This week, Blackstone indicated that it will be selling the La Quinta chain for $4.5 billion. In a surprise move, Amazon.com founder and Internet mogul Jeff Bezos is acquiring the Washington Post in a deal that could mark the merging of the struggling newspaper biz with the dot.com world and speculation has begun in earnest about how he plans to operate the well-known media source.
The $3.7 trillion municipal bond market could be impacted by the city of Detroit’s decision to file for bankruptcy protection. Already, other nearby municipalities with solid credit ratings like Saginaw County, Michigan, have postponed bond offerings for fear of poor demand. Additionally, Detroit’s emergency manager is asking investors who hold water and sewer bonds to agree to restructure the debt and help enhance city revenue through changes in terms. While the investors have been assured that they will not suffer losses in the restructuring, some do not want to accept the new terms for fear that it sets a dangerous precedent in the historically (perceived) safe municipal market.
Equity investors took profits during much of the week as a few (inopportune) comments from key Fed officials seemed to imply the bond buying program could be moving closer to “tapering.” Some analysts and fund managers already believe that the markets may have gotten ahead of themselves, so the newfound speculation simply gave them an excuse to lock in profits and reassess (and maybe take one last jaunt to the Hamptons before school starts again).
Economic Calendar
|
Date |
Release |
Comments |
|
August 5 |
ISM – Services (07/13) |
Much larger-than-expected reading |
|
August 6 |
Balance of Trade (06/13) |
Lowest level since the fall of 2009 |
|
August 7 |
Consumer Credit (06/13) |
Credit card use fell by the most in a year |
|
August 8 |
Jobless Claims (08/03/13) |
4-week average at lowest level since November 2007 |
|
The Week Ahead |
||
|
August 13 |
Retail Sales (07/13) |
|
|
August 14 |
PPI (07/13) |
|
|
August 15 |
Jobless Claims (08/10/13) |
|
|
CPI (07/13) |
||
|
Industrial Production (07/13) |
||
|
August 16 |
Housing Starts (07/13) |
Who says the Fed will not be able to function without Ben Bernanke? This week, Gentle Ben was relatively silent and yet a few speeches by his partners-in-crime garnered front page news and sent equity investors seeking cover. Dallas Fed Prez Fisher speculated that the central bank could begin to shift its monetary policy (bond buying) as early as the September meeting (though Fisher is a non-voting Fed member). Likewise, Chicago Prez Evans pegged September as a possibility for the beginning-of-the-end of the stimulus. Atlanta Prez Lockhart echoed those thoughts by stating that the tapering could start at any of the remaining three 2013 open market committee meetings. Over the past few months, investors have been torn between their desire to see solid economic data and a meaningful recovery vs. their concerns that a shift in Fed policy would raise rates prematurely, slow the economy, and prompt a dramatic selloff in risk assets (like stocks). At some point, the economy will be able to survive (and thrive) without the artificial stimulus of the Federal Reserve (but will Bernanke still be the top dog?).
Global investors breathed a collective sigh of relief as news from China eased fears that its economy was heading for the doldrums. Trade figures were more than promising as exports rose over 5% and imports increased more than 10%, both surpassing forecasts. Additionally, industrial production rose at its fastest pace since February. Consumer prices jumped slightly below expectations, providing some analysts with ammunition that the central bank could effectively ease rates and other restrictions to stimulate the weaker economy. Across the pond, the Bank of England played follow-the-leader and adopted a Bernanke-esque philosophy by “pledging” to maintain its low level of interest rates and continue it bond buying program until its unemployment rate fell to 7% or lower (from 7.8% now).
Closer to home, the economic calendar was relatively lackluster after a hectic prior week so analysts and investors were able to focus more on the Fed comments. Still, the numbers depicted decent growth and a continuation of the modest recovery. The ISM Service index jumped well-above expectations, a nice showing for the non-manufacturing sectors of the economy. Though credit card usage declined last month, demand for car and education loans remained high and the increase in rates is not having much negative impact on consumer borrowing (yet). The number of individuals filing for unemployment benefits stands at a 5.5 year low and the less volatile and closely watched 4-week moving average of jobless claims dropped to its lowest level since pre-recession November 2007. Finally, foreclosures fell to a five-year low last quarter, another positive sign for the housing market.
On the Horizon …The consumer takes center stage as the retail sales release depicts the always interesting “back-to-school” activity and Macy’s, Nordstrom, and Kohl’s join the earnings parade. Most investors will remain focused on the Fed and signs of new speculation about the future of bond buying. Still, volume may remain light as folks take advantage of the last few weeks of summer before the home stretch begins in earnest. With most indexes already showing solid double-digit gains, some investors fear more profit-taking, while others expect the bullish trend to continue. (The latter sounds better.)
© Brounes & Associates
