Market Matters…
|
Market/Index |
Year Close (2012) |
Qtr Close (06/30/13) |
Previous Week (08/30/13) |
Current Week (09/06/13) |
YTD Change |
Week Change |
|
Dow Jones Industrial |
13,104.14 |
14,909.60 |
14,810.31 |
14,922.50 |
13.88% |
0.76% |
|
NASDAQ |
3,019.51 |
3,403.25 |
3,589.87 |
3,660.01 |
21.21% |
1.95% |
|
S&P 500 |
1,426.19 |
1,606.28 |
1,632.97 |
1,655.17 |
16.06% |
1.36% |
|
Russell 2000 |
849.35 |
977.48 |
1,010.90 |
1,029.55 |
21.22% |
1.84% |
|
Global Dow |
1,995.96 |
2,110.64 |
2,182.39 |
2,240.81 |
12.27% |
2.68% |
|
Fed Funds |
0.25% |
0.25% |
0.25% |
0.25% |
0 bps |
0 bps |
|
10 yr Treasury (Yield) |
1.76% |
2.48% |
2.75% |
2.94% |
118 bps |
19 bps |
“To taper or not to taper”…that’s the question for the Fed these days (though probably one that Larry Summers will not be considering as several Senators have expressed their opposition to his appointment for Chair after Dr. B. moves on to bigger and better things). With each passing (decent) economic release, the reduction of the bond buying stimulus looked more and more inevitable (maybe even this month), though the weaker-than-expected late-week labor releases threw a wrench into the Fed watchers’ (over)-analysis. With Obama and Putin giving each other the cold shoulder at the G-20 and Russia opposing any military moves in Syria (and continuing to arm its gov even after the chemical weapons abuses), the global conflicts add greater uncertainties to US foreign policy initiatives (and nervous investors are watching). As always, uncertainties are never good for markets.
In the corporate world, auto sales remained strong in August as the Big 4 ( GM, Ford, Chrysler, and Toyota ) each posted double-digit gains again as strength in housing (of all sectors) has created greater demand for pickup trucks and related vehicles. Conversely, same store sales in August disappointed analysts as the nine retailers that still report to the Thomson Reuters survey posted growth that missed forecasts and was far below last years’ levels. Gap and Limited were among the struggling retailers, while Costco was the one bright spot. Microsoft plans to acquire Nokia ’s cellphone biz as it seeks new ways to compete with Google and Apple, while Verizon is staking $130 billion in a deal to acquire wireless operations from Vodaphone and change the landscape of the telecommunications industry.
During the week, bond yields continued their inevitable trek to 3% (on the 10-year) and even surpassed that critical level at one point, before falling late in the week following the sluggish labor reports. Likewise, oil prices surged toward $110/barrel as the Syrian fiasco prompted worries about supply issues and a surprisingly large decline in the weekly inventory levels raised additional concerns. Some analysts believe that a quick (and successful) military strike against Syria will help bring crude prices back down to earth, though the prolonged battle to win European support may hurt American credibility. (Who’d have thought that France would be the one loyal ally in this conflict?)
Equity investors bought early and often as they seemingly came to grips that favorable economic signs (manufacturing) were good for the market (despite the implications for the Fed). During the week, stocks enjoyed their best day in five weeks after a Fed reports showed continued expansion across the various regions of the country. Volume was light for the week as Labor Day and a religious holiday kept some traders away, though most were back in the saddle by the time Labor announced its disappointing news. The over-analysis began in earnest on the final trading day of the week as investors were torn between how the weaker nonfarm data would impact Fed policy and whether the Syrian conflict will spark even greater global repercussions. “To attack or not to attack”…that’s another key question.
Economic Calendar
|
Date |
Release |
Comments |
|
September 3 |
ISM – Manu (08/13) |
Highest level since April 2011 |
|
Construction Spending (07/13) |
Best showing in almost 5 years |
|
|
September 4 |
Balance of Trade (07/13) |
Trade gap expanded by 13.3% |
|
Fed Beige Book |
Economy expanded at modest to moderate pace |
|
|
September 5 |
Jobless Claims (08/31/13) |
4-week average at lowest level since October 2007 |
|
Factory Orders (07/13) |
Sharpest decline in four months |
|
|
ISM – Services (08/13) |
Fastest pace since December 2005 |
|
|
September 6 |
Nonfarm Payroll (08/13) |
Large downward revisions to prior months |
|
Unemployment Rate (08/13) |
A five-year low |
|
|
The Week Ahead |
||
|
September 9 |
Consumer Credit (07/13) |
|
|
September 12 |
Jobless Claims (09/07/13) |
|
|
September 13 |
Retail Sales (08/13) |
|
|
PPI (08/13) |
At first glance, a 7.3% unemployment rate, the lowest in five-years, sounds encouraging for the labor market. Unfortunately, the numbers may be skewed as they included the smallest workforce participation in 35 years as many employees have grown frustrated with their job searches and simply stopped trying (and dropped out of the statistic measurements). The lower-than-expected nonfarm payroll additions of 169k disappointed investors and the considerable revision of the June and July numbers (by a combined 74k) was truly alarming for analysts who had previously viewed the Labor recovery as one of the solid signs of the economic rebound. After all, the weekly jobless claims had been hovering down around the lowest level in five years since July and even the less volatile four-week average reflected favorable labor trends. The Fed views the jobs reports as key measures in making policy decisions.
In other economic news, the ISM manufacturing survey climbed for the third straight month and was reported at its highest level since April 2011. Similarly, the ISM services report expanded at its fastest pace in about eight years and seemed to reveal additional signs that the recovery was robust and gave the Fed more reason to revise the terms of its bond buying program. Likewise, housing remained on solid ground as construction spending jumped to its highest level since September 2008 and homebuilders have been moving forward with enhanced activity despite the higher mortgage rates. The Fed’s Beige Book showed “modest to moderate” growth with decent back-to-school sales aiding consumer spending, strong demand for cars and home furnishings, improved manufacturing activity, and continued strength in residential housing…all favorable signs that could point to a change in the Fed’s policy.
Across the pond, the euro-zone’s purchasing managers survey grew at its fastest pace in over two years and ailing nations like Spain, Italy, and Ireland revealed improving conditions. Even Greece’s economy contracted at a slower pace as tourism has offered a boost as of late. While the European Central Bank (ECB) held the key rate unchanged at its meeting, the policymakers reiterated their intent to “keep rates at current or lower levels for an extended period.” China’s manufacturing sector climbed to a 16-month high in August.
On the Horizon… “To taper or not to taper?” “To attack or not to attack?” These two looming questions continued to be at the forefront of the daily headlines and bring continued uncertainties to the markets. With a slow week on the economic calendar, they will remain atop the investors’ focus, and until resolved, should bring additional volatility. The Administration must make decisions on Syria soon and may have to go at it alone in its fight against chemical warfare (and face ongoing Russian wrath). Bernanke may be able to buy a bit more time, though a move to taper seems inevitable and further reluctance to act soon just adds to the market uncertainty. So much for the doldrums of summer.
© Brounes & Associates
