Market Matters…
| Market/Index | Year Close (2013) | Qtr Close (03/31/14) | Previous Week (04/25/14) | Current Week (05/02/14) | YTD Change | Week Change |
| Dow Jones Industrial | 16,576.66 | 16,457.66 | 16,361.46 | 16,512.89 | -0.38% | 0.93% |
| NASDAQ | 4,176.59 | 4,198.99 | 4,075.56 | 4,123.90 | -1.26% | 1.19% |
| S&P 500 | 1,848.36 | 1,872.34 | 1,863.40 | 1,881.14 | 1.77% | 0.95% |
| Russell 2000 | 1,163.64 | 1,173.04 | 1,123.05 | 1,128.80 | -2.99% | 0.51% |
| Global Dow | 2,483.62 | 2,504.05 | 2,496.80 | 2,523.17 | 1.59% | 1.06% |
| Fed Funds | 0.25% | 0.25% | 0.25% | 0.25% | 0 bps | 0 bps |
| 10 yr Treasury (Yield) | 3.04% | 2.72% | 2.67% | 2.58% | -46 bps | -9 bps |
“Sell the rumor; buy the fact.” For weeks, investors have been wearing their meteorologist caps, predicting that the weather and its impact on the economy and biz climate. A frigid winter season would undoubtedly bring various sectors to a virtual standstill and stocks fell in anticipation of this weakness. Slowly, but surely, the predictions came to fruition as number after number revealed a slowdown and the newfound fears put any potential for renewed growth on the backburner for the time being. This week’s GDP release confirmed the worst…broad weakness with consumer spending grinding to a halt and business investment suffering its first decline in a year. Lo and behold, analysts believe that the worst has ended now that “spring has sprung” and Macroeconomic Advisers, for one, is predicting 3.5% economic growth in the second quarter. Suddenly the Bulls are emerging from hibernation and the stock market is back on track, with analysts now predicting better times ahead.
On another positive (for the market) note, earnings season is faring better than anticipated as the harsh winter conditions had folks fearing the worst. With just over 60% of S&P 500 companies posting results, earnings are tracking 0.9% growth, far exceeding the 1.2% decline projected prior to the season, and revenue looks to be growing at a 2.7% clip. Drug giant Merck bested analysts’ expectations and offered a favorable outlook for the full year. Twitter’s earnings and profits each outperformed though user growth was reported below projections. Big Oil struggled last quarter as both Exxon Mobil and Chevron posted lesser results due to declining prediction of oil and natural gas.
Transactions remain atop the headlines as boardrooms have been active in the current quarter. Pfizer approached UK’s AstraZenica with a $100 billion buyout deal, though the target claimed the terms were significantly undervalued. AT&T and Directv may have a major merger in the works as they look to enhance competition in the cable/satellite world against growing Comcast. Siemens is entering the sweepstakes (against GE) to buy France’s Alstrom’s energy assets. Apple sold $12 billion in new debt, a year after completing the largest corporate bond deal on record (at $17 billion). Bank of America was forced to suspend its buyback program and halt plans to enhance its dividend after its capital levels were lowered as a results of a calculation mistake.
Stocks rose early and often as investors dissected the favorable earnings news and continued to project that spring would bring stronger economic data. The Fed confirmed its view that the economy is on the right track as the policymakers reduced the bond buying purchases yet again. The Dow Jones even pushed (temp) into record territory for the first time this year. Retirement dollars continue flowing into equities these days as 66% of 401(k) assets have been allocated to stocks, the highest exposure in over six years and up from 48% in February 2009. Oil prices fell below $100/barrel as supplies stand at the highest level ever recorded (since 1982). Any new rumors worth following?
Economic Calendar
| Date | Release | Comments |
| April 29 | Consumer Confidence (04/14) | Past 2 months at strongest levels since January 2008 |
| April 30 | GDP (1st quarter) | Abnormally cold weather affected much of the country |
| Fed Policy Meeting ends | Growth pickup after a harsh winter derailed U.S. growth | |
| May 1 | Jobless Claims (04/26/14) | Highest level since late February |
| Personal Income/Spending (03/14) | Spending at fastest pace in nearly five years | |
| ISM – Manu (04/14) | Highest reading since December 2013 | |
| Construction Spending (03/14) | Slight increase after winter slowdown | |
| May 2 | Nonfarm Payroll (04/14) | Best month of job creation since January 2012 |
| Unemployment Rate (04/14) | Lowest level since September 2008 | |
| Factory Orders (03/14) | Rose for 2nd straight month | |
| The Week Ahead | ||
| May 5 | ISM – Services (04/14) | |
| May 6 | Balance of Trade (03/14) | |
| May 7 | Consumer Credit (03/14) | |
| May 8 | Jobless Claims (05/03/14) |
Ukraine/Russia continue to headline the global news as both the US and Europe imposed stronger sanctions on individuals and companies inside of Russia. While Ukrainian officials do not believe they go far enough and are calling for harsher measures, Germany’s biz community is worried about ill-effects on its economy and are pushing for an end to such punishments. Additionally, Exxon Mobil has made it clear that it will move forward with plans to drill in the Russian Arctic seas, though most believe that such activity would not be in breach at the current time.
Staying on the global front, manufacturing in the Eurozone is heating up as the purchasing managers’ index climbed last month and even labor is showing some positive signs that new jobs are being created. Likewise, China’s purchasing managers’ index depicted sector expansion, a nice sign for the one-time superpower’s economy in a time when virtually all other news from the country has projected weakness and promoted pessimism.
Closer to home, domestic GDP rose by a measly 0.1% in the first quarter 2014 on the abnormally cold conditions though signs are already looking up for the weeks, months, quarters to come. The April ISM – Manufacturing reading was reported at its highest level since December 2013 and factory orders rose for the second consecutive month. Last month, the economy created more jobs than at any time since January 2012 and each of the prior two months was revised to reflect higher jobs growth as well. The unemployment rate plummeted to 6.3%, its lowest rate since September 2008, though the pessimists in the bunch point out that a large chunk of the drop was based on employees leaving the workforce and no longer looking for positions.
The Fed reduced its monthly bond buys to $45 billion though Yellen and Co. added that rates will remain low “for a considerable time” after the program officially ends. (Perhaps she learned after her comment following the past meeting.) The policymakers seemed to have bought in to the fact that the winter slowdown was temporary and are seeing signs that consumer activity is picking up and manufacturing clearly is on the rebound.
On the Horizon…So has the tide officially turned? Investors get a bit of a reprieve as the numbers are sparse in the coming week and even earnings season is starting to wind down. (At this point, last quarter is so “last quarter.”) Hope springs eternal (or does spring bring new eternal hope?) as investors look for solid economic and earnings releases and a continuation of the recent optimism. As always, geopolitical tensions loom on the horizon. Thanks Vlad.
