Market Matters…
| Market/Index | Year Close (2013) | Qtr Close (03/31/14) | Previous Week (05/09/14) | Current Week (05/16/14) | YTD Change | Week Change |
| Dow Jones Industrial | 16,576.66 | 16,457.66 | 16,583.34 | 16,491.31 | -0.51% | -0.55% |
| NASDAQ | 4,176.59 | 4,198.99 | 4,071.87 | 4,090.59 | -2.06% | 0.46% |
| S&P 500 | 1,848.36 | 1,872.34 | 1,878.48 | 1,877.86 | 1.60% | -0.03% |
| Russell 2000 | 1,163.64 | 1,173.04 | 1,107.26 | 1,102.91 | -5.22% | -0.39% |
| Global Dow | 2,483.62 | 2,504.05 | 2,520.68 | 2,533.44 | 2.01% | 0.51% |
| Fed Funds | 0.25% | 0.25% | 0.25% | 0.25% | 0 bps | 0 bps |
| 10 yr Treasury (Yield) | 3.04% | 2.72% | 2.62% | 2.53% | -51 bps | -9 bps |
Investors are a fickle bunch. After reaching fresh highs on both the Dow Jones and the S&P 500, profit-taking set in as stocks gave back the early week gains (and more). The Blue Chips index even suffered the largest point and percentage declines since early April in one less-than-memorable session. After a couple of triple digits loss days (on the Dow), some analysts feared that a new trend was emerging and profit-taking was not the sole culprit. Global developments in China and Ukraine/Russia brought plenty of concern and the “deflation” picture in Europe practically begged the central bankers for more stimuli. Still the domestic economy got some decent news this week in the inflation releases (since when is higher prices deemed favorable?) and even the housing numbers were surprisingly strong. And earning, in the aggregate, have been better than many expected. Ultimately, stocks ended the week on a solid note.
Speaking of…earnings season plodded along though many investors have seemingly moved on (until a biggee like Wal-Mart posts). With over 90% of S&P 500 companies having reported results, earnings are showing an aggregate growth rate of 2.2%, far exceeding the anticipated profit drop of 1.1% that was projected as the season was just beginning. Then again, when an outlier hits, investors take note. This week, Wal-Mart reported its fifth straight month of declining sales and its outlook for the current quarter came in well below expectations. On a brighter note for retailers, Nordstrom bested projections for both profits and revenue, while J.C. Penney continued its long trek back to mediocrity by posting a narrower loss in the quarter (but still a loss is a loss).
Boardroom remained active with M&A activity and news topping the headlines. Within healthcare, Abbott Labs is acquiring CFR Pharmaceuticals, a Latin American drug maker, for $2.9 billion. Within foods, Golden Gate Capital is buying the Red Lobster chain from Darden Restaurants for $2.1 billion, and Hillshire Brands is purchasing Pinnacle Foods for $4.3 billion. AT&T and DirecTV moved closer to merger in a move meant to tap into Comcast’s leadership role among cable/satellite providers. Russell Investments remains on the selling block and the London Stock Exchange Group looks to be a frontrunner in a deal that could top $3 billion. In other corporate news, Credit Suisse is planning to settle with US regulators and the Justice Department to the tune of $2.5 billion over claims that the investment giant helped clients evade taxes. And General Motors continues to repair its damaged cars (and reputation) by recalling about 2.7 million automobiles and is planning to take a $200 million charge against future earnings.
With investors bailing from stocks mid-week, bonds were the big beneficiary as the 10-year treasury enjoyed its largest weekly price gains in two months, while its yield touched levels not seen since October 2013. The fixed income rally has clearly caught many investors by surprise, especially given the Fed’s move to reduce its bond buying program. Likewise, oil jumped comfortably over the $100/barrel mark on positive demand news and continued global concerns. And so the roller coaster continues.
Economic Calendar
| Date | Release | Comments |
| May 13 | Retail Sales (04/14) | Slight increase was below expectations |
| May 14 | PPI (04/14) | Biggest jump since September 2012 |
| May 15 | Jobless Claims (05/10/14) | Lowest reading since May 2007 |
| CPI (04/14) | Strongest rate in nearly a year | |
| Industrial Production (04/14) | Unexpected decline after 2 strong bounce-back months | |
| May 16 | Housing Starts (04/14) | Strongest in five months |
| The Week Ahead | ||
| May 21 | Fed Policy Meeting Minutes | |
| May 22 | Jobless Claims (05/17/14) | |
| Existing Home Sales (04/14) | ||
| Leading Economic Indicators (04/14) | ||
| May 23 | New Home Sales (04/14) |
It’s a small, small world (and growing small, small, smaller every day). These days, investors seem just as interested in global economic news and developments; even comments from the European Central Bank can move markets just as they do when Fed Chair Janet Yellen speaks. Prices took center stage as the head of the International Monetary Fund claimed that inflation is too low in the Eurozone, far below the ECB’s target of 2%. While, on the surface, low inflation sounds like a winning concept, certain analysts warn that it hinders consumer activity as folks believe prices will decline and, therefore, hold off on major purchases. ECB Prez Draghi has already stated his intent to monitor the situation closely and implied that nontraditional measures (like bond purchases) may be in the works. In the first quarter, GDP in the Eurozone rose by a measly 0.2% with only six of the 13 euro members reporting expansion. Mighty Germany led the way with a growth rate of 0.8% and its central bank has indicated a willingness to support stimulus moves if deemed necessary by the ECB.
Elsewhere abroad, news from China still revealed more concerns; however, a look deep into the numbers showed that times may not be as dire as some believe. While industrial production declined from March’s growth levels of 8.8%, it still jumped 8.7% in April on a year-over-year basis. Similarly, April retail sales climbed by 11.9%, a positive showing by any means, but just below the 12.2% increase of March. Japan’s GDP grew by a healthy 5.9% on solid consumer activity, though analysts expected such a surge and anticipate a decline in the months to come as the national sales tax rose from 5% to 8%.
Closer to home, PPI rose 0.6% from March, its strongest rate since September 2012, and CPI followed with a better-than-expected increase as well. Interestingly, analysts seemed to welcome the news of price hikes as the Fed has been closely monitoring the inflation picture and will, most likely, keep a steady course on the news. Retail sales took a bit of a break last month and barely rose 0.1% in April after March enjoyed the biggest sales gain in four years. After a dismal start to the year amid a bad winter season, housing starts soared by 13.2% in April. While the bulk of the gain came from multi-family (apartment) construction, single-family activity climbed 0.8% to hit is fourth best level since early 2009. Likewise, building permits grew by 8% in April, its best showing since mid-2008 and a favorable forecaster of future activity.
On the Horizon…While earning season winds down and looks primed to end with surprising gains for the quarter, some key retailers have yet to report. Hopefully the news from Target, Home Depot, and even HP will help end the season on a favorable note. Next week’s domestic numbers bring new signs from housing that will hopefully confirm a rebound from the dismal winter. Likewise, the Fed minutes give another glimpse into the minds of the policymakers. Global developments remain high on the watch list these days. Could the mid-week shift in sentiment mean the start of a new trend or merely a minor setback on the way to new highs? (The latter sound good to me.)
