The majority of economic reports released last week indicated the economy continues to grow and strengthen. Bond yields dropped and Homebuilders’ confidence soared. Initial jobless claims fell. And the bell-weather Philadelphia manufacturer index came in at a much higher reading than expected. Moody’s, the bond rating agency, raised America outlook to “stable” from “negative”.
On the negative side, Detroit declared bankruptcy – the biggest ever municipal bankruptcy in the U.S. Gas prices rose $.10 per gallon last week. Housing starts and retail sales results disappointed.
Monthly Archives: July 2013
The Numbers
Last week, U.S. Stocks and Foreign Stocks and Bonds all increased. During the last 12 months, STOCKS outperformed BONDS. LAST WEEK -Here is a look the cause of the volatility created this week by hedge funds, institutions, and those we call “traders”. Returns through 5-17-2013 1-week Y-T-D 1-Year 3-Years 5-Years 10-Years Bonds- BarCap Aggregate Index .7 -2.0 -1.4 3.5 5.5 4.7 US Stocks-Standard & Poor’s 500 .7 20.0 25.7 19.0 8.5 7.6 Foreign Stocks- MS EAFE Developed Countries 1.3 8.1 20.8 6.8 -1.8 5.4
Source: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends.
“Your Financial Choices”
“Your Financial Choices” The show is hosted by Valley National’s Laurie Siebert CPA, CFP®, AEP® and she will be joined by guests, Don Bernhard, PPL’s director of community affairs, and Joe Mezlo, manager of energy efficiency and conservation for PPL Electric Utilities. They will discuss: “Summer energy conservation, electric safety, as well as PPL’s involvement and philanthropy.”
Laurie will take your calls on this topic and other inquiries this week. This show will be broadcast at the regular time. WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton and Phillipsburg area; and, it is broadcast on FM 93.7 in the Fogelsville and Macungie area – or listen to it online from anywhere on the internet. For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.com and visit www.wdiy.org.
Quote of the Week
“Government’s view of the economy could be summed up in a few short phrases:
- If it moves, tax it.
- If it keeps moving, regulate it.
- And if it stops moving, subsidize it.”
– Ronald Reagan
Personal Notes
Our days certainly have been hot. Hot enough to be classified as the “dog days of summer.”
By the way, The Old Farmer’s Almanac lists the traditional period of the Dog Days as the 40 days beginning July 3rd and ending August 11th, coinciding with the ancient heliacal (at sunrise) rising of the Dog Star, Sirius. These are the days of the year with the least rainfall in the Northern Hemisphere.
The Markets This Week
Stock prices climbed to another record close last week, fueled mainly by reassuring monetary policy talk from the Federal Reserve Chairman Ben Bernanke. Strong money-center bank quarterly earnings reports lent a hand.
Weaker than expected results from big technology names like Google (ticker: GOOG) and Microsoft (MSFT) weren’t enough to stop the bull last week. Breadth, the ratio of advancing stocks to retreating stocks, continues to be strong and is suggestive of more gains ahead.
Even as we head into the thick of the earnings season over the next two to three weeks, investors are likely to remain focused on more macroeconomic issues, such as global interest rates and the health of China’s economy, says one firm’s chief market strategist.
On the week, the Dow closed at 15,543.74, up 79 points, or 0.5%, and a few points below the record high set Thursday. The S&P 500 index did set a new record, 1,692.09, or 12 points last week. The technology-heavy Nasdaq Composite index fell 13 points, or 0.35%, to 3587.61. This bull market is 1593 days old and—according to the traditional definition of a bull market, a 20% or more gain without a 20% decline—now is the fifth longest in history, according to Bespoke Investment Group.
Bernanke told Congress Thursday that it was “too early to make judgment” on whether the central bank can begin to withdraw its monetary stimulus. That appeared to appease those worried about higher interest rates.
Though still in the early stages of the earnings period, it’s already shaping up as a repeat of the last couple of quarters: soft revenue and modest earnings growth, some winners and some losers, says the chief market strategist. “With the market still focused on the macro,” he adds, “and no Fed comments expected ahead of its next meeting July 30 and 31,” volatility will probably be low for the next couple of weeks.
Breadth shows no sign of retreat. Advances have outnumbered declining stocks for 14 of the last 17 days, a surge that has led to durable market advances in the past, according to a report from Wellington Shields.
Among financials, Morgan Stanley’s (MS) results beat analyst estimates and its stock rose 6%. Meanwhile, Google’s second-quarter profit grew 16% but missed expectations, and the stock fell 3% on the week to $896.60. Microsoft dropped 12%, to $31.40, after its results fell short and included a $900 million charge for its struggling Surface tablet computer.
One source of the market’s strength is ETF money flow, according to Nicolas Colas, chief market strategist at Convergex. In the first 12 trading days of July, investors have added $24.4 billion to U.S. equity ETFs, four times the run rate in the first half. “There’s real money going to work here,” he adds ( Source: Barrons Online).
Heads Up!
As we forecasted in the last two issues of The Weekly Commentary, the FED’s Chairman, Ben Bernanke, calmed the bond market using wording in his speeches recently that pressured and influenced the bond market to drop interest rates. We suspect this tactic will continue with the end result that interest rates on mortgages, bonds with a maturity of 5 or more years, and intermediate/long term bond funds will decline for the next 2 to 4 weeks. This tactic, which I call “jawboning,” can work for only a limited time period until economic reality sets in again at which time interest rates could move higher. Our interest rate forecast is for interest rates on the above mentioned securities will generally decline for 2 – 4 weeks or longer, but rise over the next 5 to 10 years.
The “Heat Map”
Most of the time, the U.S. stock market looks to 3 factors to support its upward trend – let’s grade each of the factors:
CONSUMER SPENDING: I grade this factor a C (neutral).
THE FED AND ITS POLICIES: I continue to grade this factor an A+ (extremely favorable) because the FED cannot do much more than it is doing to support the stock market and asset prices.
BUSINESS PROFITABILITY: I graded this factor an A (very favorable). Many companies will be reporting their profits to the public shareholders in the next 4 weeks – companies reporting their earnings last week exceeded expectations, on average. We will continue to monitor this very closely for the next 4 weeks.
The Economy
Reports issued last week continued to indicate the economy is growing, but at a slow pace – much slower than normal for this phase of an economic rebound. An underlying warning signal appeared – if interest rates on mortgages continue to rise, the economic recovery, anemic as it is, will be placed in danger.
The Numbers
Last week, U.S. Stocks and Foreign Stocks and Bonds all increased. During the last 12 months, STOCKS outperformed BONDS. Returns through 5-17-2013 1-week Y-T-D 1-Year 3-Years 5-Years 10-Years Bonds- BarCap Aggregate Index .8 -2.7 -1.9 3.4 5.1 4.5 US Stocks-Standard & Poor’s 500 3.0 19.2 28.7 18.4 8.6 7.5 Foreign Stocks- MS EAFE Developed Countries 3.8 6.7 23.5 6.5 -1.8 5.1
LAST WEEK -Here is a look the cause of the volatility created this week by hedge funds, institutions, and those we call “traders”.
Source: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends.