Market Week: June 21, 2010

The Markets

A strong start to the week enabled domestic equities to regain a foothold in positive territory for the year, though traders began to doze off by the end of the week. As anxiety about Europe eased, the Global Dow outpaced the four domestic indexes for the week.

The broad equity market remains below its 50 and 100 day moving averages with uncertainty and lackluster economic news keeping a lid on prices. We remain cautious and defensive until the market demonstrates renewed strength. In the meantime, we continue to believe precious metals are attractive particularly Silver and Gold. In addition, Consumer Goods and Technology sectors continue to demonstrate strength specifically, Sara Lee (SLE), General Mills (GIS), Apple (AAPL), and Broadcom (BRCM).

Market/Index	2009 Close	Prior Week	As of 6/18	Week Change	YTD Change
DJIA	10428.05	10211.07	10450.64	2.35%	.22%
NASDAQ	2269.15	2243.60	2309.80	2.95%	1.79%
S&P 500	1115.10	1091.60	1117.51	2.37%	.22%
Russell 2000	625.39	649.00	666.92	2.76%	6.64%
Global Dow	1984.48	1766.71	1824.61	3.28%	-8.06%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.85%	3.24%	3.24%	0 bps	-61 bps

Last Week’s Headlines

• The Bureau of Labor Statistics said consumer inflation fell in May for the second month in a row, largely because of lower gas prices. Even excluding volatile gas and food prices, inflation remained unchanged. Lower energy costs also cut wholesale prices overall 0.3% in May, though they continued to be higher on a year-over-year basis.
• As the homebuyer tax credit began to wind down in May, housing starts for single-family homes fell more than 17% from the month before, according to the Commerce Department. Single-family building permits also were down. However, both building permits and housing starts for all privately-owned homes were up from last year.
• Moody’s became the second rating agency to downgrade Greek sovereign debt to junk status.
  Meanwhile, a successful auction of Spanish debt reassured investors, and French officials proposed raising the country’s retirement age to 62 instead of 60.
• After BP CEO Tony Hayward failed to provide satisfactory answers to a congressional subcommittee investigating the causes of the Gulf oil spill, the company announced that the company was creating a stand-alone organization with day-to-day responsibility for managing BP’s response to the disaster.
• Industrial production in the U.S. was up 1.2% in May, according to the Federal Reserve Board. That put it 7.9% higher than last year at this time. Manufacturing output was almost 8% higher than last year, and a greater amount of industrial production capacity (almost 75%) was used.
• The Conference Board’s Index of Leading Economic Indicators continued to improve, rising 0.4% in May, though the rate of growth is slower than in May 2009.
• In advance of this week’s G-20 meeting, China announced it will allow its currency to fluctuate more rather than being pegged to the U.S. dollar–a move that has been advocated by the U.S. The World Bank said it expects China’s growth to ease off a bit this year to an annual rate of 9.5%, and to 8.5% in 2011. Contributing to the uncertainty are the country’s soaring housing costs, increasing inflation, and declining trade surplus.

Eye on the Week Ahead

Both the G-20 and the Federal Reserve Open Market Committee (FOMC) meet this week. Additional auctions of intermediate-term Treasury debt and Friday’s Gross Domestic Product (GDP) number will be watched for any signs of risk aversion and economic slowdown.

Key data releases: Home resales (6/22); new home sales, FOMC announcement (6/23); durable goods orders (6/24); final Q1 GDP (6/25).

Recommendations are not suitable for all clients. Please contact us to discuss specific investments mentioned in this report.