Market Week: February 22, 2010

The Markets

A three-day run in which the Dow rose an average of almost 100 points a day gave domestic equities a 3% increase for the shortened holiday week, though the Nasdaq lagged the other major indexes. Small caps returned to positive territory for the year, but global equities continued to suffer from uncertainty about the impact of sovereign debt problems abroad. Spreads between yields on short-term and longer-dated Treasury bonds widened briefly after the Federal Reserve upped its discount interest rate (see below).

The Dollar continues to strengthen against the Euro and other major currencies as investors flee to perceived safe havens. Trading volume will likely remain light in advance of Chairman Bernanke’s testimony before Congress Wednesday at which time we may gain further clarity as to the Fed’s policy going forward.

Market/Index	2009 Close	Prior Week	As of 2/19	Week Change	YTD Change
DJIA	10428.05	10099.14	10402.35	3%	-.25%
NASDAQ	2269.15	2183.53	2243.87	2.76%	-1.11%
S&P 500	1115.10	1075.51	1109.17	3.13%	-.53%
Russell 2000	625.39	610.72	631.62	3.42%	1%
Global Dow	1984.48	1857.02	1893.58	1.97%	-4.58%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.85%	3.69%	3.78%	9 bps	-7 bps

Last Week’s Headlines

• The Federal Reserve Board raised by a quarter percent the interest rate it charges banks for short-term emergency loans. Increasing the discount rate from 0.5% to 0.75% was one of the steps Chairman Ben Bernanke had outlined the week before as part of an “exit strategy” from various types of support the Fed undertook to combat the credit crisis. Though the timing–between meetings–came as a surprise, the Fed reiterated its intention to keep monetary policy “accommodative.”
• Consumer inflation ticked up 0.2% in January, putting the annual inflation rate for the last 12 months at 2.6%. Energy costs–primarily gas prices–were responsible for most of the increase. Not counting food and energy, consumer prices fell 0.1% in January (though medical care costs saw their largest increase in a year).
• Inflation at the wholesale level–often considered an indicator of what might be in store for consumers later–was up 1.4% in January, putting the annual rate at 4.6%. It was the third consecutive month in which the rate for the previous 12 months rose. Prices for crude goods were up 9.6% in January, primarily because of higher costs for energy-related raw materials such as petroleum.
• Housing starts in January rose 2.8% from the month before, and were up 21.1% from last January. Building permits were down almost 5% from December, but were still up almost 17% from the same time last year.

Eye on the Week Ahead

Friday will see the first update to the most recent Gross Domestic Product (GDP) number; a substantial revision downward could affect the markets. Housing-related data will be a continuing thread throughout the week. Investors also will be watching to see if Senate Banking Committee Chairman Christopher Dodd unveils a proposed financial regulatory reform package this week.

Key data releases: Home prices (2/23); new-home sales (2/24); durable goods orders (2/25); revised Q4 GDP, home resales (2/26).

Market Week: February 16, 2010

The Markets

Digging out: After closing below the 10,000 mark Monday for the first time since November, by the end of the week the Dow had bobbed up, down and all around. Despite heightened volatility–the Dow saw triple-digit intraday swings almost daily–domestic equities managed to squeak out a gain for the first of the last five weeks, with small caps leading the way.

The broad equity markets are at an important transition point. The weakness exhibited year to date threatens to derail the March rally and produce another downturn. The next few weeks are critical and will determine whether the long term uptrend in place can continue.

Market/Index	2009 Close	Prior Week	As of 2/12	Week Change	YTD Change
DJIA	10428.05	10012.23	10099.14	.87%	-3.15%
NASDAQ	2269.15	2141.12	2183.53	1.98%	-3.77%
S&P 500	1115.10	1066.19	1075.51	.87%	-3.55%
Russell 2000	625.39	592.98	610.72	2.99%	-2.35%
Global Dow	1984.48	1835.66	1857.02	1.16%	-6.42%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.85%	3.59%	3.69%	10 bps	-16 bps

Last Week’s Headlines

• January retail sales were up 0.5% from the month before, and December’s 0.3% decline was revised upward to 0.1%. Flat auto sales held back the January numbers a bit; not including autos, retail sales were up 0.6%.
• December inventories were down 0.2% from November, and down 9.7% from a year earlier. However, manufacturers’ shipments and sales at the wholesale level were up 0.9% from November and 4.7% from last December.
• Federal Reserve Chairman Ben Bernanke gave a preview of steps the Fed is likely to take when it begins tightening the money supply. His statement suggested that the Fed may postpone raising its target interest rate, which in turn affects consumer interest rates, until it has employed other means of draining liquidity from the banking system. Those alternatives include raising the discount rate the Fed charges banks for emergency loans, raising the interest rate on excess bank reserves, arranging for reverse repurchase agreements of Fed-held securities, and offering banks term deposits similar to certificates of deposit. However, Bernanke said, until the economy is stronger, it will continue to need “highly accommodative monetary policies.”
• European Union leaders agreed to take action to prevent Greece’s budget and credit problems from affecting the euro’s stability. However, details about the size and nature of that aid were sketchy.

Eye on the Week Ahead

Inflation data at the end of the week is likely to dominate the economic news. Any additional information about European Union assistance for Greece will be scrutinized for what it might mean for other debt-plagued Eurozone countries.

Key data releases: Treasury international capital flows, housing starts (2/16); wholesale inflation (2/18); consumer inflation, options expiration (2/19).

Market Week: February 8, 2010

The Markets

After an encouraging start, domestic equities resumed their recent losing ways. Small caps and international stocks led the indexes downward–the Dow dropped 268 points on Thursday alone–as domestic equities edged closer to the 10% decline from recent levels that is typically considered the hallmark of a correction. The Russell 2000 is now down about 8.6% from its January 19 high; the Nasdaq has fallen about 7.7% in the same time.

Market/Index	2009 Close	Prior Week	As of 2/5	Week Change	YTD Change
DJIA	10428.05	10067.33	10012.23	-.55%	-3.99%
NASDAQ	2269.15	2147.35	2141.12	-.29%	-5.64%
S&P 500	1115.10	1073.87	1066.19	-.72%	-4.39%
Russell 2000	625.39	602.04	592.98	-1.50%	-5.18%
Global Dow	1984.48	1882.49	1835.66	-2.49%	-7.50%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.85%	3.63%	3.59%	-4 bps	-26 bps

Last Week’s Headlines

• Mixed messages: The unemployment rate actually fell–that’s right, FELL–in January to 9.7%. That’s the lowest rate since August, and the biggest single-month drop in more than a decade. Even including people who are underemployed or who have given up looking for a job, the total unemployment percentage dropped to 16.5% from 17.3%. However, a separate survey found that a loss of 20,000 jobs left business payrolls essentially flat. Also, the rolling four-week average of initial unemployment claims continued to rise, though the number was roughly 19% lower than at this time last year.
• December construction declined 1.2% from the previous month. That’s 9.9% below last December, and is a bit better than the 12.4% decline for all of 2009.
• Manufacturing improved in January for the sixth month in a row. The Institute for Supply Management’s index rose to 58.4%, the highest number since August 2004 (any number over 50 indicates manufacturing growth).
• Despite a sharp drop in Toyota sales (no surprise there), January auto sales were up 6.3% from December, marking the third consecutive increase over the previous year’s monthly figure. Both Ford and GM reported increased sales. Much of the buying was done by business fleets rather than individual consumers.
• Business productivity began to slow in the fourth quarter of last year, though it was up 2.9% for all of 2009. The output of goods produced in Q4 rose 7.2%, while the number of total hours worked by the labor force was up 1%–the first increase since Q2 2007. (However, the total hours worked for all of 2009 was down 6.4%, a record decline.)
• Incomes rose 0.4% in December, though wages and salaries were up by only 0.1%. Consumer spending also increased by 0.2%, and the personal savings rate rose to 4.8% from 4.5% in November.
• A weak auction of Portuguese sovereign debt and Spain’s forecast of higher budget deficits for the next three years fanned investor concern that Greece’s economic troubles might be only a hint of what’s to come for the European Union. As a result, the euro hit an eight-month low (just under $1.37) against the dollar.
• President Obama proposed a $3.8 trillion budget for the fiscal year that begins in September. It forecasts a $1.56 trillion budget deficit for next year, compared to the $1.2 trillion deficit when Obama took office and the estimated $1.3 trillion deficit this year.

Eye on the Week Ahead

A light week for economic data gives investors little to focus on other than retail sales, additional earnings reports, and the potential fallout from credit woes in several European countries.

Key data releases: International trade, Treasury budget (2/10); retail sales (2/11).

Market Week: December 28, 2009

The Markets
Santa Claus didn’t disappoint this year. Investors found in their stockings new year-to-date highs for all four major U.S. stock indexes. The Dow saw its highest point since October 2008, the S&P regained 50% of the drop from its 2007 high before all the trouble started, and the Nasdaq was up 80% from its March low despite (or perhaps partly because of) a shortened trading week and light volume. Pere Noel also made a visit overseas, where the British and French markets reached their highest levels in more than a year before closing for the holidays.

Market/Index	2008 Close	Prior Week	As of 12/24/09	Week Change	YTD Change
DJIA	8776.39	10328.89	10520.10	1.85%	19.87%
NASDAQ	1577.03	2211.69	2285.69	3.35%	44.94%
S&P 500	903.25	1102.47	1126.48	2.18%	24.71%
Russell 2000	499.45	610.57	634.07	3.85%	26.95%
Global Dow	1526.21	1934.82	1985.04	2.60%	30.06%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	2.24%	3.55%	3.81%	26 bps	157 bps

Last Week’s Headlines

• November sales of existing homes rose to their highest level since February 2007, according to the National Association of Realtors. The 7.4% increase was likely prompted in part by the November 30 deadline to qualify for the tax credit for first-time home purchases, which has since been extended into next year. It was the third consecutive monthly increase for resales.
• The tax credit deadline also may have affected new-home sales, though in a different way. Sales of new homes fell 11.3% in November from the month before. New-home sales are recorded when a contract is signed rather than at closing, as resales are, and signing a contract in November might not have left buyers enough time before closing to meet the original deadline for the tax credit.
• The final figure for Q3 Gross Domestic Product (GDP) was 2.2% rather than the 3.5% initial estimate. However, that was still the fastest pace in two years. Also, lower inventories contributed to the downward revision, which could prompt future buying pressure.
• Worker compensation saw its biggest monthly increase since April, rising 0.3% in November. However, the increase was largely due to an increase in the number of hours worked, which rose 0.6%. Real disposable incomes, which had been down for nearly two years, are now up 2.3% compared to two years ago, though government benefit payments and tax cuts accounted for much of that. Consumer spending also rose 0.5% in November.
• November durable goods orders (not including defense and commercial aircraft) were up 2.9% in November. However, including those two volatile sectors brought the figure back to 0.2%, and orders overall are still 21.6% below last November.
• The euro benefitted from the Greek parliament’s approval of a plan that would cut the nation’s budget deficit from 12.7% of the country’s GDP to 9%.

Eye on the Week Ahead

As the last week of the last year of the past decade winds to a close, there could be some last-minute window dressing of portfolios during the holiday-shortened week, though volume could be relatively light. U.S. markets will close from 1 p.m. Thursday until January 4.

Key data releases: Home prices, consumer confidence (12/29).

Market Week: December 21, 2009

The Markets

Investors seemed to abandon their recent preference for the Dow in favor of small caps as well as the Nasdaq, which hit a new year-to-date high. Meanwhile, the S&P 500 continued to hug the 1100 mark. The dollar once again rallied, which didn’t help foreign stocks, commodities, or gold. The greenback ended the week at $1.44 to the euro, its best level in more than three months.

Market/Index	2008 Close	Prior Week	As of 12/18/09	Week Change	YTD Change
DJIA	8776.39	10471.50	10328.89	-1.36%	17.69%
NASDAQ	1577.03	2190.31	2211.69	.98%	40.24%
S&P 500	903.25	1106.41	1102.47	-.36%	22.06%
Russell 2000	499.45	600.37	610.57	1.70%	22.25%
Global Dow	1526.21	1963.49	1934.82	-1.46%	26.77%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	2.24%	3.54%	3.55%	1 bps	131 bps

Last Week’s Headlines

• Inflation at the wholesale level heated up in November. Higher energy costs helped push the Producer Price Index up 1.8% from the month before. That’s dramatically higher than October’s 0.3% increase or September’s 0.6% decrease. Prices for crude goods–raw materials that require further processing–jumped 5.7%.
• Energy costs also were the culprit in higher consumer inflation, which rose 0.4% in November. The 12-month inflation rate now stands at 1.8%; that’s the first annualized increase since February. However, not including food and energy, prices were flat.
• Citigroup and Wells Fargo became the last of the major banks to announce plans to repay their TARP loans. That would bring to $161 billion the amount repaid so far from the $245 billion loaned to roughly 700 financial institutions. The U.S. Treasury then postponed plans to sell part of its 34% share of Citigroup; the new issuance coupled with a large government sale would have meant taking a loss on the government’s shares.
• Standard and Poor’s became the second credit ratings agency to downgrade the government bonds of Greece, whose debt is estimated to be roughly 12% of its gross domestic product. The resulting anxiety about Eurozone bonds in general gave additional support to a strengthening dollar.
• New home construction was up almost 9% in November from the previous month. That’s quite a change from October’s nearly 10% drop in the face of the scheduled expiration of the first-time homebuyer’s tax credit, which was subsequently extended.
• It’s status quo at the Federal Reserve Board. The Senate Banking Committee gave Chairman Ben Bernanke the okay for a new term. And even though the Fed acknowledged some encouraging economic signals, interest rates will continue to remain low for “an extended period.”

Eye on the Week Ahead

Heading into the holidays, investors will keep an eye on the dollar, which in recent months has tended to behave inversely from stocks. They’ll also be watching to see if stocks can break out of their recent trading range. Meanwhile, institutional investors will be tweaking their portfolios over the next two weeks in anticipation of year’s end.

Key data releases: Q3 final GDP, home resales (12/22); personal income/spending, new home sales (12/23); durable goods orders (12/24).

Market Week: December 14, 2009

The Markets

Equities markets bounced around within a recent trading range, ending the week only fractions of a point higher or lower than they started. The Dow once again outpaced other domestic indexes for the week. As the dollar exhibited renewed strength, gold continued to come back down to earth and oil fell beneath $70 a barrel. Light bidding at last week’s Treasury auctions–not unusual for the post-Thanksgiving period–sent Treasury yields up.

Market/Index	2008 Close	Prior Week	As of 12/11/09	Week Change	YTD Change
DJIA	8776.39	10388.90	10471.50	.80%	19.31%
NASDAQ	1577.03	2194.35	2190.31	-.18%	38.89%
S&P 500	903.25	1105.98	1106.41	.04%	22.49%
Russell 2000	499.45	602.79	600.37	-.40%	20.21%
Global Dow	1526.21	1978.67	1963.49	-.77%	28.65%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	2.24%	3.48%	3.54%	6 bps	130 bps

Last Week’s Headlines

• Consumer credit fell in October for the ninth straight month. Revolving credit, such as credit cards, fell at an annualized rate of 9.3%, while non-revolving credit, such as car and student loans, rose at a 2.6% annual rate. Compared to last October, non-real-estate consumer debt is down 3.6%.
• U.S. exports rose faster than imports in October, narrowing the trade deficit by 7.6% to $32.94 billion. Exports rose 2.6%, the most in almost a year.
• Treasury Secretary Timothy Geithner announced that the $700 billion TARP bank bailout program, which had been scheduled to end this year, will be extended through October 3, 2010. It’s now expected to cost $500 billion, though President Obama proposed that some of that $200 billion be used to stimulate lending to small businesses, help finance infrastructure projects and business tax credits, and assist state and local governments.
• The Government Accountability Office estimated that taxpayers will lose $30.4 billion instead of $43.7 billion on the GM and Chrysler bailouts, and $30.4 billion instead of $31.5 billion on the AIG bailout.
• Time Warner’s spinoff of AOL completed AOL’s decade-long round trip from online powerhouse to megamerger partner to solo act once again.
• November retail sales were up 1.3% from the previous month (however, October’s increase was revised down from 1.4% to 1.1%). Though rising gas prices played a part in the higher number, sales of autos and other retail goods also rose.
• October business inventories rose 0.2%–the steepest increase since August of last year–though they’re still down 12.6% from a year ago.
• Abu Dhabi announced it will provide $10 billion to help Dubai’s state-run investment conglomerate avoid defaulting on its debt.

Eye on the Week Ahead

The last Fed meeting of the year will be watched for any smoke signals that might indicate when the “extended period” of low interest rates might come to an end; Wednesday’s announcement will coincide with the latest inflation numbers. There could be volatility leading up to Friday’s quadruple witching options expiration.

Key data releases: Wholesale inflation, industrial production (12/15); consumer inflation, housing starts, FOMC announcement (12/16); quadruple witching options expiration (12/18).

Market Week: December 7, 2009

The MarketsAn unexpectedly good employment figure helped equities leap to fresh year-long highs on Friday. Despite giving back much of that gain by the end of the day, stocks still ended the week in positive territory. The unemployment report also fueled speculation about the timing of a future interest rate hike, which helped strengthen the dollar and hit prices for Treasury bonds, gold, and commodities.

Market/Index	2008 Close	Prior Week	As of 12/4/09	Week Change	YTD Change
DJIA	8776.39	10309.92	10388.90	.77%	18.37%
NASDAQ	1577.03	2138.44	2194.35	2.61%	39.14%
S&P 500	903.25	1091.49	1105.98	1.33%	22.44%
Russell 2000	499.45	577.23	602.79	4.43%	20.69%
Global Dow	1526.21	1925.70	1978.67	2.75%	29.65%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	2.24%	3.21%	3.48%	27 bps	124 bps

Last Week’s Headlines

• Job losses not only slowed, but practically came to a standstill. Only 11,000 jobs were cut from nonfarm payrolls in November; that’s less than a tenth of the 135,000 average figure during the previous three months and far below the 190,000 jobs lost in October. The drop from 10.2% to 10% is the biggest drop in the unemployment number since September 2006. Temp jobs, often an indicator of employment to come, also were up. However, the number of people unemployed for more than 27 weeks rose by 2.7% to 38.3%.
• Though U.S. manufacturing continued to expand in November, it did so at a slightly slower pace than the month before. The Institute for Supply Management’s index fell to 53.6 from 55.7 (anything over 50 indicates expansion). However, ISM’s index for the services sector saw shrinkage, dropping to 48.7% in November–back in contraction territory after 2 months of expansion.
• Pending home sales rose for the ninth month in a row, according to the National Association of Realtors; the figure was up by 3.7%.
• In the third quarter, business productivity saw its largest gain in 6 years, increasing at an annual rate of 8.1%. Hours worked declined by 4.8%, while output rose 2.9%.
• October construction spending was flat compared to the month before. Residential construction was up 4.4%, offsetting a decline of 2.5% in nonresidential spending. Since last October, construction spending is down 14.4% on average.
• The National Retail Federation reported that Black Friday shoppers were plentiful but cheap. There were more people in the stores than last year, but the average shopper spent less.
• Bank of America announced plans to repay the $45 billion it borrowed as part of the TARP program.

Eye on the Week Ahead

With both credit usage and retail sales reports on tap, consumer spending behavior will be watched. The Copenhagen conference on global climate change begins.

Key data releases: Consumer credit (10/7); International trade, Treasury budget (12/10); retail sales, import/export prices, business inventories (12/11).

Market Week: November 30, 2009

The Markets

When U.S. investors were slicing up turkey, most European markets were slicing off 3% or more on unsettling news from Dubai. After hitting their highest levels in over a year earlier in the week, U.S. markets fell in response when they reopened for a half-day Friday; the almost 1.5% drop in the Dow wiped out all of the week’s gains. However, the recent rotation into large-cap stocks continued as the small-cap Russell 2000 took the biggest hit for the week while the S&P 500 ended the week where it began.

Market/Index	2008 Close	Prior Week	As of 11/27/09	Week Change	YTD Change
DJIA	8776.39	10318.16	10309.92	-.08%	17.47%
NASDAQ	1577.03	2146.04	2138.44	-.35%	35.6%
S&P 500	903.25	1091.38	1091.49	0.01%	20.84%
Russell 2000	499.45	584.68	577.23	-1.27%	15.57%
Global Dow	1526.21	1935.54	1925.70	-.51%	26.18%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	2.24%	3.36%	3.21%	-.15 bps	.97 bps

 

Last Week’s Headlines

• Homebuyers rushing to beat the deadline for the first-time homebuyers tax credit (before it was extended) helped push October home resales up by 10.1% from the previous month, to a level not seen since February 2007, according to the National Association of Realtors. If October’s pace kept up for a full year, it would represent the sale of 6.1 million existing homes. Distressed properties, which accounted for 30% of October resales, continued to weigh on the median home resale price, which at $173,100 was down 7.1% from last October.
• Overseas markets were hardly thankful for the Thanksgiving Day news that state-run Dubai World plans to restructure and wants to delay payments on $60 billion worth of debt for six months. The announcement raised questions about bank exposure to derivatives based on that debt as well as potential problems with other sovereign debt, particularly in emerging markets.
• Personal incomes rose in October by 0.2%–the fourth consecutive month of increases. Spending also increased 0.7% from the month before, though the month-to-month comparison is affected by the substantial drop in September’s spending that resulted from the end of the “cash for clunkers” program.
• The 3.5% growth rate initially reported for the third quarter by the Commerce Department was revised downward to 2.8%, though it’s still the strongest in two years.
• October durable goods orders were down 0.6%, primarily because of weaker demand for machinery and defense equipment.
• The dollar hit a 15-month low against the euro and a 14-month low against the Japanese yen before jitters over Dubai led global investors to begin unwinding riskier currency bets, bolstering both currencies a bit. The spot gold price continued to hit new records, reaching $1,194.50 an ounce on Thursday before falling back.
• New U.S. home sales were up 6.2% from September, and up 5.1% from a year ago. The South saw the highest jump, with a 23.2% increase.

Eye on the Week Ahead

Traders returning to their desks will be trying to figure out whether the negative sentiment at week’s end will carry over, and whether that would represent a bad omen for global credit stability or a buying opportunity. Friday’s unemployment figures will be watched for their implications for the holiday shopping season.

Key data releases: Auto and pending home sales, manufacturing (12/1); productivity (12/3); unemployment/payrolls (12/4).

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