Archive for June, 2011
Weekly Update – June 24, 2011
Investors were focused primarily on Europe this week. It’s no surprise, then, that the S&P 500 finished the week down ¼ percent while the Dow closed lower by ½ percent.
Europe’s financial problems continue to create volatility for stocks in the US. On Tuesday, stocks surged when EU leaders agreed to extend a fifth bailout package to Greece in exchange for further austerity measures taken there. The problem is the Greek parliament has to approve any budget cuts in a vote scheduled for next week and investors are more and more concerned that the austerity plan won’t pass. When one prominent Greek politician stated today that he may not vote in favor of the cuts financial markets worldwide turned lower. In the US, the Dow closed down more than 100 pts on the news. Expect more volatility next week.
In the US, the Dept. of Energy announced that it would tap the Strategic Petroleum Reserve in coordination with increased oil output from members of the International Energy Agency. The move raised more than a few eyebrows, from energy analysts and both Democrats and Republicans, at a time when energy demand is actually falling due to the recent economic slowdown. Historically, the Strategic Reserves have only been tapped during periods of extreme shortages. In fact, the reserves have only been used on two other occasions: The 1991 Gulf War and Hurricane Katrina. So why now? Most analysts believe the Obama administration hopes tapping the reserves will keep gas prices lower through the summer, which would act as a very modest economic stimulus.
Finally, some good news. Orders for durable goods (meaning, products with a lifespan of longer than 3 years) in May grew at a much faster clip than expected. In addition, second quarter GDP was revised up to 1.9 percent (from 1.8 percent…). Analysts attributed some of the improvement in durable goods orders to pent up demand in Japan.
Next week, we will be keeping our eye on Greece and US consumer confidence, personal spending, auto sales, and manufacturing reports.
Weekly Update – June 17, 2011
Despite concerns over European financial stability, disappointing jobs numbers, a softening in oil prices and a downward revision of global GDP, the Dow Jones managed to finished the week on a positive note, closing 43 points higher on Friday to bring the weekly gain to 52 points, breaking a six-week losing streak. The Dow, buoyed by news out of Europe that Germany and France were leading efforts to move forward with a new bailout package, ended the week in the black as investors exhibited greater confidence that a more favorable resolution to the Greek debt crisis will be realized.
Not all interesting news coming out of Europe was focused solely on Greece. The European Commission, the European Union’s executive body, has proposed a one-time $50 billion (euro) tax on banks to help fund a financial stability mechanism, which would be used to assist financially troubled European countries. News of the proposed tax weighed on financials this week, including trust preferreds, though most pundits do not believe such a tax will be passed, as many view it unwise to add more stress to financial institutions as the worldwide economic recovery tries to gain momentum.
Continuing to look globally, analysts at the IMF took note of weaker economic fundamentals and downgraded the 2011 global GDP estimate from 4.4% to 4.3%. The US, which continues to exhibit sluggish job creation and steady unemployment filings (data released on Thursday showed initial weekly unemployment claims at 416,000, which is still considered high) was downgraded .3% to an expected 2011 GDP of 2.5%. Tied to the lower GDP estimates is oil, which hit an intraday low of $92.12 in trading on Friday, oil’s lowest level since February 22nd. For the week, oil was down 6.2%. Since peaking in the first quarter amid tensions in the Middle East and North Africa, oil has slid, further reinforcing signs that the economic recovery has perhaps hit a soft patch.
With equities seemingly lacking much near-term, upward momentum, we continue to posture ourselves defensively, which has lessened volatility and kept portfolios more stable. As mentioned previously, we expect trust preferreds to continue to provide downside protection against a volatile equity market while paying a very attractive 7-plus percent annual dividend.
Next week, housing, unemployment and durable orders data will be released. Also, expect the FOMC to make an announcement on Tuesday that interest rates will remain at current levels.
Weekly Update – June 10, 2011
In late April, both the S&P 500 and Nasdaq were up over 8 percent for the year. The Dow was up more than 10 percent. Since that peak, stocks have declined every week. After today’s drubbing, the Nasdaq is now negative in 2011; the S&P 500 is up just over a percent; and the Dow, which has held up the best, is only up 3 percent for the year. A few more weeks like this and we’ll be firmly in bear market territory — typically defined as a 10 percent correction.
Thursday and Friday offered prime examples of the murky market environment. On Thursday, stocks were up smartly after trade data was released showing record exports by US firms. This news was a brief respite for investors as it indicated growth may not be slowing as much as is feared. The Dow closed up over 100 pts.
On Friday, however, trade data from China (our second largest trade partner after Canada) showed import growth slowing. Remember, China has been the economic engine that has anchored the global economic recovery — GM sells more cars in China than in the US. If China’s import growth continues to slow, the US manufacturing sector could be in trouble. Investors responded by selling on Friday and the Dow finished down 172 pts.
The natural gas market, on the other hand, has run counter to the stock market so far this year and is up over 8 percent. This has helped our energy stocks outperform the broader stock market. Trust preferreds continue to hold up very well. Look for Q2 dividend payments at the end of the month.
Next week, investors will have a lot of data to sort through. May retail sales, CPI inflation data, the Empire manufacturing report, housing starts, consumer confidence, and weekly unemployment claims all are set to be released. Look for CPI to moderate as crude prices softened in May and weekly unemployment claims to stay elevated at around 420,000.
Weekly Update – May 27, 2011
Stocks closed lower on Friday – the fourth straight week of declines. The Dow finished the week down 0.5 percent, while the S&P 500 lost 0.2 percent.
Now that first quarter earnings reports are mostly done, investors have turned their attention to economic data, which was really the driving force behind the lackluster market performance this week. The revised Q1 GDP growth figure was released Wednesday and was left unchanged at 1.8 percent. Many analysts expected an upward revision, to 2 percent. Remember, Q4 GDP growth was much stronger at 3.1 percent, so the Q1 data represents a slower rate of economic expansion.
Meanwhile, personal spending for April was slightly less than expected. The problem is much of the increase was due to price increases on food and energy-related products. In other words, real spending probably increased more slowly than the 0.4 percent headline number would have us believe. Although our energy positions have benefited from the increase in crude and natural gas prices over the last few months, higher prices for the consumer at some point slows economic growth. Crude prices have stabilized since peaking at over $110/barrel and closed at $100.59, today.
One consequence of reduced growth expectations is that inflation is less likely to be a near-term concern. This is certainly the case in the US. An indication is the yield on the 10-year Treasury which was at 3.6 percent in mid-April and is now at 3.07 percent.
Next week, manufacturing data, factory orders, and the May jobs & unemployment report, released Friday, will drive investor sentiment. Look for the unemployment rate to stay at 9 percent and around 200,000 new jobs.