Archive for July, 2012

Expectations of another round of economic stimulus drove the Dow 188 points higher Friday, in the process topping 13,000 for the first time since early May.  For the week, the Dow was up 2.0% and for the year, the index is now up 7.0%.

A declaration by European Central Bank (ECB) President Mario Draghi on Thursday to do ‘whatever it takes’ to save the euro combined with hopes of another round of stimulus by the Fed in response to subdued second quarter US GDP growth of only 1.5% set off a market rally and placed greater attention on two key meetings next week.  The Federal Reserve will convene on Tuesday and Wednesday and will announce its policy intentions then.  Further stimulus is not a guarantee, but with growth progressing only moderately, action remains a possibility.  In Europe, the ECB will meet on Thursday to decide on an interest rate policy for the Eurozone and discuss a coordinated sovereign debt purchase program.  Both events will be worth watching and will impact market direction.

Our trust preferred portfolios continue to perform well, returning over 11% on average, year-to-date as of Thursday, July 26.
Bank of America redeemed a small number of trust preferred issues on Wednesday, which generated cash in some accounts.  We are in the process of reinvesting the cash in other preferred and trust preferred issues.  Oil closed up $.74 on Friday to end the week at $90.13 on the strength of the broader market rally and continued tensions in the Middle East.

Fed and ECB meetings aside, economic data of interest next week include July manufacturing on Tuesday, weekly jobless claims on Thursday and the July employment report on Friday.  Expect manufacturing data to show a slight decline from the previous month, initial jobless claims to rise slightly, July payrolls to show the addition of approximately 100,000 jobs (vs. 85,000 in June) and the unemployment rate to remain at 8.2%.

European worries, particularly related to Spain, pushed markets lower on Friday and the Dow, after three healthy mid-week trading sessions, fell 121 points, or .9%. For the week, the Dow was up .4 % and for the year, the index is now up 4.9%.

European finance ministers finalized Spain’s bank bailout, but it was not enough to overcome news of another bailout request, this time by the Spanish region of Valencia. In reaction to the news, Spanish bond yields climbed above 7%, a level considered unsustainable. Also weighing heavily was a report announcing that Spain’s 2013 GDP is likely to fall .5% instead of rising .2%, and unemployment will remain above 24% into 2014.

In the US, retail sales, weekly jobless claims and existing home sales data all disappointed, while corporate earnings reports came in mixed. The yield on the five-year Treasury note fell to a record low on Friday, indicating a flight to safety and a cautious stance toward equities.

Our trust preferred portfolios have performed well in the first days of the third quarter, producing returns of approximately 2% versus .49% for the Dow through yesterday, July 19. Year to date through the same date, the trust preferred portfolios are returning over 11% on average versus 5.9% for the Dow. Though oil fell $1.22 to $91.44 on Friday, it was still up 5% for the week on fears that the civil unrest in Syria could further degenerate.

Economic data of interest next week include June new home sales on Wednesday, weekly jobless claims on Thursday and the first estimate of second quarter GDP on Friday. Expect new home sales to increase slightly from May, initial claims to report in the 370,000 range and the GDP number to show growth of approximately 2% in the second quarter.

Have a good weekend,

James Skjong

 

In-line Chinese GDP data, better-than-expected corporate earnings and a benign domestic inflation reading helped propel the Dow to a 204 point gain on Friday, the index’s first positive reading after six straight losses.  For the week, the Dow was up .04%, and for the year, the index is now up 4.6%.

Though China’s growth rate fell to 7.6% year-over-year in the second quarter (the slowest rate of growth since the first quarter of 2009 and the sixth straight quarterly decline), quarterly growth increased to 1.8% from 1.6% in the first quarter, lending hope that China’s economy has perhaps already bottomed.  Growth is expected to rise to near 8% in the third quarter.  In Italy, investors shrugged off a credit rating downgrade by Moody’s and completed a successful bond auction with greater-than-expected demand.  European markets rallied in response to both pieces of news.

In the U.S., second-quarter earnings began in earnest this week, and on Friday, two of the major banks, J.P. Morgan and Wells Fargo, announced better-than-expected results, which helped lead the financial sector higher.  J.P. Morgan soothed fears by releasing further details on its highly-publicized trading error and announcing positive performance from its underlying investment banking unit.  Earnings will continue to drive headlines next week as 1/3 of the Dow and more than 80 S&P 500 companies will announce, with particular attention paid to how global companies are facing the financial headwinds in Europe and the US.

Our trust preferred portfolios continue to perform well, returning approximately 11% on average versus 4.6% for the Dow, year-to-date as of Friday, July 13.  On the strength of the Chinese GDP data, oil rose 1.03% to $87.16 per barrel, helping energy stocks.

Aside from the multitude of earnings releases, important economic indicators due out next week include retail sales, inflation and housing numbers for the month of June.  Expect retail sales to tick up slightly, inflation to remain in check and the housing data to show a slight improvement over the May numbers.  Across the pond, European officials will meet on Friday to compromise on the final details of Spain’s bank bailout.

Have a good weekend,

James Skjong

 

Markets slumped Friday as a disappointing new jobs number dimmed hopes that a sustainable economic recovery was under way.  As a result, the Dow fell .96% while the S&P 500 fell .94%, erasing much of the gains made earlier in the week.

The good news of smaller than expected initial jobless (unemployment) claims was not able to offset the poorer than expected Institute for Supply Management Manufacturing Index and Institute for Supply Management Service figures this week.  Only 80,000 jobs were added in the month of June, leaving unemployment at 8.2% and people worried that Europe will drag the United States into another recession.  However, the Fed may enact another round of stimulus, which would likely provide a short term rally.

Europe did not fare any better than the U.S. markets on Friday as the German DAX index fell 1.93%, while the French CAC 40 fell 1.88%.  The progress that was made at last week’s EU Summit, which pushed down the Spanish 10-year bond yields from 7.11% to 6.29%, has largely been erased as the Spanish 10-year yield has shot back up to 6.91% on Friday.  Attention reverts to Mario Draghi, the President of the ECB, who will give a speech on the current state of the EU economy on Monday.  Analysts are hopeful that lasting progress can be made to avert a further slow done in Europe.

The dust is beginning to settle on the historic Supreme Court Health-Care ruling that was announced last week.   The healthcare bill will be partially financed by a 3.8% surtax on investment income from dividends, capital gains, rents, royalties, interest, and certain annuity income by single filers and joint filers whose adjusted gross income is over $200,000 and $25,0,000, respectively. The tax doesn’t cover payouts from either regular or Roth IRA’s, 401K accounts, pensions, social security, and veteran’s benefits.  This tax is not set to go into effect until 2013.  It is viewed as a drag on economic growth.

Important economic indicators due out next week include the consumer sentiment index and the U.S.’s trade balance for the month of May as well as initial and continuing jobless claims and the crude inventory report.  The Federal Open Market Committee will also convene on Wednesday to provide an in-depth overview on the current state of the economy and to discuss any monetary policy action that may be undertaken to improve growth prospects of the U.S. economy.  Corporate earnings announcements for the second quarter start Monday.

Have a good weekend,

Fred Semmer