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Archive for July, 2015

Weekly Market Update – July 24, 2015

The Dow fell 162 points Friday on global growth concerns.  For the week the Dow was down 2.9% (its worst week since January) and for the year the index is now down 1.4%.

An unexpected contraction in Chinese manufacturing (to a 15-month low) heightened concerns of a global economic slowdown as markets fell worldwide Friday.  In the US, though Amazon reported better-than-expected second-quarter earnings late Thursday, overall, earnings reports from the majority of multinationals have underwhelmed (Apple, Microsoft, Caterpillar), reinforcing the growth concerns as sluggish demand overseas and the stronger US dollar have weighed on profits.   

Domestically, a surprise drop in US home sales in June also cast doubt on the strength of the housing sector in what is typically the industry’s most active time of year. 

The yield on the 10-year Treasury fell 1 basis point to 2.27%, down 8 bps for the week and now up 10 bps for the year.  Through Thursday, July 23, our trust preferred portfolios were up approximately 2%, on average, versus .27% for the Barclays Aggregate Bond Index. 

Oil fell 31 cents to $48.14 Friday, down 5.4% for the week, its fourth straight week of losses.  Data earlier in the week showing an unexpected increase in US crude supply, the stronger dollar, the weak Chinese manufacturing data released Friday and the threat of a flood of Iranian oil into the market combined to exert downward pressure on prices.

Next week’s economic calendar highlights include consumer confidence on Tuesday and Friday, weekly jobless claims and the first estimate of Q2 GDP on Thursday and a July manufacturing report on Friday. Expect consumer confidence to fall slightly, weekly jobless claims to fall in the 270-280,000 range (from 255,000 this week), the GDP release to show growth of approximately 1.5% in the second quarter and the manufacturing report to show an uptick in activity from June.  The Fed also meets next Tuesday and Wednesday though no major interest rate announcements are anticipated.

Weekly Market Update – July 17, 2015

Stocks finished the day mixed Friday despite a record day from Google.  The Dow fell 34 points while the NASDAQ, buoyed by Google’s strength, surged nearly 1%, closing at a record high.   For the week the Dow was up 1.8% and for the year the index is now up 1.5%.

Google rose more than 16% Friday on better-than-expected second-quarter earnings, boosting its market cap by over $65 billion, the largest single-day gain ever.  Led by Google, the technology sector posted its best week since 2011.  Overseas, Greek debt negotiations continued Friday as the European Council approved a short-term $7.7 billion loan to Greece while the European Central Bank announced it would increase its emergency liquidity to Greek banks, which are set to reopen Monday after being closed for the past three weeks.

The yield on the 10-year Treasury held steady at 2.35%, down 7 bps for the week and now up 18 bps for the year.  Earlier in the week Fed Chairwoman Janet Yellen reiterated that interest rates would likely begin to rise later in the year, but at a slow and measured pace.

Oil fell 12 cents to $50.79 Friday, down 3.9% for the week.  A stronger dollar, oversupply concerns and the fear that Iran will flood the market with additional oil on the heels of its nuclear deal contributed to the price decline.

Next week’s economic calendar highlights include June housing data on Wednesday and Friday and weekly jobless claims on Thursday.  Expect the housing data to show an increase in activity from May and weekly jobless claims to again fall in the 280-290,000 range (from 281,000 this week).  Second quarter corporate earnings will continue as well.  To date, earnings have been better-than-expected, helping to drive markets this week.

Weekly Market Update – July 10, 2015

Markets surged worldwide Friday on hopes of a Greek settlement.  The Dow finished 211 points higher, ending the week up .2%.  For the year the index is now down .3%.

On Friday, Greece Prime Minister Alexis Tsipras offered a bailout proposal that will be reviewed by international creditors before Sunday’s deadline.  If the deal is accepted, Greece will receive its necessary bailout funds, alleviating pressure on its banking system and strengthening its membership in the Eurozone.  It is expected that an agreement will be reached.  In China, markets rose for a second day (up 4.6% after Thursday’s 5.8% surge) after Beijing promised additional regulatory support. 

The yield on the 10-year Treasury rose 12 bps to 2.42%, up 3 bps for the week and now up 25 bps for the year, pressuring fixed income prices.

Oil rose 7 cents to $52.85 Friday despite a report by the International Energy Agency that warned of a global slowdown in demand for oil.  Per the IEA’s report, slower growth in demand for oil combined with at or near record levels of supplies in the US, Russia and the Middle East may drive oil prices lower.  Other destabilizing events such as the lifting of sanctions on Iran, which would lead to an increase in exports of Iranian crude, or a Greek Eurozone exit, which could depress oil demand throughout Europe, have the potential to also negatively affect oil prices.       

Next week’s economic calendar highlights include June retail sales on Tuesday, inflation data on Wednesday and Friday, weekly jobless claims on Thursday and June housing data on Friday.  Expect retail sales to slow from May, inflation to remain in check, weekly jobless claims to fall in the 280-290,000 range (from 297,000 this week) and the housing data to show an increase in activity from May.  Also of note, second quarter earnings will begin in earnest next week while Janet Yellen, Fed Chairwoman, will speak before Congress on Wednesday and Thursday.  Yellen’s comments will be parsed for clues as to the timing of the Fed’s first interest rate hike, generally expected to occur in September or December. 

Weekly Market Update – July 2, 2015

The markets stumbled out of the gates this week as the seemingly never-ending Greek crisis continued.  To everyone’s surprise, Greece’s Prime Minister Alexis Tsipras announced that there would be a referendum on Saturday July 5th to vote whether Greece should accept the terms of its international creditors.  With the International Monetary Fund payment due on Tuesday, it was clear that Greece was going to miss its payment, sending the Dow and S&P 500 down on Monday by 1.95% and 2.09%, respectively.  Though both indices were down slightly on Thursday, markets recovered mid-week such that the Dow and S&P 500 finished the week down only .90%, and 1.21%, respectively.

All eyes are on Saturday’s referendum, as Greece’s Syriza political party continues to lobby for its citizens to vote no and reject the agreement of maintaining the current debt structure imposed by its international creditors.  Meanwhile, European Central Bank and European Union participants strongly implied that a no vote for the referendum would trigger a Greek exit from the European Union, the abandonment of the Euro currency, and a return to the Greek Drachma.   The international creditors are hoping that these significant consequences will deter Greece’s citizens from voting no.  

One might be wondering, “if the consequences of leaving the European Union and Euro are so severe, how could Greece’s citizens even consider voting no?”  Tsipras and the Syriza party believe that Greece’s exit from the Euro would be just as devastating for the European Union as it would be for Greece.  A Greek exit from the European Union would create a moral hazard type situation and signal to other European Union members that countries can simply leave the European Union if its costs are outweighing its benefits.  That would set a terrible precedent which explains why Tsipras and his party believe they have some leverage in negotiations. Their end goal is to achieve a restructuring of debts to make its debt service payments more serviceable and sustainable while ultimately staying within the European Union and keeping the Euro currency.  They are resisting reforms that would help bring Greek government spending in line with revenues.

This game of economic chicken is hampering the global economic recovery.  If there is some bright spot to this unfortunate scenario, it’s that the Fed will be even more reluctant to raise interest rates.  This reluctance to raise interest rates will benefit the trust preferred and traditional preferred securities in client portfolios.

In addition to referendum results next week and the Greek debt debacle, important economic data next week include the trade balance report on Tuesday, the Federal Open Market Committee minutes on Wednesday, and Initial and Continuing Jobless Claims on Thursday.

 

Ulland Investment Advisors

4550 IDS Center · Eighty South Eighth Street · Minneapolis MN 55402 · Telephone: 612-312-1400 · Facsimile: 612-204-3464