Weekly Update Archives

The nervousness that has plagued the markets recently continued Friday as the Dow, after gaining 181 points Thursday, fell 106 points to end the week down 1.2%.  For the year, the index is now up 15%.

The past three weeks have seen a period of heightened volatility in the markets.  Comments from Fed Chairman Ben Bernanke on May 22 suggesting the Fed may begin to taper its stimulus efforts in late summer/early fall were meant to introduce the prospect of the reduction and soften markets ahead of the implementation of the strategy; however, markets reacted more negatively than anticipated, swinging wildly as investors feared the end of the Fed’s bond-buying program and a rising interest rate environment.

Trust preferreds have been affected by this interest rate fear and have experienced a drop of approximately 4% over this time period.  Yesterday, Thursday, trust preferreds recovered approximately 1% and appear to have stabilized, gaining on average another .5% today.  Fed Chairman Ben Bernanke is scheduled to hold a press conference next Wednesday, during which he will give greater insight into the Fed’s stimulus plans.  Unless Bernanke offers surprising commentary, we expect volatility to return to normal and the trust preferreds to gradually recover the price decline.  To combat a possible rise in interest rates, we are repositioning from longer-maturity trust preferreds to shorter-maturity issues, which will help reduce interest rate risk.

Oil rose 1.2% Friday to $97.84 per barrel mainly due to Mideast tensions.  News that the US will begin to supply Syrian rebels with arms contributed to fears that the situation in Syria will continue to deteriorate and spread outside Syrian borders.

Magnum Hunter, the company that was under pressure due to accounting issues, released its 2012 annual report this morning.  The company’s new accountants said that all financial statements were accurate and no negative issues were raised.

Next week, economic calendar highlights include May inflation data on Tuesday, May housing data on Tuesday (housing starts) and Thursday (existing home sales), and initial jobless claims also on Thursday.  Expect inflation to remain in check, the housing numbers to show a slight improvement from April, and initial jobless claims to settle in the 340,000 range (from the better-than-expected 334,000 this week).  Also of great interest will be Fed Chairman Bernanke’s comments on Wednesday.  Markets will remain jittery until then.

A better-than-expected jobs report boosted markets Friday and propelled the Dow to its second-biggest daily gain this year, 208 points.  For the week, the Dow gained .9% and for the year, the index is up 16.4%.

The May employment report showed the addition of 175,000 jobs last month, above the estimate of 159,000 and in line with the 12-month average of 176,000.  The unemployment rate ticked up to 7.6% from 7.5% due to more people actively looking for work.  In addition to the May data, the number of jobs gained in April was revised down to 149,000 from 165,000 while the March gain of 138,000 was upwardly revised to 142,000.  The in-line May report adds fuel to the debate over when the Fed will begin to taper its stimulus efforts.  The Fed has promised to continue the stimulus program until the unemployment rate hits 6.5%, but with trends indicating a stabilizing labor market and slow-growth economy, many economists believe the Fed will begin to wind down its actions after its meeting in September.  The next couple of months will be watched closely as the effects of the sequester become more clear and markets digest the possibility of reduced stimulus measures and rising interest rates.

Oil rose 1.4% Friday to $96.05 per barrel on the strength of the May jobs report.  For the week oil was up 4.5%.

Next week, economic calendar highlights include May retail sales and weekly jobless claims on Thursday and May inflation data and June consumer confidence on Friday.  Expect May retail sales to be flat, jobless claims to settle around 350,000 (from 346,000 this week), inflation to remain in check and consumer confidence to fall slightly from May.

 

The market spent most of the day trying to recover after the early morning drop on Friday.  The Dow successfully recovered and ended up .06%, while the S&P 500 finished down .06%.  With the first weekly loss since mid-April, the Dow and S&P 500 finished the week down .3% and 1.1%, respectively.

The Federal Open Market Committee minutes that were released this week have put investors on edge.  There is an ongoing debate of how and when the Fed will decide to transition and exit its current economic stimulus measures.  The Fed’s current stimulus plan of $85 billion worth of bond purchases per month, have been credited for the recent market rally, and there are fears that an early exit from this plan could derail the rally.

However, to credit the Fed as the sole reason for the market rally would be wrong.  There has been marked improvement in the housing market.  New home sales have been on the rise and the 454K new home sales for April handedly beat expectations of 425K.  Additionally, Initial and Continuing Jobless claims have been on the mend.  This past week’s 340K Initial Jobless Claims was lower than the prior’s week’s 360K and better than expectations of 348K.  Continuing Jobless Claims of 2912K also beat expectations of 3005K.

Important economic events next week include the Consumer Confidence report on Tuesday, Initial and Continuing Jobless Claims on Wednesday, and Personal Income and Spending data for the month of April, on Friday.   The Consumer Confidence report on Tuesday for the month of May is expected to show a modest improvement from the Consumer Confidence report from April.  However, both the forecasted Initial and Continuing Jobless Claims of 345K and 3000K, respectively, are expected to be slightly worse than the prior reading of 340K and 2912K.

The market, as well as our office, will be closed on Monday due to Memorial Day.

Have a good long weekend,

Fred Semmer

 

Upbeat consumer confidence and leading economic indicators reports helped lift both the Dow and S&P 500 to record highs Friday.  The Dow, which posted a 121-point gain, was up 1.6% for the week and for the year, the index is up 17.2%.

The University of Michigan Consumer Sentiment report rose to a better-than-expected 83.7, the index’s highest level since September of 2007, while a leading economic indicators report posted its best result since February of 2012.  Comments on Thursday by Fed Chairman Ben Bernanke that the Fed might begin tapering its stimulus efforts should the economy continue to improve caused a brief drop in markets, but momentum returned on Friday, spurred by the healthy economic data and comments from the Minneapolis Fed President suggesting the Fed has not sufficiently lowered interest rates.

The dollar continued to strengthen this week, rising to three-year highs against major currency rivals, in the process hitting a high versus the Japanese yen not experienced since October 2008.  The stronger dollar has put pressure on gold, which declined for the seventh-consecutive session Friday.  For the week, gold was down 5%.

Oil settled at $96.03 per barrel Friday, up $.03 for the week.  Natural gas ended the week at $4.06, up 3.3% on the day and 3.8% for the week.

Next week, economic calendar highlights include April existing home sales on Wednesday, and April new home sales and weekly jobless claims on Thursday.  Expect existing and new home sales to show improvement from March levels and jobless claims to fall to the 350,000 range from 360,000 this week.

Have a good weekend,

James Skjong