Weekly Update – July 27, 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%.