Market Week: August 19, 2013

The Markets

Investor pessimism ruled the markets for the second week in a row. Both bad news (downbeat announcements from retail and tech bellwethers Wal-Mart and Cisco, heightened turmoil in Egypt) and good news (lower-than-expected weekly new jobless claims) were followed by waves of selling. After struggling all week, the Dow gave up more than 200 points within an hour after U.S. markets opened on Thursday, which contributed to its worst week since June 2012. Renewed Fed fears also led to a surge in bond yields as prices fell. The benchmark 10-year Treasury yield spiked up 10 points on Tuesday alone and ended the week at a level it hasn’t seen in more than two years.

Market/Index 2012 Close Prior Week As of 8/16 Week Change YTD Change
DJIA 13104.14 15425.51 15081.47 -2.23% 15.09%
Nasdaq 3019.51 3660.11 3602.78 -1.57% 19.32%
S&P 500 1426.19 1691.42 1655.83 -2.10% 16.10%
Russell 2000 849.35 1048.40 1024.30 -2.30% 20.60%
Global Dow 1995.96 2268.06 2251.86 -.71% 12.82%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 1.78% 2.57% 2.84% 27 bps 106 bps

Equities data reflect price changes, not total return.

Last Week’s Headlines

  • Retail sales were up 0.2% in July. The Commerce Department said a 1% decline in car sales after strong gains during the previous two months hurt the overall sales figures. However, aside from car sales, other spending rose 0.5% for the month, and was 4% higher than the previous July.
  • Consumer prices were up 0.2% in July, much less than June’s 0.5% increase. The Bureau of Labor Statistics said housing, gas, clothing, and food (mostly fruits and vegetables) were all up. Meanwhile, wholesale prices remained steady during the month after strong increases in May and June. July’s numbers put consumer inflation over the last year at 2% and wholesale inflation at 2.1%.
  • After contracting for a year and a half–the longest recession of its almost 15-year history–the eurozone economy finally saw some growth. The gross domestic product for the 17 countries that make up the eurozone went from -0.3% in Q1 to 0.3% growth between April and June. As expected, Germany and France led the expansion, with 0.7% and 0.5% growth respectively, while the Spanish and Italian economies contracted more slowly than in Q1.
  • Though construction of new single-family homes slumped 2.2% in July, an increase in apartment building construction pushed up housing starts 5.9% for the month; according to the Commerce Department, overall new residential construction was almost 21% ahead of last July. Building permits also were up 2.7% for the month.
  • The manufacturing sector seemed somewhat stalled last month. The Federal Reserve’s gauge of industrial production was unchanged in July, hurt by a 1.7% cut in output of cars and car parts and a 0.1% drop in overall manufacturing. The August Philly Fed manufacturing survey showed expansion for the third consecutive month, though growth was slightly weaker than the previous month, while the Fed’s Empire State survey figure was relatively unchanged.
  • U.S. labor productivity rose at an annualized rate of 0.9% in Q2, the Commerce Department said. Workers worked 1.7% more hours, while output rose 2.6%. However, productivity was unchanged from the same quarter last year.
  • Not cleared for landing: The Department of Justice filed an antitrust suit against the proposed merger between American Airlines and US Airways. The suit alleges that the merger would create the world’s largest airline and leave four airline companies in control of more than 80% of U.S. commercial air traffic. The suit said that would result in higher airfares and fewer choices for consumers, particularly those flying to and from Washington, D.C.
  • A decline in housing-related debt helped cut overall consumer borrowing by 0.7% in the second quarter. According to the Federal Reserve Bank of New York, that put consumer debt 12% below its Q3 2008 peak. The amount owed on auto loans has now risen for the ninth straight quarter, and Q2’s increase was the biggest since 2006. However, only 5.7% of all household debt was more than 90 days overdue, down from Q1’s 6.1%.

Eye on the Week Ahead

With low trading volumes that are typical of August and ongoing anxiety about future Fed actions, it might not take much news to move markets in either direction. Minutes of the last Federal Open Market Committee meeting could prompt further speculation about what could happen in September. Housing data also is on tap.

Key dates and data releases: home resales, Federal Open Market Committee meeting minutes (8/21); new home sales (8/23).

All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.