Another week, another record close: Domestic equities once again probed record territory as economic data continued to be just good enough to encourage investors without provoking immediate tapering of the Federal Reserve’s economic support. The S&P 500 set a fresh record after passing 1,700 for the first time, and the Dow and the small caps of the Russell 2000 also hit new closing highs. The Russell has now more than tripled since its March 2009 low, the Nasdaq isn’t far behind, and the S&P and Dow have more than doubled over the same time.
|Market/Index||2012 Close||Prior Week||As of 8/2||Week Change||YTD Change|
|Fed. Funds||.25%||.25%||.25%||0 bps||0 bps|
|10-year Treasuries||1.78%||2.58%||2.63%||5 bps||85 bps|
Equities data reflect price changes, not total return.
Last Week’s Headlines
- The U.S. economy grew 1.7% during the second quarter. That’s better than the previous quarter’s 1.1% (which was revised downward from 1.8% based on the Bureau of Economic Analysis’s most recent updating of the methodology used to calculate gross domestic product). Business investment that rose 9% and a 1.8% increase in consumer spending helped offset a 9.5% increase in imports, which are subtracted from GDP, and a 1.5% reduction in federal government spending. The GDP numbers will undergo two revisions over the next two months.
- The unemployment rate fell to 7.4%, its lowest level since December 2008. However, the 162,000 jobs added to the nation’s payrolls in July were far less than the 189,000 jobs averaged over the last year, and the Bureau of Labor Statistics said part of the unemployment rate’s decline from 7.6% in June resulted from some discouraged workers leaving the workforce.
- The Federal Reserve will keep buying bonds at its current pace. The announcement noted the recent increase in mortgage rates as a potential threat to economic conditions and called current growth “modest” (a slightly more pessimistic reference than the “moderate” language used in recent statements).
- Average home prices in the cities tracked by the S&P/Case-Shiller 20-city index saw their strongest year-over-year increase–12.2%–since March 2006. May’s 2.4% gain put home prices back at their levels of spring 2004, and the average price in two cities–Dallas and Denver–hit new all-time records.
- U.S. manufacturers saw accelerating growth in July. The Institute for Supply Management’s gauge of manufacturing activity rose from June’s 50.9% to 55.4%–the highest reading of the year–and reports of new orders hit 58.3%.
- Consumer spending rose 0.5% in June, according to the Commerce Department, while personal incomes were up slightly less. However, adjusted for inflation, incomes actually fell 0.1% instead of rising 0.3%, and the inflation-adjusted increase in spending was only 0.1%.
- The European Central Bank left its key interest rate unchanged at 0.5%.
Eye on the Week Ahead
As earnings season begins to wind down, a dearth of economic data could allow equities markets to digest their recent gains. Also, public statements by the presidents of several of the 12 regional Federal Reserve banks could clarify the cases being made internally for and against tighter monetary policy.
Key dates and data releases: U.S. services (8/5); balance of trade (8/6).
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.