Market Week: February 24, 2014

The Markets

Domestic equities had a mixed week. The small-cap stocks of the Russell 2000 managed to reclaim positive territory for the year while the Nasdaq continued to lead the pack year-to-date. The large caps didn’t fare quite as well, though the S&P 500 has now managed to erase all but 12 points of the 5.7% it had lost since January 15.

Market/Index2013 ClosePrior WeekAs of 2/21Weekly ChangeYTD Change
DJIA 16576.66 16154.39 16103.30 -.32% -2.86%
Nasdaq 4176.59 4244.03 4263.41 .46% 2.08%
S&P 500 1848.36 1838.63 1836.25 -.13% -.66%
Russell 2000 1163.64 1149.21 1164.63 1.34% .09%
Global Dow 2484.10 2458.43 2465.31 .28% -.76%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 3.04% 2.75% 2.73% -2 bps -31bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

  • January’s dismal weather across much of the country helped cut housing starts by 16% and building permits for future construction by 5.4%, according to the Commerce Department. The worst declines were seen in the Midwest, while starts actually rose in the Northeast.
  • Consumer prices rose 0.1% in January, according to the Bureau of Labor Statistics, largely because of home energy demands connected to the brutal winter over much of the country. The BLS said the 1.8% increase in the cost of electricity was the biggest since March 2010, while natural gas and heating oil also were up sharply. Wholesale prices rose 0.2% during the month; that was a slight acceleration from December and put the year-over-year increase at 1.2%.
  • Home resales didn’t escape winter’s ill effects. According to the National Association of Realtors®, weather plus higher mortgage rates and the ongoing shortage of homes for sale brought January sales down 5.1% during the month to their lowest level since July 2012. Sales also were 5.1% lower than the previous January.
  • China’s manufacturing sector shrank for the second straight month, according to February’s Markit/HSBC Purchasing Managers’ Index, which fell to 48.3 (any number below 50 represents contraction). However, the extended Lunar New Year festival traditionally has slowed manufacturing there at this time of year. U.S. manufacturing reports also showed a decline. The Philly Fed survey fell from 9.4 in January to -6.3, and though the Fed’s Empire State survey remained positive at 4.5, it was down 8 points for the month.
  • A report by the Congressional Budget Office assessing the impact of an increase in the minimum wage found that while higher pay for 16.5 million workers would lift anywhere from 300,000 to 900,000 families above the poverty line, it also could also mean some job losses. The CBO estimated that a $9 minimum wage could cut an estimated 200,000 jobs (less than 0.1%), while a $10.10 minimum wage–the level proposed by President Obama–could result in an estimated 500,000 fewer jobs (or 0.3%).
  • The International Monetary Fund warned that emerging-market economies need to continue tightening their monetary policies to combat the impact of tighter money in the developed world. It also urged the eurozone to implement new lending programs and lower interest rates to fight inflation that is so low that it raises the risk of turning into deflation.
  • Minutes of the Federal Reserve’s monetary policy committee’s most recent meeting suggested that investors could soon begin hearing guidance about when and how the Fed will begin raising its target interest rate.
  • The Federal Communications Commission said it will try once again to write rules that prevent broadband Internet providers from blocking or slowing access to certain customers. The FCC’s so-called “net neutrality” regulations were overturned by a federal appellate court ruling last month that would allow broadband companies to charge content providers higher rates for faster service.
  • Facebook stunned the tech community by agreeing to pay $19 billion in cash and stock to acquire mobile messaging startup WhatsApp (after having previously turned down one of the company’s founders for a job). The deal was reported to be the largest tech merger since the AOL-Time Warner deal in 2001. WhatsApp in turn stunned its roughly 450 million users by undergoing a three-hour outage just days later.

Eye on the Week Ahead

In light of recent weaker Fed manufacturing reports, the Commerce Department’s report on durable goods orders for January could be closely watched. Final numbers for U.S. economic growth in both Q4 and all of 2013 also will be available.

Data sources: All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. News items are based on reports from multiple commonly available international news sources (i.e., wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: U.S. Treasury (Treasury yields); WSJ Market Data Center (equities); Federal Reserve Board (Fed Funds target rate); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold, NY close); Oanda/FX Street (currency exchange rates). 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 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.