Market Week: February 3, 2014

The Markets

It’s a small, small world: Despite various attempts at propping up local currencies, emerging markets continued to suffer from concerns that 1) assets being moved to stronger currencies could undermine already fragile economies, and 2) a slowdown in Chinese manufacturing could reduce demand for commodities, exports of which are crucial to many emerging-market countries. Fueled by additional Fed tapering, risk aversion also spread to markets in developed countries, hurting large caps that derive a large portion of their revenues overseas. The Dow’s losses gave the index its worst January since 2009. Traditional safe-haven refuges such as U.S. Treasuries continued to benefit from the turmoil.

Market/Index 2013 Close Prior Week As of 1/31 Weekly Change YTD Change
DJIA 16576.66 15879.11 15698.85 -1.14% -5.30%
Nasdaq 4176.59 4128.17 4103.88 -.59% -1.74%
S&P 500 1848.36 1790.29 1782.59 -.43% -3.56%
Russell 2000 1163.64 1144.13 1130.88 -1.16% -2.82%
Global Dow 2484.10 2422.47 2389.81 -1.35% -3.80%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 3.04% 2.75% 2.67% -8 bps -37 bps

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

  • For the second month in a row, the Federal Reserve’s monetary policy committee will cut $10 billion a month from its bond purchases. That will leave the total at $65 billion a month instead of the $85 billion it had been buying as recently as December.
  • Some emerging-market countries whose currencies have been hurt in recent months attempted to fight back. Turkey hiked its key interest rate from 7.5% to 12% to try to halt a decline in the country’s lira, while South Africa’s central bank raised its interest rate to 5.5% and India’s repo rate went to 8% from 7.75%. The moves came in the wake of Brazil’s decision to raise its key interest rate by a half-point to 10.5% and Venezuela’s recent attempt to impose currency controls indirectly by limiting the amount of airline tickets that can be exchanged for U.S. dollars.
  • The U.S. economy expanded at an annualized rate of 3.2% during the fourth quarter of 2013. Though that was somewhat less than Q3’s annualized 4.1% growth, the Bureau of Economic Analysis said the 3.7% growth during 2013’s second half was stronger than the 1.8% expansion during the first six months. The growth was led by consumer spending, exports, and business spending on capital goods.
  • Sales of new homes dropped 7% in December. However, the Department of Commerce said the figure is still 4.5% ahead of the previous December, and sales for all of 2013 were 16.4% higher than in 2012. Meanwhile, home prices in the cities covered by the S&P/Case-Shiller 20-City Composite Index were up 13.7% year-over-year in November. Though the 0.1% drop was the first monthly decline in nine months, it represented the best November since 2005.
  • Durable goods orders fell 4.3% in December, according to the Commerce Department; that’s the second decline in the last three months. Aside from the volatile transportation sector, new orders for U.S. manufactured goods fell 1.6%, and business spending on equipment was down 5% for the month.
  • The Bureau of Economic Analysis said personal incomes were basically flat in December, though after adjusting for inflation, they were down 0.2% for the month. Meanwhile, holiday spending helped push consumer spending up 0.4%, cutting the personal savings rate to 3.9% from November’s 4.3%.

Eye on the Week Ahead

In addition to the ongoing focus on emerging markets and earnings reports, Friday’s unemployment numbers will be of interest. And in light of currency concerns around the world, the European Central Bank’s announcement on Thursday could receive extra attention.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). 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 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.