Market Week: July 1, 2013

The Markets

Investors seemed to regain some perspective last week. After a rocky Monday, equities began reclaiming some of the territory that had been surrendered the previous week, helped by a revision to economic growth and reassurances from Fed officials who reiterated that any tightening would depend on future economic data. The S&P 500 once again managed to top 1,600, while the Dow briefly surpassed 15,000 but couldn’t hold on to it. The Nasdaq and the small caps of the Russell 2000 substantially outperformed the other two domestic indices for the week, while statements from China’s central bank helped reassure investors in the Global Dow.

Bonds also saw volatility as investors continued to pull money out of bond funds, though a midweek spike in yields seemed to stabilize a bit by week’s end. Gold plummeted once again, losing roughly $60 an ounce to end near $1,220 an ounce.

Market/Index 2012 Close Prior Week As of 6/28 Week Change YTD Change
DJIA 13104.14 14799.40 14909.83 .75% 13.78%
Nasdaq 3019.51 3357.25 3403.25 1.37% 12.71%
S&P 500 1426.19 1592.43 1606.25 .87% 12.63%
Russell 2000 849.35 963.68 977.48 1.43% 15.09%
Global Dow 1995.96 2086.18 2110.60 1.17% 5.74%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 1.78% 2.52% 2.52% 0 bps 74 bps

Equities data reflect price changes, not total return.

Last Week’s Headlines

  • The U.S. economy grew more slowly during the first quarter than previously thought; the final figure for the increase in Q1 gross domestic product was 1.8% rather than 2.4%. The Commerce Department said that despite an improvement in residential construction, consumer spending on services rose less than expected and businesses invested less in buildings and plant facilities. Also, both exports and imports fell instead of showing gains.
  • In a landmark ruling that struck down the Defense of Marriage Act, the U.S. Supreme Court paved the way for same-sex couples to claim the same federal tax and other benefits as other married couples in states that recognize same-sex marriages. Some of those benefits include survivor’s/spousal Social Security and military benefits, the ability to inherit a spouse’s estate tax-free, family medical leave rights, spousal visas and IRA contributions, joint federal income tax filings, and certain private pension benefit options.
  • April home prices in the areas measured by the S&P 500/Case-Shiller 20-city index were up 12.1% over last year–their largest year-over-year gains in the last seven years. Also, April’s 1.4% increase was the biggest monthly gain in the index’s history.
  • China’s central bank attempted to calm turbulent markets there by saying it would help banks with any cash shortfalls, but continued to warn against reckless lending.
  • Consumer spending rose 0.3% in May, almost completely reversing April’s 0.3% decline, and incomes rose even more. The Commerce Department said the 0.5% gain in incomes, fueled by higher wages, investment income, and entitlement payments such as Social Security, helped push the personal savings rate up as well; the 3.2% savings rate was the highest since December.
  • May sales of new homes were up 2.1% and were 29% higher than in May 2012; according to the Commerce Department, that’s the greatest annual increase since the summer of 2008. The increase occurred despite rising mortgage rates. Freddie Mac said the average rate for a 30-year fixed mortgage hit 4.46% last week. That was its highest level in almost two years, and represented the biggest weekly gain since 1987.
  • European finance ministers took an important step toward unifying banks there by agreeing on a joint framework for dealing with failing banks. The agreement provides that regulators will look to bank creditors and investors first, followed by depositors with more than €100,000, to share in the cost of any bank failures–so-called “bail-in” measures–before turning to governments for financial assistance. The agreement must win approval from the European Parliament.
  • New durable goods orders followed a strong April with an equally strong May; according to the Commerce Department, new orders were up 3.6% for the month. Business orders for new capital equipment were up 9.3%, with defense-related spending accounting for much of the gain.
  • The Commodity Futures Trading Commission charged former MF Global Holdings CEO Jon Corzine and a former assistant treasurer for the company with misdirecting more than $1 billion from customer accounts to cover corporate shortfalls shortly before the firm’s 2011 collapse.

Eye on the Week Ahead

After recent gyrations in multiple markets, investors may welcome an abbreviated trading week, though light trading volumes around the July 4 holiday also could exaggerate market movements. In light of the Fed’s recent announcement, the unemployment rate is likely to be of even more interest than usual, since good economic news has tended to bring down markets lately (and vice versa). Also, Thursday brings a European Central Bank meeting on interest rates.

Key dates and data releases: U.S. manufacturing (7/1); factory orders, auto sales (7/2); balance of trade, U.S. services sector (7/3); European Central Bank meeting (7/4); unemployment/payrolls (7/5).

Data sources: Includes data provided by Brounes & Associates. 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.