Market Week: July 22, 2013

The Markets

As Federal Reserve Chairman Ben Bernanke continued to reassure investors about the Fed’s future course, the Dow industrials and the S&P 500 once again set new closing records. However, weak earnings reports from some bellwether tech companies hurt the Nasdaq, while a strong week for the small caps of the Russell 2000 helped the index maintain its year-to-date lead. Meanwhile, reduced anxiety about the Fed also allowed the benchmark 10-year Treasury yield to slide for the second week as prices rose. Municipal bond markets remained relatively stable despite Detroit’s decision to file for bankruptcy.

Market/Index 2012 Close Prior Week As of 7/19 Week Change YTD Change
DJIA 13104.14 15464.30 15543.74 .51% 18.62%
Nasdaq 3019.51 3600.08 3587.61 -.35% 18.81%
S&P 500 1426.19 1680.19 1692.09 .71% 18.64%
Russell 2000 849.35 1036.52 1050.48 1.35% 23.68%
Global Dow 1995.96 2201.99 2233.17 1.42% 11.88%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 1.78% 2.59% 2.50% -9 bps 72 bps

Equities data reflect price changes, not total return.

Last Week’s Headlines

  • In his semiannual testimony before Congress, Fed Chairman Ben Bernanke continued to make soothing statements, saying that the tapering of economic support is not on any “preset course” and will depend on future economic data. He also made headlines by saying that “nobody really understands gold prices, and I don’t pretend to understand them, either.”
  • Hampered by a dramatically reduced tax base and overwhelming debt, Detroit became the biggest U.S. city in history to declare bankruptcy. Creditors, including city pensioners and holders of general obligation bonds, will now have to argue in federal court to try to claim a percentage of what they’re owed. Also, Moody’s cut Chicago’s bond rating by three notches to A3, citing pension liabilities and worsening budget problems.
  • Consumer prices rose 0.5% in June, with a 6.3% increase in gas prices responsible for roughly two-thirds of the increase. The Bureau of Labor Statistics said that put the consumer inflation rate for the last 12 months at 1.8%.
  • Retail sales rose slightly less in June than they did a month earlier. According to the Commerce Department, the 0.4% increase was largely the result of car sales that were 2.1% higher for the month.
  • Industrial production accelerated in June; the Federal Reserve said the nation’s factory output rose 0.3%, which was far better than May’s flat reading. That meant that industrial output is up 2% from a year earlier. Also, the Philly Fed manufacturing survey hit 19.8, its highest level since March 2011, while the Fed’s equivalent Empire State survey also rose to 9.5.
  • Housing starts tapered off in June, according to the Commerce Department. The nearly 10% decline, most of which was in the often volatile multifamily sector, could be linked to wet weather in many parts of the country, since homebuilder sentiment remains robust. Building permits also fell 7.5% for the month. However, both housing starts and building permits remained solidly higher than the previous June.

Eye on the Week Ahead

As earnings reports continue to stream in, home sales both new and used may be of extra interest this week in light of last week’s weaker housing starts report and the recent jump in mortgage rates. Durable goods orders could be affected by Boeing’s struggles with incidents involving its Dreamliner aircraft. Also, given last week’s disappointments by some key tech companies, earnings reports will be watched for signs of a broader tech slump.

Key dates and data releases: home resales (7/22); new home sales (7/24); durable goods orders (7/25).

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.