Market Week: July 8, 2013

The Markets

Domestic equities’ recovery from their June swoon accelerated last week. However, bond values continued to take it on the chin as the 10-year Treasury yield soared after Friday’s benign unemployment numbers. Gold also plummeted after the jobs report; the precious metal’s almost $40 loss for the day left its price at roughly $1,213 an ounce. And the threat that Egypt’s civil unrest could potentially affect oil supplies sent oil prices above $103 a barrel.

Market/Index 2012 Close Prior Week As of 7/5 Week Change YTD Change
DJIA 13104.14 14909.83 15135.84 1.52% 15.50%
Nasdaq 3019.51 3403.25 3479.38 2.24% 15.23%
S&P 500 1426.19 1606.25 1631.89 1.60% 14.42%
Russell 2000 849.35 977.48 1005.39 2.86% 18.37%
Global Dow 1995.96 2110.60 2125.38 .70% 6.48%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 1.78% 2.52% 2.73% 21 bps 95 bps

Equities data reflect price changes, not total return.

Last Week’s Headlines

  • The U.S. economy added 195,000 jobs in June, and the Bureau of Labor Statistics estimates for April and May were revised upward. However, because more people tried to rejoin the workforce, the BLS said the unemployment rate stayed stuck at 7.6%.
  • Faced with a political crisis in debt-ridden Portugal, the European Central Bank said it plans to continue to keep its key interest rate there at a record low 0.5% for “an extended period,” though there were discussions about whether to set it even lower. The Bank of England also will keep its benchmark rate at 0.5%.
  • The Institute for Supply Management’s June gauge of manufacturing activity reversed three months of declines, rising almost 1% above the 50% level that marks the difference between contraction and expansion. The manufacturing index has averaged roughly 50.2% for the last three months. The ISM’s index of the services sector also showed growth in June, though the 52.2% reading was slightly lower than May’s figure.
  • Spending on residential construction rose 0.5% in May, and the Commerce Department said it is now 5.4% higher than last May. Private construction remained roughly the same as in April, while nonresidential construction declined 1.4%. Public construction was up 1.8%, with power and water supply facilities seeing the biggest gains.
  • The Commerce Department also had good news from the nation’s manufacturers: factory orders were up 2.1% in May. An increase of almost 51% in commercial aircraft orders represented much of the increase, but business spending on equipment also rose by 1.5%.
  • The U.S. trade deficit rose more than 12% in May as imports rose and exports fell, according to the Commerce Department. That put the trade gap at $45 billion, its widest point since last November.
  • Interest rates on federally subsidized Stafford student loans went from 3.4% to 6.8% on July 1. However, Congress may tackle the issue again after the July 4 recess is over, and any change in the new rate could be applied retroactively.

Eye on the Week Ahead

Given the reaction to the Fed’s June 19 announcement indicating an improving economy (and therefore implying a possible reduction in Fed support), minutes of that meeting will be closely scrutinized for any further clues to the timing of any withdrawal of quantitative easing. With little other economic data to mull over, investors may begin to focus on corporate earnings; the unofficial start of the Q2 earnings season will occur when Alcoa releases its results after Monday’s close.

Key dates and data releases: Federal Open Market Committee minutes (7/10); wholesale inflation (7/12).

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.