Market Week – August 12, 2013

The Markets

With little fresh economic data and some hawkish hints from Fed officials about September’s monetary policy meeting, equities traders seemed to have decided that last week was a good time to take some profits in the wake of record highs. After five straight positive weeks, the Dow industrials took a breather, while the S&P 500, Nasdaq, and Russell 2000 all had their worst week since the Federal Reserve laid out its blueprint for reducing its economic support.

Market/Index 2012 Close Prior Week As of 8/9 Week Change YTD Change
DJIA 13104.14 15658.36 15425.51 -1.49% 17.71%
Nasdaq 3019.51 3689.59 3660.11 -.80% 21.22%
S&P 500 1426.19 1709.67 1691.42 -1.07% 18.60%
Russell 2000 849.35 1059.86 1048.40 -1.08% 23.44%
Global Dow 1995.96 2276.79 2268.06 -.38% 13.63%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 1.78% 2.63% 2.57% -6 bps 79 bps

Equities data reflect price changes, not total return.

Last Week’s Headlines

  • U.S. service industries saw accelerating growth in July, according to the Institute for Supply Management’s index, which soared to 56% from the previous month’s 52.2%. Of the 18 industries that comprise the index, only mining and health care/social assistance experienced contraction.
  • Lower imports and higher exports cut the U.S. trade deficit by more than 22% in June. The Bureau of Economic Analysis said the $34.2 billion trade gap was the lowest since October 2009. Because the trade deficit is subtracted from gross domestic product calculations, the reduction could prompt an upward revision to the next estimate of second-quarter GDP. That estimate will arrive in late August, three weeks before September’s Federal Open Market Committee meeting, at which the Fed will once again assess the strength of the U.S. economy.
  • The Bank of England said it plans to keep its key interest rate at 0.5% until the unemployment rate falls below 7% from its current 7.8%, which the BOE doesn’t expect to happen before 2016. The central bank also increased its U.K. growth forecast for this year to 1.4% from 1.2%, and it now expects 2.6% growth in 2014 instead of 1.8%.
  • The Securities and Exchange Commission and the Department of Justice filed civil charges of fraud against Bank of America. The charges allege that in 2008, the bank sold $855 million in residential mortgage-backed securities without disclosing to all investors that more than 70% of the underlying mortgages–allegedly termed “toxic waste” by B of A’s CEO at the time–were likely to become delinquent quickly.
  • Two major U.S. newspapers will soon become the property of individual owners. Amazon CEO Jeff Bezos announced he will pay $250 million of his personal fortune to buy the Washington Post newspaper from The Washington Post Co. In doing so, he joined Red Sox owner John Henry, who is buying the Boston Globe from the New York Times Co. for $70 million.
  • China’s Customs Administration said that both imports and exports of the world’s second-largest economy rose in July. Imports (one gauge of China’s domestic consumption) were up almost 11% from a year earlier, while exports rose 5.1% over the last 12 months.

Eye on the Week Ahead

Retail sales may suggest consumers’ state of mind, and investors will be watching to see if housing starts rebound from the previous month’s sharp decline. Though inflation data is unlikely to see a dramatic change, any strong move upward could set off fresh fears about September’s Fed meeting.

Key dates and data releases: retail sales, business inventories (8/13); wholesale inflation (8/14); consumer inflation, Empire State/Philly Fed manufacturing surveys, industrial production, international capital flows (8/15); housing starts, business productivity/costs (8/16).

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.