What I’m Watching This Week – 7 April 2014

The Markets

For the second straight week, the large caps of the Dow and S&P 500 fared better than the Nasdaq, which continued to be hurt by selling in the technology and biotech sectors that played such a big part in its 2013 gains. The S&P hit a new all-time closing high on Wednesday, while the Dow came close to matching the record close seen on New Year’s Eve 2013. Meanwhile, a jobs report that seemed to support the Fed’s current gradual tapering left bond markets relatively stable.

Last Week’s Headlines

  •          The U.S. economy created 192,000 new jobs in March, and the Bureau of Labor Statistics revised its figures for January and February upward. However, because more people sought work, the unemployment rate remained at 6.7%.
  •          There was encouraging news about the U.S. manufacturing sector. After two months of declines, the Commerce Department said new orders at U.S. factories were up 1.6% in February, led by a 7% increase in transportation equipment, and shipments also rebounded. Manufacturing data from the Institute for Supply Management® also showed accelerating growth in March; the half-percent increase to 53.7% was the 10th straight month of growth. And in the services sector, the ISM’s March survey also showed acceleration, with a 1.5-point increase to 53.1%.
  •          Despite a 0.5% inflation rate–the lowest in more than four years–the European Central Bank left its key interest rate unchanged at 0.25%. President Mario Draghi said the ECB discussed adopting both conventional and extraordinary quantitative easing measures, including a negative deposit rate and asset purchases, to prevent the threat of deflation. Such measures could weaken the euro, potentially increasing European exports. However, the group decided to postpone action to see whether the inflation rate rises to a more acceptable level after the end of a warm winter that has cut heating and food prices there.
  •          According to the Commerce Department, the U.S. trade deficit rose 7.6% in February to its highest level in five months as a 0.4% increase in imports, particularly oil, wasn’t enough to overcome a 1.1% decline in American exports.
  •          Despite the winter weather, a 1.2% increase in money spent on commercial buildings helped push overall construction spending up 0.1% in February, according to the Commerce Department.
  •          The Department of Justice confirmed that it is investigating the practice of high-frequency trading to see whether it has been used to violate insider trading laws. The SEC and Commodity Futures Trading Commission also are investigating HFT.
  •          Past performance was no indicator of current results: Despite the troubled rollout of www.healthcare.gov, the White House said that by the March 31 deadline, more than 7 million individuals–the initial goal–had signed up (or were in the process of doing so) for health insurance coverage under the Affordable Care Act.

Eye on the Week Ahead

Investors will watch to see whether the tech selling continues and whether it spreads to the large-cap indices. However, they’ll have little economic data for guidance, though minutes of the recent Federal Open Market Committee meeting could show the extent of any division among members about the future of interest rates.