What I’m Watching This Week – 2 June 2014

The Markets

Equities took a downward revision to the U.S. GDP figure in stride; the Nasdaq continued to rebound while the S&P 500 and Dow industrials both hit new all-time closing highs. The recent rally in bonds continued as the benchmark 10-year Treasury yield hit its lowest level since last June. And after bouncing around for several weeks on either side of $1,300, the price of gold plummeted almost $50 an ounce last week, leaving it at roughly $1,245 an ounce and down almost 10% since spiking in mid-March.

Market/Index 2013 Close Prior Week As of 5/30 Weekly Change YTD Change
DJIA 16576.66 16606.27 16717.17 .67% .85%
Nasdaq 4176.59 4185.81 4242.62 1.36% 1.58%
S&P 500 1848.36 1900.53 1923.57 1.21% 4.07%
Russell 2000 1163.64 1126.19 1134.50 .74% -2.50%
Global Dow 2484.10 2550.46 2564.35 .54% 3.23%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 3.04% 2.54% 2.48% -6 bps -56 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

  • Rather than stalling, as previously estimated, the U.S. economy actually contracted at an annualized rate of 1% during 2014’s first quarter. The Bureau of Economic Analysis said businesses’ investment in building up inventories was lower than previously estimated and was a major factor in the downward revision of its GDP estimate, which was widely expected to be disappointing. It was the weakest growth rate in three years. Consumer spending was up 3.1%, but couldn’t offset the cost of higher imports and declines in capital investments and spending by state and local governments.
  • Durable goods orders rose 0.8% in April–the third straight monthly increase. The Census Bureau said the 2.3% increase in defense-related spending on transportation equipment was the most significant factor; business spending on capital equipment was down 1% for the month.
  • Home prices were up 0.9% in the 20 cities measured by the S&P/Case-Shiller 20-City Composite Index for March.
  • After a strong March, consumer spending slid 0.1% in April; the Commerce Department said it was the first monthly decline in a year. However, at least part of the decline was the result of lower heating costs as winter finally wound down. Personal income rose 0.3%, but that was the smallest monthly gain so far in 2014. However, coupled with the decline in spending, that allowed people to save more; the savings rate for individuals was 4% compared to March’s 3.6%.
  • The average rate for a 30-year fixed-rate mortgage fell to 4.12% last week. Mortgage giant Freddie Mac said that’s the lowest it’s been since last October; however, it’s still higher than last May’s 3.81%. Mortgage rates have been cited as one reason for recent sluggishness in the housing market’s recovery.

Eye on the Week Ahead

As always, unemployment numbers will be of interest, as will Institute for Supply Management reports on both the manufacturing and services sectors. Investors also will watch to see whether the European Central Bank follows through on hints it might adopt measures to stimulate the economy there.