The Markets

Investor indecision about the future of equities prices, coupled with light summer trading volumes, led to volatility across the board last week. Friday’s 186-point rally gave the Dow some relief after two down weeks, though not enough to nudge the index into positive territory for the year. The small caps of the Russell 2000 had their strongest week since early July, though they also remained down year-to-date. Meanwhile, geopolitical tensions increased demand for the relative security of the benchmark 10-year Treasury bond, sending its yield down. However, riskier high-yield bonds saw some selling pressure.

Market/Index	2013 Close	Prior Week	As of 8/8	Weekly Change	YTD Change
DJIA	16576.66	16493.37	16553.93	.37%	-.14%
Nasdaq	4176.59	4352.64	4370.90	.42%	4.65%
S&P 500	1848.36	1925.15	1931.59	.33%	4.50%
Russell 2000	1163.64	1114.86	1131.35	1.48%	-2.77%
Global Dow	2484.10	2561.22	2532.94	-1.10%	1.97%
Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.04%	2.52%	2.44%	-8 bps	-60 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

• Growth in the U.S. services sector accelerated in July. The Institute for Supply Management’s gauge of activity in service industries rose 2.7% to 58.7%–its highest level since the index was launched in 2008.
• New orders at U.S. manufacturers were up 1.1% in June. The Commerce Department said the gain boosted factory orders to their highest level since record-keeping began in 1992 and that June was the fourth month of the last five to see an increase.
• A drop in oil imports helped cut the U.S. trade deficit by 7% in June, according to the Commerce Department. U.S. exports rose 0.1% to their highest level on record, while imports dropped 1.2%.
• Italy’s economy fell back into recession, falling 0.2% in Q2; it was the second consecutive quarterly contraction. The GDP of the eurozone’s third largest economy also was down 0.3% from the same quarter a year earlier.
• In retaliation for new European Union and U.S. economic sanctions, Russia imposed a one-year ban on a variety of food imports and said it’s considering prohibiting EU and U.S. flights from Russian airspace over Siberia.
• As expected, the European Central Bank left key interest rates unchanged. President Mario Draghi said measures already adopted are having an effect and that it was too early to assess the potential impact of Russia’s ban on European food imports.
• Eleven of the largest U.S. banks must rewrite their proposed plans for handling a potential bankruptcy. The Federal Reserve and Federal Deposit Insurance Corp. said the plans contained “no credible or clear path” to achieve an orderly failure and avert any need for the type of bailouts provided during the 2008 financial crisis. The banks have until July 2015 to submit revised so-called “living wills.”
• Fair Isaac Corp. said it will change the way it calculates credit scores, underweighting unpaid medical bills and excluding overdue bills that are subsequently paid or settled with a collection agency. The changes could make it easier to get credit.

Eye on the Week Ahead

With the Q2 earnings season winding down, retail sales and wholesale inflation data will vie with global conflicts for investor attention. Speeches by two members of the Fed’s monetary policy committee are likely to review the arguments for and against accelerating an interest rate hike. Finally, options expiration at week’s end plus trading volumes that are likely to remain relatively low could mean additional volatility.