Author: dredheadz

What I’m Watching This Week

Here we are, 2014, and hopefully your portfolio had a profitable 2013.  If not, we may need to have a chat.  =)

The Dow was up 25%, the S&P 500 up 29% and the NASDAQ up 37% to end 2013.  Your individual performance more than likely probably doesn’t reflect the substantial gains as the overall indices but hopefully you were able to capture a significant percentage to close out the year, hopefully.

Equities rang in the new year by taking a bit of a breather. As investors decided to take some of the profits that the Santa Claus rally had left in their stockings, the Dow lost 135 points on 2014’s first trading day, though it regained much of that the following day. The other three domestic indices fared slightly worse, though not as badly as the Global Dow. Meanwhile, gold showed signs of new life after its disastrous 2013, jumping nearly 3% in the first two days of the year.

Last Week’s Headlines

Home prices rose 0.2% in October, putting them 13.6% higher than 12 months earlier. The year-over-year gain in the S&P/Case-Shiller 20-City Composite Index was the strongest since February 2006, and October’s monthly increase represents the 17th straight month of gains. However, S&P warned that the monthly increases were showing signs of slowing.

Construction spending was up 1% in November, according to the Commerce Department, and was almost 6% higher than the previous November. Strength in both residential and non-residential private construction fueled the growth as spending on public works projects fell 1.8% during the month.

Eye on the Week Ahead

Last week’s light trading volumes should be back to normal this week, and those who believe that the first five trading days of January indicate something about equities’ subsequent direction during the coming year will have a better basis for making that assessment. Friday’s jobs numbers will be of interest, as always, as will the minutes of the meeting at which the Fed’s monetary policy committee decided to start tapering.

Have an amazing 2014, stay focused, aware and able to participate in achieving your individual goals for the year!

The Markets
Domestic equities continued to recover from their Washington-induced slump. Once again, the week saw fresh records for the S&P 500 and the small-cap Russell 2000; the S&P has now risen more than 6% since its October 8 shutdown low. The Dow saw the week’s biggest gains for a change.

Last Week’s Headlines

• The unemployment rate continued to inch downward, hitting 7.2% in September, according to the Bureau of Labor Statistics. That’s the lowest unemployment rate since November 2008. However, the 148,000 jobs added during the month was lower than the monthly average for the past year, and including underemployed and discouraged workers would put the unemployment rate at 13.6%, slightly lower than August’s 13.7%.
• Sales of existing homes slid almost 2% in September, the National Association of Realtors® said, but were still 10.7% above September 2012. The NAR attributed the slump to the fact that according to mortgage lender Freddie Mac, the 30-year fixed rate hit almost 4.5%, its highest level since July 2011 and more than a full percent higher than in September 2012. The median sales price of $199,200 represented the 10th straight double-digit year-over-year increase.
• Durable goods orders were up 3.7% in September, but according to the Commerce Department, a 57.5% increase in orders for aircraft was responsible for almost all of that. Non-transportation orders were down 0.1%, though business spending on capital equipment rose almost 7%.
• JPMorgan Chase & Co. reportedly has negotiated a $13 billion settlement of federal civil lawsuits over mortgage securities sales leading up to the 2008 financial crisis. Earlier in the month, JPMorgan had reported a loss for Q3 caused largely by increasing to $23 billion the reserve it has set aside to cover legal expenses. Also, a jury found Bank of America Corp. liable for defrauding Fannie Mae and Freddie Mac through bad mortgages sold by Countrywide Financial, which BofA acquired in mid-2008. A judge will decide the bank’s penalty later.

Eye on the Week Ahead
Investors will find out Wednesday whether the impact of the government shutdown was enough to postpone any Fed tapering. Earnings season also continues, while release of the initial estimate of Q3 economic growth has been postponed until November 7.

Key dates and data releases: home prices, retail sales (10/29); Federal Open Market Committee monetary policy announcement (10/30).

Data sources: All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: U.S. Treasury (Treasury yields); WSJ Market Data Center (equities); Federal Reserve Board (Fed Funds target rate); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); http://www.goldprice.org (spot gold, NY close); Oanda/FX Street (currency exchange rates). 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.

MARKET WEEK: OCTOBER 21, 2013

The Markets

Near-debt experience: The ceasefire in Washington that put federal employees back to work and averted a debt ceiling disaster also brought relief on Wall Street. One-month Treasury yields had skyrocketed in October as investors abandoned them; that sell-off reversed after a deal was announced, cutting the yield in half overnight and to one basis point by week’s end. Long-term debt saw less impact, but equities rallied strongly. The S&P 500 built on a 1.4% gain on the day of the announcement by hitting a new all-time closing record on Friday. The small caps of the Russell 2000 also set a fresh record, and along with the Nasdaq gained roughly 3% over the three post-announcement closes. However, the Dow was hampered by disappointing earnings reports from a couple of its key components.

Last Week’s Headlines

After 16 days of partial government shutdown and debt ceiling gridlock, a last-minute agreement broke the impasse the day before the Treasury was scheduled to begin running out of cash to pay the nation’s bills. The legislation suspends the debt ceiling until February 7 and provides funding to reopen the government through January 15. The deal to end the stalemate also established a congressional budget conference that must report by December 13 on ways to address longer-term budget issues.
Growth in the world’s second-largest economy accelerated in the third quarter, according to China’s National Bureau of Statistics. The 2.2% increase from Q2 on an annualized basis would represent a 9.1% annual growth rate, higher than the actual 7.8% increase seen over the past year. The increase was attributed to the effects of massive lending in the first two quarters as well as government spending on urban infrastructure in an attempt to counteract a slowdown earlier in the year.
Manufacturing reports from the Federal Reserve’s Philadelphia and Empire State regions were mixed. The Philly Fed index edged down to 19.8 in October from September’s 22.3, and the Empire State’s outlook on general business conditions fell 5 points to 1.5. However, new orders were up in both regions.
The Federal Reserve’s beige book report, based on data collected before October 7, showed “modest to moderate” expansion. Businesses were said to be cautiously optimistic about future activity, but the report registered an increase in uncertainty because of the government shutdown and debt ceiling debate. Several of the Fed’s 12 districts noted caution about expanding payrolls because of uncertainty about implementation of the Affordable Care Act and fiscal policy in general, but demand for skilled labor remained high in many districts.
The lack of government data meant that the Conference Board’s index of leading economic indicators and the Federal Reserve’s industrial production numbers for October were not available.
Eye on the Week Ahead

With the debt debacle temporarily resolved, investors are free to turn their attention to an onslaught of earnings reports and begin speculating about whether the shutdown’s economic impact, estimated by Standard & Poor’s at $24 billion, will delay any Fed tapering. October’s delayed unemployment report for September is now scheduled for release on Tuesday; concerns about the anticipated impact of the shutdown could amplify any disappointment with September’s numbers.

Key dates and data releases: home resales (10/21); unemployment/payrolls (10/22); new home sales (10/24); durable goods orders (10/25).*

Data sources: All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: U.S. Treasury (Treasury yields); WSJ Market Data Center (equities); Federal Reserve Board (Fed Funds target rate); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); http://www.goldprice.org (spot gold, NY close); Oanda/FX Street (currency exchange rates). 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.

*Some data releases postponed by the government shutdown are being rescheduled and may not be available.

Moving forward!

Vacation time is over…time for me to get back to work and rejoin the masses. So let’s get to it!

The technical glitch that brought the NASDAQ to a standstill for more than three hours hasn’t appeared to cause any damage; in fact the NASDAQ actually posted strong gains for the week of 1.53%. The S&P 500 and the Russell 200 also registered positive numbers but the Dow Jones provided a down week, the third in a row. It did edge back above 15,000 however. 10 Year Treasuries yields continued to rise right up until Friday, when the disappointing news of the 13.4% tumble in July new housing sales showed up and ruined that party.

This week I wouldn’t be surprised to see that the US markets, dabble a little in caution, with a slight negative basis. Economic postings aren’t expected to be stellar. I’m holding out hope that Tuesdays Q2 GDP is revised to show 2.1% growth from the earlier estimated 1.7%, which would reflect a narrowing of the US trade deficit as well as manufacturing gains.

Members of the Federal Open Market Committee seem as hesitant as everyone else about how soon quantitative easing will begin to wind down. Minutes of the FOMC’s July meeting showed that some members favor starting to cut bond purchases as early as September while others advocate a delay until later in the year. However, they generally articulated support for the overall tentative timetable laid out in June, which suggested purchases might end entirely by mid-2014.

It’s nice to be back and I wish you all an amazing week!

Genie in a bottle

Worries about the Fed’s policy objectives have added volatility and caused many to question their confidence in their positions. From Asia to Europe and back here in the U.S., the chatter concerning the Federal Reserve’s easing intentions took hold and markets tumbled. The message however is clear, the Genie is coming out of the bottle and the measures of monetary stimulus used to support sustainable improvements in economic trends will be varying soon. The US equity markets last week stumbled in reaction, sending the Dow Jones lower with a 1.17% drop to 1507, reducing the year-to-date gains to 15%; the NASDAQ sliced off 1.32% to 3,424 for 13.38% on the year; the S&P500 pitched 1% lower to 1627 and 14.06% year to date. The CBOE VIX rose 28.5% to 17.15 as further proof of investor trepidation. This uncertainty has left some investors shell-shocked before this week’s two-day policy meeting that will climax on Wednesday with an interest rate announcement, including the Fed’s latest disclosure on economic growth, inflation and employment.

Bernanke has been rather eloquent in previous testimony that the Fed’s policy will be purely driven by economic data. The latest monthly employment report showed 175K jobs added in May, beating the forecasts of 164K and more job-seekers are re-entering the marketplace. Should the employment outlook indicate a sustainable improvement, I would expect at least a vague pronouncement from Bernanke as to a target period where the Fed intends to begin its move.

I remain optimistic. This week could possibly reveal whether all the scuttlebutt has any validity or not. And if so how would an unwinding take place and realistically limit a severe reaction to that news. Also this week, there will be significant manufacturing and housing data as well as the quadruple witching options expiration on Friday. The potential for news to move the markets is certainly present this week. Uncertainty isn’t the optimum word that would work; now is not the time to be complacent. If you haven’t begun drilling down on your own portfolio and asset allocations, get on it, now. Second quarter is coming to an end in little less than two weeks and monetary stimulus programs are in the crosshairs; don’t let yourself become that target silhouette. Don’t discount the unknown. I remain positive, optimistic and confident. The sky isn’t going to fall but at the same time, I’d much rather be in position to make 3% than lose 8% any day of the week.

Have a great week!

Everything went better than expected…

After Wednesday’s 217 point loss on the Dow, it came back impressively with a 207 point gain on Friday as the monthly nonfarm payroll report provided just enough positive spin to raise all the indexes. The Dow Jones eked a .88% advance, the NASDAQ squeaked out a gain of .39% and the S&P 500 rounded out the week with a .78% achievement. Heck, I always say it’s always better to make 3% than lose 8%, okay, so we didn’t even get past 1%, but you know what I’m saying, right! A little volatility and a little positivity make for a seemly market moving experience.

The jobs number held ominous implications for both US growth and Fed policy matters and Investors relaxed just enough to exhale, for the time being. The unemployment rate showed a continued steadying of the economy but not enough improvement to bring on a hurried end to the Fed’s economic support via its monthly, $85 billion bond buying program. The ADP numbers a few days earlier in the week held an ominous suggestion that a potential disenchantment was on the Friday horizon; however the numbers were just enough to dissipate some anxiety, for the time being at least. A September-December timeframe looks to be more demonstrative of a Fed move to the lessor number of $65 Billion, but then again, I don’t really see the Fed making that significant of a movement right before the holiday season. My guess is that we’ll see something in Q1 of 2014.

I remain optimistic. The US economy added 175K jobs in May, all in the private sector, and conversely the unemployment rate ticked higher to 7.6% from 7.5% as more workers returned, encouraged that a hiring phase will continue a while longer. Much better than anticipated economic growth in Japan overshadowed China’s wavering Q2 growth; the volatility of the Dollar/Yen currency pair notwithstanding. The European situation remains mixed, with Germany’s DAX moving higher on improved industrial production results that seem to suggest growth is returning and an improving Eurozone growth expectation, if you minus Spain, Greece, Italy, etc. In the economic sea, some boats are floating, some remain tied to the docks and others are taking on a surge of water and have no life jackets to speak of. I’ll remain optimistic and cautious, regardless.

Have a great week and have a happy upcoming Father’s Day.

Brutally efficient head fake?

Reader Tabitha S. (like me, an avid San Francisco 49er fan) so adored my conclusion to last week’s newsletter, that she remarked that “the U.S. markets ankles must have ruptured, Achilles tendons exploded and knees buckled, as Friday’s market collapse was like seeing a linebacker destroyed by an opposing teams wide receiver, who just tossed him aside with a head fake and stiff arm as he charged down the field.” What a great summation Tabitha, and thank you for the reminder that the NFL season begins afresh in less than 100 days. 

The US equities bobbed and weaved last week as the economic data didn’t impress and the markets reacted to the downside. Friday’s gut punch, in my opinion, was the last opportunity to “sell in May and go away” and that’s exactly what transpired when investors pent up anxiety finally decided to make an appearance based upon concern that the Fed is considering to wind down its Quantitative Easing(QE)program and shareholders took their profits and headed for the door. Last week’s market pullback sent the Dow Jones 1.2% lower, leaving the May gain at 2.8%; the S&P500 down 1.1% on the week, for a 2.1% monthly gain; and the NASDAQ 0.1% lower for a 4.8% monthly ascent.

The first half of 2013 has provided some very noteworthy numbers for the U.S. markets with the Dow reporting a solid 15.35% gain, the NASDAQ registering 14.45% and the S&P 500 sitting at 14.34%. All fine representations for performance, and as we begin to close out Q2 and enter into the second half of the year. A dose of uncertainty is making headway into the overall picture with doubts over the Fed’s monetary direction, enduring, tepid manufacturing growth and continued high unemployment are being matched with a number of negative global circumstances: the appearance of waning Chinese growth, sharp decline in Japanese shares, continued European recession and record high unemployment of 12.2% and Middle East turmoil. Has the first half of 2013 been just a brutal head fake?

I remain optimistic. Fatigue within the markets would be expected and to be honest, welcomed, as we enter the summer. A shallow pullback to allow the overheated indexes to recoil and allow the sweltering temperatures of summer to replace the red hot equity markets wouldn’t necessarily be a bad thing. To use an automotive analogy; check the radiator fluid, hoses and gaskets, replace the plugs and wires, change the oil and filters, rotate the tires; we’ve got another seven months to go. Nobody wants to break down on that desolate highway, 500 miles into the desert, with buzzard’s and coyotes circling around for an easy kill. May’s monthly nonfarm payroll report that may decide the fate of Federal Reserve’s policymaking regarding its aggressive bond buying program; given its importance, Friday release will perhaps have more than the usual interest. I remain cautious, confident and optimistic.

Have an outstanding week!

Shrugging off the slowdown

The year’s robust start faded late in the first quarter across many key economic indicators, but the recent set-back is likely a temporary one as the U.S. markets continues to show little resistance and indeed have moved higher. The US economy continues showing a renewed capability to shrug off fiscal chains and respond favorably with higher stock prices and rising home values. Smells like…optimism. New home sales saw their strongest increase since July 2008 as a 2.3% jump in April put sales 29% ahead of April 2012, according to the Commerce Department. Also, the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, said prices on homes bought with loans from the two companies were up 1.3% in March.

No, we are not out of the woods yet and no the economy hasn’t reached any clear ‘break free’ momentum to surge forward without further central bank accommodation and assistance. Ongoing fiscal drags including the sequesters spending constraints and the impending debt ceiling are contributing factors as retail and professional investors agonize over monetary policy plans, and they question whether rising stock prices and bond yields signify increased market economic optimism and an ability to withstand a moderation of Fed asset-buying plans. Short-term ups and downs in overall economic activity are to be expected and increased volatility in the markets will corroborate the economic activity, positive or negative.

I remain optimistic. The remainder of the week’s economic data will provide substantiation regarding if the 2.5% initial estimate of Q1 economic growth holds, and whether consumer spending was affected in April by payroll taxes and federal budget cuts. Will we see a pullback of any significance if the data arrives not so positive? That remains to be seen; it does, on the surface appear that economic demand has been awakened and that more jobs are being added each month, but that could also be a brutally efficient head fake.

Have a great week!