As you’ve heard, U.S. equity markets soared again last week. Are you ready for even more good news? Is it ok with you that it comes from unlikely sources, like last week’s Fed (FOMC) minutes and the Employment report? Don’t worry, we read them for you!
We think you’ll enjoy this week’s Update; all the regular market news you’re used to, with our take on these two seminal reports.
Feel free to pass the good news along!
All the best,
Lee and Jeremy
This Week’s Quote:
“I know you think you understand what you thought I said but I'm not sure you realize that what you heard is not what I meant”
~Alan Greenspan, former Federal Reserve Chairman
JL Davis Thoughts This Week:
Question: What do the Mohave Desert and a Martini have in common? Answer: They are almost as dry as a Government Economic Report…(ba da boom). We realize that only those who have a serious entertainment deficit, like us, enjoy reading Federal Open Market Committee or Employment reports. We know it’s not a good reflection on us, but sometimes dry reading can produce a little joy, like last week.
The just released Federal Open Market Committee (FOMC) report had some very interesting language. Part of the statement read, “Household spending and business fixed investment advanced, and the housing sector has strengthened further...” Good news to be sure. Next, the statement goes on to tie near term interest rates to potential improvement in employment, saying about the fed funds rate, ”…0 to .25%...will be appropriate at least as long as the unemployment rate remains above 6.5%”. More good news: The full statement can be seen at: http://blogs.wsj.com/economics/2013/05/01/fed-statement-following-may-meeting/.
On the employment side, last week’s Employment Situation report from the Bureau of Labor Statistics (the “Employment Report”) contained heartening news that the overall unemployment rate notched down another tenth of a percent to 7.5%. That’s good, but more importantly in our view; total non-farm employment increased by 165,000 during the month, and for the last 12 months, has averaged an increase of 169,000. That’s good too, and continues a very helpful trend. The full employment report is available at http://www.bls.gov/news.release/pdf/empsit.pdf .
At JL Davis, we aren’t economic or market prognosticators, a point we reiterate often. We look long term, which has virtually always been positive… given time. We don’t believe we, or anyone else can accurately predict the future. We especially subscribe to Warren Buffet’s famous quote, “In the business world, the rearview mirror is always clearer than the windshield."
That said, we continue to like the view right now for disciplined long term investors like us and our great clients.**
Market Week: May 6, 2013
The Markets
Records were made to be broken: Despite some volatility, generally positive earnings reports and a better-than-expected employment picture helped equities continue to power upward. The jobs report sent the S&P 500 to a new record close above 1,600 on Friday. The Dow industrials briefly topped 15,000 but couldn't quite hang on to that gain, though it also ended the week at a record level. And for a change, the tech sector helped the Nasdaq take the lead for the week.
Last Week's Headlines
•The unemployment rate continued to inch downward in April. The 165,000 new jobs created during the month cut the unemployment rate to 7.5%--the lowest level since December 2008--and the February and March new jobs figures were revised upward. The loss of 11,000 government jobs partly offset the private sector's 176,000 new jobs, where the biggest gains were in professional/business services, leisure and hospitality, and education.
•Americans' incomes rose in March, but the extra money didn't stay in bank accounts for long. Both personal incomes and consumer spending were up 0.2% for the month, according to the Bureau of Economic Analysis. The rise in spending was the smallest in three months, and higher utility bills caused by unseasonably cold weather were responsible for part of the increase. The savings rate remained at 2.7% of income for a second month.
•As expected, the Fed will continue its bond purchases, though it may increase or decrease the amount depending on economic performance. The Fed's statement also blamed current tax and spending policies for restrained economic growth. Meanwhile, as eurozone unemployment hit a record 12.1%, the European Central Bank will attempt to stimulate the contracting economy there by cutting its key interest rate to 0.5%, and ECB President Mario Draghi hinted that it might go still further.
•A 0.3% increase in home prices during February helped put prices in 20 cities measured by the S&P/Case-Shiller index 9.3% higher than a year earlier. It was the second straight month of year-over-year increases in all 20 cities.
•U.S. manufacturing slowed for the fifth straight month, according to the Institute for Supply Management. The ISM's gauge of manufacturing activity hit 50.7%; though that still indicates growth, slipping below 50% would represent contraction. Meanwhile, the ISM's services index also showed slowing growth as it hit 53.1%.
•A 48% drop in the volatile nondefense aircraft sector helped cut new factory orders for manufactured goods by 4% in March, according to the Commerce Department.
•The U.S. trade deficit fell by 11% in March, its second major decline in four months. While exports were down, they fell less than imports, especially imports of consumer goods. However, part of the decline in imports may be tied to the Chinese lunar new year holiday and could be temporary.
•The Treasury Department said reduced federal spending and higher tax receipts, in part from seasonal income tax filings, will enable it to pay off $35 billion in bonds this quarter. It's the first such payment on the national debt in six years, and could help delay another battle over the debt ceiling, though the reduction is seen as temporary.
•Construction spending fell 1.7% in March, according to the Commerce Department, though it was still almost 5% higher than a year earlier. Private construction was down slightly, by 0.6%, but public construction fell 4.1% during the month.
Eye on the Week Ahead
In a week that's practically bereft of economic data, investors may focus on the few earnings reports that are left, since there will be little else to guide them in trying to assess the chances of equities continuing their spectacular run. The G8 nations are scheduled to meet Friday, and demand at two U.S. Treasury auctions will be watched.
Key dates and data releases: consumer credit use (5/7); 10-year Treasury note auction (5/8); 30-year Treasury bond auction (5/9).
Data sources: Includes data provided by Brounes & Associates. 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.
Prepared by Lee Davis** and Broadridge Investor Communication Solutions, Inc. Copyright 2013
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment