Archives for July 2015

Markets Drop on Global Growth Worries Weekly Update – July 27, 2015

Image courtesy of FreeDigitalPhotos.net/sscreations

Image courtesy of
FreeDigitalPhotos.net/sscreations

Stocks were unable to maintain the momentum and gave up ground in another roller coaster week. Though earnings week marched onward, investors seemed more concerned about global growth and falling commodity prices. For the week, the S&P 500 fell 2.20%, the Dow dropped 2.85%, and the NASDAQ lost 2.31%.[i]

Falling commodity prices contributed to a lot of last week’s selloff as investors worried that plummeting gold, copper, and silver prices meant slowing global economic demand. Commodity prices were hit hard by new data out of China that shows manufacturing activity is at a 15-month low. The Asian giant is the world’s largest consumer of industrial metals, and commodity traders worry that falling demand could lead to a glut in metal supplies.[ii]

Are fears about China overblown? Possibly. Between the recent stock selloff in China and fresh concerns about a hard landing for the Chinese economy, it might seem that the global bull market might be ending. However, let’s take a step back and take a look at the big picture. While the Chinese economy is the second largest in the world and could certainly disrupt global growth, the size (and structure) of its stock market means that volatility there isn’t likely to affect U.S. equities. In fact, Chinese stocks had already experienced two bear markets since 2009 – neither of which seriously affected our domestic bull market. China’s central bank is also taking an active role in boosting economic growth.[iii] All that being said, the past can’t predict the future, and we’re keeping a close eye on what’s happening overseas. While we do see some headwinds and potential threats on the horizon, we still believe in a globally diversified portfolio strategy.

On the domestic front, earnings season continued last week and the picture thus far is uninspiring. As of July 22nd, we have gotten results from 103 S&P 500 members and total earnings are up just 3.0% on 1.2% higher revenues than the same period last year. Fortunately, not everything is bleak. Multiple sectors have seen success stories, and overall earnings are being dragged down by the beleaguered Energy sector.[iv] Are these results unexpected? Not at all. Much of the weakness was anticipated, and analysts are hopeful that growth will pick up in 2016.[v] However, the tepid earnings picture leaves many investors wondering if the Federal Reserve will see enough growth this year to raise rates.

Attention will turn to the Fed’s Open Market Committee when it meets next week, and though we don’t expect any decisions about interest rates to be made, we hope that the Fed will give us some insight into what they think about recent global growth worries. Earnings season will continue, and we’ll also get another look at second quarter economic growth, which is expected to rise slightly.[vi]

ECONOMIC CALENDAR:

Monday: Durable Goods Orders, Dallas Fed Mfg. Survey

Tuesday: S&P Case-Shiller HPI, Consumer Confidence

Wednesday: Pending Home Sales Index, EIA Petroleum Status Report, FOMC Meeting Announcement

Thursday: GDP, Jobless Claims

Friday: Employment Cost Index, Chicago PMI, Consumer Sentiment

7-27-15

HEADLINES:

New home sales drop in June. Sales of newly built homes unexpectedly fell last month to the lowest level in seven months. Since data last week showed that new permits are up, analysts hope the setback is temporary.[vii]

Existing home sales skyrocket in June. Resales soared last month on pent-up demand to their highest level in nearly 8-1/2 years. Analysts hope that the housing market will keep its momentum ahead of possible interest rate increases.[viii]

Jobless claims drop to lowest level since 1973. The number of Americans filing new claims for jobless benefits plummeted last week to a multi-decade low, suggesting that hiring remains solid despite summer volatility.[ix]

Greek cash limits unlikely to go away soon. Greek banks will likely maintain cash withdrawal limits (currently about $460 per week) until fresh money arrives from Europe, worsening the crisis for Greeks. Questions about how to restructure banks may hold up bailout negotiations.[x]

 

[i] https://goo.gl/vFCeR8, http://i.imgur.com/Ox1Ma1t.png

[ii] http://www.businessinsider.com/why-blame-china-for-low-commodity-prices-2015-7

[iii] http://www.zacksim.com/mitch-zacks-commentary-individual-investors/item/526-the-great-fall-of-china

[iv] http://www.zacks.com/commentary/51730/an-uninspiring-earnings-picture

[v] http://www.zacks.com/commentary/51730/an-uninspiring-earnings-picture

[vi] http://www.foxbusiness.com/economy-policy/2015/07/24/week-ahead-fomc-meeting-gdp-and-more-earnings/?intcmp=bigtopmarketfeatures

[vii] http://www.foxbusiness.com/economy-policy/2015/07/24/new-home-sales-unexpectedly-drop-to-seven-month-low-in-june/

[viii] http://www.foxbusiness.com/economy-policy/2015/07/22/existing-home-sales-soar-in-june-surpass-views/

[ix] http://www.foxbusiness.com/economy-policy/2015/07/23/weekly-jobless-claims-lowest-since-173/?intcmp=trending

[x] http://www.foxbusiness.com/economy-policy/2015/07/24/new-home-sales-unexpectedly-drop-to-seven-month-low-in-june/

Stocks Rise on Earnings & Greece Weekly Update – July 20, 2015

Image courtesy of FreeDigitalPhotos.net/jscreationzs

Image courtesy of FreeDigitalPhotos.net/jscreationzs

Stocks surged in an action-packed week, giving the NASDAQ two record closes in a row. For the week, the S&P 500 gained 2.41%, the Dow rose 1.84%, and the NASDAQ soared 4.25%.1

Investors around the world breathed a sigh of relief when EU negotiators finally reached a deal on Greece after weeks of brinksmanship. However, all is not won yet since the deal must pass several Eurozone parliaments next and Greece must apply for a new International Monetary Fund program.2 But, the European Central Bank approved more emergency relief and Greek banks are due to reopen this week.3 Will this new bailout resolve all of Greece’s issues? Certainly not. In fact, we may see new acts in the Greek drama if a snap general election is called this fall or if the IMF refuses to support the deal.4 However, Europe avoided a painful Greek exit and Greece has stepped back from the brink (for now).

On the U.S. side, earnings season really got going last week; despite some outsized performance from a few companies, earnings have gotten off to a lukewarm start, with early results suggesting that revenues may be weaker than what we saw in the first quarter. However, financials are showing strength and some standouts in the tech sector drove the NASDAQ to new record closes.5 Shares from technology giant Google (GOOGL) skyrocketed on strong earnings, giving the stock the biggest one-day rally in history.6

In other news, Federal Reserve Chair Janet Yellen testified before House and Senate committees last week, reiterating the Fed’s commitment to raising rates later this year. Though Yellen is comfortable with the improvement shown by the labor market, she wants to be cautious about the timing of interest rate hikes to avoid stalling the economic recovery.7

Looking ahead, earnings season will continue heating up this week, giving analysts piles of new reports to digest. Investors will also take a look at more housing data to gauge how the sector looks this quarter. Though summer is often a sleepy time for markets, recent events are keeping traders close to home and we may see more volatility in the coming weeks.

 ECONOMIC CALENDAR:

Wednesday: Existing Home Sales, EIA Petroleum Status Report

Thursday: Jobless Claims

Friday: PMI Manufacturing Index Flash, New Home Sales

072015

HEADLINES:

Jobless claims fall more than expected. After three weeks of increases, the number of Americans filing new claims for unemployment benefits fell. Summer jobs data tends to be volatile, but the drop is a sign of health for the labor market.8

Inflation rises in June. The cost of consumer goods rose for a fifth straight month in June, driven upward by rising gasoline and other costs. This increase supports the Federal Reserve’s plan to raise interest rates this year.9

Housing starts rebound in June. Groundbreaking on new homes increased by 9.8% last month and new permits rose, boosting expectations of a housing market resurgence this year.10

Retail sales decline. U.S. retail sales unexpectedly slipped last month as Americans cut back on major purchases like autos and home goods. Though the decline could be seasonal, it raises worries that the economy might be lagging.11

Why Are Greece and China Worries Fading? Weekly Update – July 13, 2015

Image courtesy of freedigitalphotos.net/Jeroen van Oostrom

Image courtesy of freedigitalphotos.net/Jeroen van Oostrom

Markets finally broke the losing streak, closing up for the week as worries about Greece and China faded. For the week, the S&P 500 gained 0.88%, the Dow rose 1.11%, and the NASDAQ grew 0.69%.1

Though a deal with Greece wasn’t reached on Sunday, both sides of the debt overhaul debate appear committed to finding a solution. Top-level officials from around Europe met to put together a deal that would be acceptable to creditors as well as Greece’s wary parliament. With Greek banks shut since June 28 and unlikely to reopen without additional funds, damage is already being done to the Greek economy.2  As of Monday morning, an “Agreement” was finally reached between the two sides; now, attention turns to Greek’s parliament, which must ratify the deal.3

China’s stock market, which has been experiencing a bear market correction, stabilized last week. Is the free-fall over? Hard to say, but we’re not worried. China’s stock market and investing culture is immature, and the recent 30% drop in the Shanghai Composite Index came after a run-up of 150%.4 Many analysts felt that Chinese markets were frothy and overpriced, so the correction isn’t unexpected. However, the stock meltdown does lower the expectation that China’s economy will reignite global growth.5

On the domestic side, the largest stock exchange in the U.S. experienced an outage last week that caused some to worry about the effects of software on markets. The technical fault that caused the New York Stock Exchange to halt trading for four hours on Wednesday gave investors pause but didn’t result in too much disruption to U.S. equity markets because orders were routed through other exchanges. While rumors of a malicious attack flourished, NYSE officials claimed a software glitch was to blame.6

In today’s software-reliant world, technical faults can and do happen. While other institutional traders who measure positions in microseconds can suffer serious losses when orders don’t go through in time, long-term investors aren’t usually affected by small glitches. Why? When you’re investing for long-term time horizons, the timing of individual trades doesn’t matter as much, and little ripples in the market generally won’t affect your long-term financial picture.

In the week ahead, Federal Reserve Chair Janet Yellen will be speaking about monetary policy to the House and Senate. Remarks that Yellen made on Friday suggest that she will probably reiterate the Fed’s intention to raise rates later this year as long as economic activity continues apace.7 Earnings season will ramp up with many banks reporting this week as well. We’ll have more for you on earnings next week.

ECONOMIC CALENDAR:

 Monday: Treasury Budget

Tuesday: Retail Sales, Business Inventories

Wednesday: PPI-FD, Empire State Mfg. Survey, Industrial Production, Janet Yellen Speaks 10:00 AM ET, EIA Petroleum Status Report, Beige Book

Thursday: Jobless Claims, Philadelphia Fed Business Outlook Survey, Housing Market Index, Janet Yellen Speaks 10:00 AM ET

Friday: Consumer Price Index, Housing Starts, Consumer Sentiment

7-13-15

HEADLINES:

Jobless claims rise to highest level since February. The number of Americans filing new claims for jobless benefits rose last week, though underlying trends remain stable. Seasonal factors may be to blame.8

Job openings soar. The number of available jobs rose again in May, showing that the economy had 5.4 million jobs to offer. Despite the increase, hiring remained flat, indicating that employers may be having trouble finding jobseekers with the right skills.9

Fed meeting minutes shows split. Meeting minutes from the June Federal Open Market Committee meeting show that economists were split, with some ready to vote for a rate increase. However, uncertainty around global risks won out, and officials chose to wait for more information.10

Consumer confidence rises more than expected in June. A gauge of how optimistic Americans feel about their economic prospects soared last month, stoking hopes that spending may boost economic growth.11

International Monetary Fund trims global growth expectations. Citing weaker-than-expected economic activity, weak inflation, and other factors, the IMF lowered its global growth projection to 3.3% from 3.5%.12

Hixon Zuercher July 2015 Monthly Market Update

Quarterly Update: Markets Lose Ground on Greek Default Weekly Update – July 6, 2015

Image provided by FreeDigitalPhotos.net/ddpavumba

Image provided by FreeDigitalPhotos.net/ddpavumba

Markets lost ground again last week after Greece technically defaulted on loan payments and edged closer to an exit from the Euro. For the week, the S&P 500 dropped 1.29%, the Dow lost 1.24%, and the NASDAQ fell 1.92%.

What contributed to market performance last quarter?

Ongoing issues in Greece occupied a lot of headlines last quarter. Greece, which has struggled with debt and recession for years, has been in a standoff with its European creditors for weeks with no resolution in sight. U.S. investors responded to the turmoil with nervousness, worried about the possibility of financial contagion spreading from Europe to the U.S. Though Greece has technically defaulted on its debt obligations, we believe that financial markets are prepared for additional Greek drama and reactions will hopefully be short-lived.

Continued improvement in the labor market was a source of more positive investor sentiment last quarter. The June jobs report showed that the unemployment rate declined again to 5.3% and that the economy added 223,000 new jobs last month, bringing the total number of jobs created in the first half of the year to just over 1 million.

While the labor market is clearly making strides, it’s becoming clear that this is not your father’s recovery. Many available jobs are part-time only, wages are sluggish, and the workforce is smaller than it used to be, partly because of the vast numbers of Boomers heading into retirement.

On the positive side, the tepid report probably doesn’t give Fed chair Janet Yellen the “decisive evidence” of a jobs recovery she says she wants to see before raising interest rates this year. The Fed spent most of the first half of 2015 emphasizing that it’s going to eventually have to raise interest rates to fight off inflation. Fortunately, Fed statements have repeatedly stressed the central bank’s intention to take a slow, cautious approach to rate hikes. Will we see a rate increase this year? Possibly. Most Wall Street experts seem to think that a September hike is in store.

What can we expect in the weeks ahead?

Greece will be on investors’ minds in the coming weeks as European leaders seek a resolution to the debt-ridden country’s financial crisis. However, some analysts don’t believe that a default will necessarily lead to an exit from the Euro. However the situation is resolved, we don’t expect U.S. financial markets to experience more than a short-term pullback; in fact, stocks might head higher due to a ‘flight to quality’ effect as investors seek alternatives outside of Europe.

Investors will also be eagerly waiting for the first estimate of last quarter’s economic growth. After the dismal first quarter, in which economic growth ground to a halt, investors have pinned their hopes on a second quarter resurgence. Estimates of Q2 Gross Domestic Product growth are ranging between 2.0%-3.3%, showing that there are a lot of opinions out there on how the economy is doing.

What will earnings season bring?

By the trickle of earnings that we’ve seen so far, we can see that investors are being very unforgiving of low performers. Their attitude makes sense in light of how high markets have been running. Going forward, we want you to keep a couple of things in mind:

Could we see a pullback in the days and weeks ahead? Possibly. Is it the end of the world? Absolutely not. While it’s impossible to predict how markets are going to react to earnings season, Greece, or any other potential headwind, we want to emphasize that market corrections are a natural and expected phenomenon in today’s world; while it’s stressful to watch portfolio values fluctuate, pullbacks offer a good opportunity to review strategies and think about your personal goals. We also specialize in creating strategies that help mitigate volatility and work to take advantage of market movements.

ECONOMIC CALENDAR:

 Monday: ISM Non-Mfg. Index

Tuesday: International Trade, JOLTS

Wednesday: EIA Petroleum Status Report, FOMC Minutes

Thursday: Jobless Claims

Friday: Janet Yellen Speaks 12:00 PM ET

07062015

 

HEADLINES:

Greeks vote “No” on bailout. Greek voters rejected the historic bailout referendum, refusing to given in to pressure to accept further austerity cuts. The result paves the way for negotiators to try and get a better deal from European creditors.

[x] China slips into bear market. The Shanghai Composite Index closed over 20% lower than its June 12 high, officially putting Chinese stocks in a bear market. Some analysts believe that China’s correction is unremarkable given the country’s economic struggles.

 Pending home sales reach multi-year high. The number of houses under contract rose to the highest level in over nine years in May, indicating that homebuyers may be taking advantage of a reprieve on higher interest rates.

 Consumer confidence rises more than expected in June. A gauge of how optimistic Americans feel about their economic prospects soared last month, stoking hopes that spending may boost economic growth.