Market Week: July 1, 2014

June 30th, 2014

The Markets

Domestic equities seemed to shrug off a massive downward revision to first-quarter GDP and mostly ended the week flat. Though the Nasdaq’s gain was slight, it was the sixth positive week out of the last seven. Meanwhile, the benchmark 10-year Treasury yield remained low as demand from bond investors continued to support prices.

Market/Index

2013 Close

Prior Week

As of 6/27

Weekly Change

YTD Change

DJIA

16576.66

16947.08

16851.84

-.56%

1.66%

Nasdaq

4176.59

4368.04

4397.93

.68%

5.30%

S&P 500

1848.36

1962.87

1960.97

-.10%

6.09%

Russell 2000

1163.64

1188.42

1189.49

.09%

2.22%

Global Dow

2484.10

2617.86

2603.77

-.54%

4.82%

Fed. Funds

.25%

.25%

.25%

0 bps

0 bps

10-year Treasuries

3.04%

2.63%

2.54%

-9 bps

-50 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

· The U.S. economy contracted at a much faster pace in Q1 than anticipated, falling 2.9% (not the 1% recently estimated). The Bureau of Economic Analysis said its unusually steep downward revision of gross domestic product was caused not only by winter weather but also by exports and health-care spending that were both lower than previously thought.

· The housing market rebounded strongly in May from its winter slump. According to the Commerce Department, sales of new single-family homes leaped 18.6% in May and were almost 17% better than a year earlier. Also, the National Association of Realtors® said the 4.9% increase in resales of existing homes was the biggest monthly gain in nearly three years. However, the NAR also said existing home sales were 5% lower and the number of unsold homes was 6% higher than in May 2013.

· Data on April home prices also was mixed. Cities in the S&P/Case-Shiller 20-City Composite Index averaged a 1.1% gain in April, for a gain of almost 11% since last April. Boston saw its biggest monthly gain in the index’s 27-year history, and San Francisco had its sixth straight price increase. However, seven cities reported a decline since March, and S&P said year-over-year price gains had begun to slow.

· U.S. incomes rose faster than personal consumption in May; according to the Bureau of Economic Analysis, incomes were up 0.4%, while spending rose 0.2%. Even after adjusting for inflation, incomes were up 0.2% for the second straight month. The bad news? That 0.2% increase in personal consumption expenditures–a key inflation gauge for the Fed–resulted in the biggest 12-month gain since October 2012; further increases could mean inflationary pressure that might affect interest rates.

· The European Union formalized a trade agreement with Ukraine, Georgia, and Moldova–the agreement whose rejection by the former Ukrainian president led to subsequent protests and ultimately Russia’s annexation of Crimea. Shortly thereafter, European leaders told Russia it had until Monday evening to persuade rebels in Ukraine to respect a cease-fire or face further EU economic sanctions.

· Durable goods orders fell 1% in May after three strong months. However, the Commerce Department said most of the decline was caused by a 31% drop in defense spending on equipment. Other than defense, new orders were up 0.6%.

Eye on the Week Ahead

In a holiday-shortened week, trading volumes are likely to continue to be light. Manufacturing data may suggest whether recent improvements can be sustained. The European Central Bank is scheduled to report on Thursday, but last month’s decision to adopt a negative interest rate likely precludes much immediate change in policy. And as always, the jobs report, issued a day early, will be watched.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). 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 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

Market Week: June 24, 2014

June 24th, 2014

The Markets

Reassurance from the Fed seemed to outweigh the situation in Iraq last week as investors showed greater comfort with taking on more risk. The week’s biggest gains were in the small caps of the Russell 2000, which once again returned to positive territory for the year, while the Nasdaq closed the week at a level it hasn’t seen since April 2000. Meanwhile, the Dow and S&P 500 set new record highs yet again–the 11th so far this year for the Dow, the 22nd for the S&P 500.

Market/Index

2013 Close

Prior Week

As of 6/20

Weekly Change

YTD Change

DJIA

16576.66

16775.68

16947.08

1.02%

2.23%

Nasdaq

4176.59

4310.65

4368.04

1.33%

4.58%

S&P 500

1848.36

1936.15

1962.87

1.38%

6.20%

Russell 2000

1163.64

1162.68

1188.42

2.21%

2.13%

Global Dow

2484.10

2587.94

2617.86

1.16%

5.38%

Fed. Funds

.25%

.25%

.25%

0 bps

0 bps

10-year Treasuries

3.04%

2.60%

2.63%

3 bps

-41 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

· The Fed’s long/short strategy: The Federal Reserve’s monetary policy committee predicted that further improvement in the economy and the job market would allow it to raise interest rates slightly faster than previously anticipated. It now sees its current near-zero target rate hitting 1.2% by the end of 2015 and 2.4% in 2016. That’s slightly higher than previous forecasts. However, it also suggested subsequent increases might take rates to only 3.75%–slightly lower than its earlier long-term forecast of 4%. And as expected, Fed bond purchases were once again cut by $10 billion, leaving the monthly total at $35 billion.

· Despite the projected economic rebound, 2014’s winter-weakened first quarter led the Fed to cut its U.S. growth forecast for the year from the nearly 3% predicted in March to 2.1%-2.3%. The Fed also said the growth rate could bump up above 3% in 2015 but would settle back to a little over 2% in the longer term. Both forecasts are roughly in line with figures from the International Monetary Fund.

· U.S. manufacturing showed strength in May. Industrial production increased for the third month out of the last four and was up 4.3% from a year ago. The Federal Reserve said May’s 0.6% gain was led by a 1.5% increase in automotive output, and that 79.1% of the nation’s manufacturing capacity was being used. Also, the Fed’s Empire State manufacturing index remained at a multiyear high for the second consecutive month, and the Philly Fed index rose from 15.4 to 17.8–its highest reading since September and the fourth straight positive month.

· Consumer prices rose in May at the fastest pace in more than a year. The Bureau of Labor Statistics said the 0.4% increase was broad-based, but was driven largely by higher prices for housing, food, electricity, airfares, and gas (food prices jumped more than in any month in almost three years, and groceries were up 0.7% for the month). The increases put the overall consumer inflation rate for the last year at 2.1%. Fed Chair Janet Yellen said that though recent upticks have left inflation a bit on the high side, it’s basically in line with the Fed’s 2% target.

· Housing starts slumped 6.5% in May, according to the Commerce Department, but were still 9.4% higher than in May 2013. Building permits–an indicator of future activity–also fell, and the 6.4% decline left them nearly 2% lower than a year ago.

Eye on the Week Ahead

New and existing home sales will suggest whether the summer housing market is picking up, while consumer spending also will be of interest. Depending on the situation in Iraq, oil prices could start to become a bigger factor in investor thinking.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). 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 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

The weekly tickler

June 21st, 2014

Here is follow up from the last tickler:

No profit yet on my EBAY $52.50 puts. The stock was up for a while, and I had a profit, but then it’s back down and I’m about even on the $2,200 I collected. While the stock is down it seems like a good time to sell puts, for those interested.

CRM has jumped up dramatically, and it seems very likely that I will make a $2,100 profit on the 55 puts. I’m only sorry I didn’t also buy some of the stock.

FCX, the copper play, is going nowhere. But it’s a long term hold.

The Mattel calls remain profitable. The stock hovers just below the $40 strike price. This remains a good covered call play for those looking for that kind of trade. Buy the stock and sell the $40 calls.

The Bank of America trade also seems OK. The stock is rallying back from the $14 low, and is around $16, just one point short of my strike price on the puts. This too would be a good covered call position, buy the stock at $16 and sell the $17 calls. But you might want to wait until they restart the dividend.

Whole Foods remains down from my purchase price, but up nicely from my naked puts at $37.50. So I’m slowly recouping my losses on the stock, and I’m still optimistic for the long run during this year. I’ve had to roll up my calls as the stock has gone up, but that’s OK, I’m about even on the calls and up on the puts.

What’s new?

With Europe coming out of the recession, and following the general principle that Europe follows the US by a year or so, I’m buying FEZ, a Euro based ETF. With a 2.5% dividend and a 15 PE, in spite of the fact that it’s at a high point at $45 I think it has a ways to go.

I’m selling my holding in Coca Cola. While it’s a good stock and a good base for selling covered calls, I don’t think the stock has a big upside right now and there are better plays.

P.S. Just after writing this I bought 1000 shares of STWD, Starwood properties. I noticed it
Has an 8% yield and seems well priced and fairly stable. I am now looking into selling calls against it, even though there isn’t much premium.

– Merv

Market Week: June 16, 2014

June 17th, 2014

The Markets

Equities took a break across the board from their recent upward surge. After fresh all-time record closes early in the week, both the S&P 500 and the Dow Industrials saw profit-taking that also returned the small caps of the Russell 2000 to negative territory for the year. Renewed conflict in Iraq contributed to equities’ swoon, raising concerns about global oil supplies and pushing oil to roughly $107 a barrel.

Market/Index

2013 Close

Prior Week

As of 6/13

Weekly Change

YTD Change

DJIA

16576.66

16924.28

16775.68

-.88%

1.20%

Nasdaq

4176.59

4321.40

4310.65

-.25%

3.21%

S&P 500

1848.36

1949.44

1936.15

-.68%

4.75%

Russell 2000

1163.64

1165.21

1162.68

-.22%

-.08%

Global Dow

2484.10

2599.33

2587.94

-.44%

4.18%

Fed. Funds

.25%

.25%

.25%

0 bps

0 bps

10-year Treasuries

3.04%

2.60%

2.60%

0 bps

-44 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

· U.S. retail sales rose 0.3% in May and were 4.3% higher than a year earlier. The Department of Commerce said the biggest increases were seen at auto and auto parts dealers, building/garden supplies stores, and miscellaneous store retailers such as florists, office suppliers, and used-merchandise stores.

· Wholesale prices fell 0.2% in May, leaving the wholesale inflation rate for the last 12 months at 2%. According to the Bureau of Labor Statistics, that’s down slightly from the previous month, but substantially higher than the 1% of last May. The decline in prices at the final stage of wholesale distribution was evenly split between goods and services. Inflation is one of the measures being watched by the Federal Reserve as it unwinds its bond-buying efforts.

· The World Bank cut its estimate of 2014 global economic growth to 2.8% rather than the 3.2% it predicted in January. The Global Economic Prospects report said developing countries have been especially hurt by bad weather in the United States, a slowing housing market in China, political conflicts, and slow progress on structural economic reform; the report sees emerging-market growth at 4.8% this year rather than 5.3%. However, 2015 is expected to be better, with a 3.4% global growth rate and 5.4% growth in the developing economies.

Eye on the Week Ahead

The Fed is expected to once again reduce its monthly bond purchases, and options expiration at the end of the week could mean volatility as traders on the wrong side of equities’ recent surge attempt to manage those positions. U.S. manufacturing data and the state of the oil market also could influence the mood of the markets.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). 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 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

Market Week: June 10, 2014

June 10th, 2014

The Markets

For the third straight week, both large- and small-cap indices surged upward. Once again, the S&P 500 and the Dow industrials set new record highs, while the small caps of the Russell 2000 returned to positive territory for the year. The enthusiasm for equities took a toll on the benchmark 10-year Treasury note, whose yield rose as prices fell.

Market/Index

2013 Close

Prior Week

As of 6/6

Weekly Change

YTD Change

DJIA

16576.66

16717.17

16924.28

1.24%

2.10%

Nasdaq

4176.59

4242.62

4321.40

1.86%

3.47%

S&P 500

1848.36

1923.57

1949.44

1.34%

5.47%

Russell 2000

1163.64

1134.50

1165.21

2.71%

.13%

Global Dow

2484.10

2564.35

2599.33

1.36%

4.64%

Fed. Funds

.25%

.25%

.25%

0 bps

0 bps

10-year Treasuries

3.04%

2.48%

2.60%

12 bps

-44 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

· The U.S. economy has finally regained all of the jobs lost during the recession that officially began in December 2007. The 217,000 jobs created in May put total employment at 138.4 million–higher than the previous peak recorded in January 2008. It was the fourth straight month in which the number of new jobs has exceeded 200,000. However, the Bureau of Labor Statistics said the unemployment rate remained unchanged at 6.3%. Also, including workers who are underemployed would put the unemployment rate at 12.2%, down from a peak of 17.2%.

· Going negative: To encourage lending, the European Central Bank cut the interest rate it pays banks for holding their deposits to -0.1%; rather than paying interest on deposits, it’s essentially charging banks for holding their cash. The ECB also cut its refinancing rate–the rate banks must pay when they borrow from the ECB–from 0.25% to 0.15%. President Mario Draghi said the ECB will offer targeted long-term refinancing operations (TLTROs) in September and December, which will allow banks to borrow up to three times the amount they lend out, and may also buy certain asset-backed securities. Draghi also said the ECB is prepared to do more if these measures don’t do enough to stimulate the economy.

· The Environmental Protection Agency announced a sweeping plan to cut carbon pollution nationwide from existing power plants by 30% below 2005 levels. The plan would give individual states a year in which to identify how they would meet the target between now and 2030, and give the public 120 days to comment on the EPA’s proposal.

· U.S. manufacturing continued to rebound. The Commerce Department said the 0.7% increase in factory orders in April (fueled in part by orders for military equipment) was the third straight monthly increase. Meanwhile, the Institute for Supply Management’s manufacturing index also showed acceleration, rising 0.5% to 55.4% in May. The ISM said the services sector, which represents a larger segment of the economy, saw even stronger gains, rising 1.1% in May to 56.3%.

· Construction spending also was up in April, according to the Commerce Department. The 0.2% increase from March put spending 8.6% above the same time last year. Residential construction was up 0.1% for the month, while commercial construction slid 0.1%. Spending on public projects such as schools and highways rose 0.8%.

· The U.S. trade deficit rose more than 6% in April as imports hit a record high of more than $240 billion and exports slowed for the fourth month out of the last five. According to the Bureau of Economic Analysis, the growth in imports stemmed largely from spending on foreign autos, computers, food, and consumer goods.

· Anecdotal reports from the Federal Reserve’s “beige book” report showed the economy continued to improve along with the weather. All 12 districts reported economic expansion, and upward pressure on wages, which could trigger inflation, remained subdued.

Eye on the Week Ahead

In a week light on economic data that could serve as a catalyst for market movements, trading volumes that also have been light in recent weeks could magnify any volatility. Investors–at least those that aren’t on vacation–will try to assess whether recent upward movement reflects an economy emerging from winter worries or a last surge before summer doldrums set in.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). 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 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

Market Week: June 3, 2014

June 3rd, 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.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). 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 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.