CFGIowa Monthly Economic Update November 2013

THE MONTH IN BRIEF

Will 2013 go in the books as the best year for U.S. stocks since the mid-1990s? It may. At the end of November, the S&P 500 was already up 26.62% YTD – and that was just its price return. November brought more signals of an improving economy, even with a hot housing market cooling off by degrees. The eurozone economy still looked tenuous; China’s economy showed signs of resilience. Prices of gold, oil and other key commodities dropped. Some foreign stock markets outperformed ours, others lost ground. The Federal Reserve made no moves, but its October policy minutes hinted at trimming its monthly bond buying.1

DOMESTIC ECONOMIC HEALTH

Early in the month, the Labor Department stated that 204,000 new jobs were created in October, better than the average monthly gain of 190,000 seen during the past year. The jobless rate did tick up to 7.3%; at least that was 2.9% lower than the recessionary peak seen in October 2009. Manufacturing and service sectors appeared healthy judging by the Institute for Supply Management’s purchasing manager indices (PMI). ISM’s factory sector gauge reached 56.4 in October (and 57.3 in November, marking a sixth straight monthly advance). Its service-sector PMI rose a full point in October to 55.4.2,3,4

November also brought the federal government’s first estimate of Q3 Gross Domestic Product (GDP) – a surprisingly good 2.8%. (Analysts polled by MarketWatch had expected a 2.3% reading.) As for the prime factor in GDP, a delayed Commerce Department report on consumer spending noted only a 0.2% gain in September, even as personal incomes increased 0.5%. Retail sales rose a healthy 0.4% in October, however.5,6,7

Respected consumer confidence polls reached different conclusions last month. The Conference Board’s index fell two whole points to 70.4, far underneath the 74.0 reading forecast by Briefing.com. The University of Michigan’s final consumer sentiment index for the month offered better news, rising to 75.1.8

Annualized inflation was amazingly tame – just 1.0% as of October, thanks to a 0.1% decline in the Consumer Price Index. As for wholesale prices, October’s Producer Price Index showed a 0.2% retreat, and that meant just a 0.3% gain over the past 12 months – the weakest annual wholesale inflation since 2009. Durable goods orders slipped 2.0% in October.7,8,9

As for the Fed, Janet Yellen reassured Wall Street at mid-month with dovish comments at her Senate confirmation hearing, noting that “supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.” Days later, however, the October Fed policy minutes noted that if indicators affirmed the FOMC’s “outlook for ongoing improvement” in the labor market, it would “warrant trimming the pace of [bond] purchases in coming months.”10,11

Lastly, the White House dealt with the backlash over the launch of HealthCare.gov. Less than 27,000 people had enrolled in the federal online insurance exchange in October due to glitches. A November repair effort left the site running much more smoothly at the start of December; CNN estimates that at the end of last month, total enrollment at HealthCare.gov and the 14 state-run exchanges surpassed 200,000, up from 106,000 at the end of October. Individuals have until December 23 to shop for health coverage effective on January 1.12

GLOBAL ECONOMIC HEALTH

The EU jobless rate descended 0.1% in October to 12.1%. That was the good news. Annualized eurozone inflation hit 0.9% last month, rising from 0.7% for October (a 4-year low); retail sales slipped 0.8% in Germany in October following a 0.2% retreat for September. As for eurozone manufacturing, Markit’s PMI for the region reached 51.3 in October and a 2-year peak of 51.6 in November. Great Britain’s factory PMI hit 58.4 in November, the highest reading since February 2011. Not all was well: manufacturing PMIs showed contraction in Spain (48.6) and France (48.4).13,14

Indian manufacturing expanded for the first month since July in November, with HSBC’s PMI reaching 51.3. China’s official PMI was flat last month at 51.4 while HSBC’s PMI declined 0.1 points to 50.8. HSBC PMI readings for South Korea (50.4), Taiwan (53.4) and Vietnam (50.3) all showed growth in November. Japan’s official data stream showed yearly consumer inflation at just 0.6% and just an 0.9% annualized rise in consumer spending.13,15  

WORLD MARKETS

Performances were quite varied last month. Notable gains: DAX, 4.11%; Nikkei 225, 9.31%; Shanghai Composite, 3.68%; Hang Seng, 2.91%; IPC All-Share, 3.56%; MERVAL, 10.72%; TSX Composite, 0.26%; Global Dow, 1.65%; Europe Dow, 0.73%; DJ STOXX 600, 0.87%; MSCI World Index, 1.59%. These benchmarks racked up November losses: MSCI Emerging Markets Index, 1.56%; Asia Dow, 0.21%; Sensex, 1.76%; ASX, 1.94%; PSE Composite, 5.72%; Jakarta Composite, 5.64%; TAIEX, 0.51%; Bovespa, 3.27%; FTSE 100, 1.20%; CAC 40, 0.11%; RTSI, 5.23%.1,16

COMMODITIES MARKETS

Oil ended November at $92.72 as prices fell 3.57% on the month. Other energy futures posted monthly gains: heating oil, 2.70%; unleaded gasoline, 1.59%; natural gas, 10.69%. Gold sunk 5.46%, silver dropped 9.21%, platinum retreated 5.39% and copper lost 1.94%. COMEX gold settled at a mere $1,250.60 on November 29. As for crops, coffee rose 4.04%, cocoa 4.76%, cotton 2.81% and soybeans 4.39%; sugar lost 5.77% in November, corn 2.92% and wheat 1.80%. The U.S. Dollar Index ended November at 80.68 for a 0.60% monthly gain.17,18

REAL ESTATE

The National Association of Realtors announced that October had seen a 3.2% retreat in the pace of existing home sales – and a 0.6% slip in pending home sales. Countering the news of these declines, September’s S&P/Case-Shiller Home Price Index had house prices up 3.2% in Q3 and up 13.3% YTD. October also saw a 6.2% rise in building permits; the annualized gain was 13.9%. (As a consequence of the federal shutdown, new home sales figures for September and October won’t be announced by the Census Bureau until December 4, and the reports on September and October housing starts won’t arrive until December 18.)7,19,20

Between Halloween and November 27, Freddie Mac charted the following mortgage rate movements: 30-year FRMs, 4.10% to 4.29%; 15-year FRMs, 3.20% to 3.30%; 5/1-year ARMs, 2.96% to 2.94%; 1-year ARMs, 2.64% to 2.60%.21

LOOKING BACK…LOOKING FORWARD

Record closes seemed commonplace last month as the major U.S. indices pushed toward these November 29 finishes: DJIA, 16,086.41; NASDAQ, 4,059.89; S&P 500, 1,805.81. The Russell 2000 gained 3.88% last month to end November at 1,142.89; the CBOE VIX declined 0.36% on the month to settle at 13.70 on November 29.1

% CHANGE

YTD

1-MO CHG

1-YR CHG

10-YR AVG

DJIA

+22.76

+3.48

+23.53

+6.44

NASDAQ

+34.45

+3.26

+34.79

+10.71

S&P 500

+26.62

+2.80

+27.53

+7.06

REAL YIELD

11/29 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

0.60%

-0.78%

2.60%

2.03%

Sources: online.wsj.com, bigcharts.com, treasury.gov – 11/29/131,22,23

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

The S&P 500 has advanced in each of the past five Decembers, and with the bulls seemingly entrenched on Wall Street, there is little reason to think it might not add to its YTD gain this month. In recent years, December has also been a terrific month for the small caps: across 2008-12, the Russell 2000’s average December gain was 5.01%. Then again, Wall Street is a volatile place – and recent FOMC minutes do raise the possibility of the central bank tapering in December and taking some of the air out of any Santa Claus rally. It could be that stocks advance nicely prior to the December 18 Fed policy announcement and limp through the rest of the month. If the latest bicameral budget reduction committee can’t agree on a plan by the middle of December, investors will have more to fret about. Confidence is still prevalent on Wall Street, however, and the year may end nicely indeed for equities.24

UPCOMING ECONOMIC RELEASES: The data stream for the remainder of 2013 is as follows: September and October new home sales, a new Fed Beige Book and the November ISM service sector PMI (12/4), the second estimate of Q3 GDP out of Washington, the November Challenger job-cut report and October factory orders (12/5), the November employment report, October consumer spending figures and the University of Michigan’s initial December consumer sentiment index (12/6), October wholesale inventories (12/10), November retail sales and October business inventories (12/12), the November PPI (12/13), November industrial output (12/16), the November CPI and the December NAHB housing market index (12/17), the latest Fed policy announcement plus data on September, October and November housing starts and November building permits (12/18), the last estimate of Q3 GDP (12/20), the University of Michigan’s final December consumer sentiment index and Commerce Department figures on November consumer spending (12/23), November new home sales and durable goods orders and October’s FHFA housing price index (12/24), and November pending home sales (12/30).


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«RepresentativeDisclosure»

Fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings.

Investing in foreign securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

The University of Michigan Consumer Sentiment Index (MCSI) is a survey of consumer confidence conducted by the University of Michigan. The MCSI uses telephone surveys to gather information on consumer expectations regarding the overall economy.

The ISM index is based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders, and supplier deliveries. A composite diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys.

Purchasing Managers Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

The Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPR are from the first commercial transaction for many products and services.

The S&P / Case-Shiller U.S. National Home Price Index measures the change in the value of U.S. residential housing market. The S&P / Chase-Shiller  U.S. National Home Price Index tracks the growth in value of real estate by following the purchase price and resale value of homes that have undergone a minimum of two arm’s-length transactions. The index is named for its creators, Karl Case and Robert Shiller.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.

The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index.

NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services.

The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade.

The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange.

Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks.

The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange.

The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong.

The Mexican IPC index (Indice de Precios y Cotizaciones) is a major stock market index which tracks the performance of leading companies listed on the Mexican Stock Exchange.

The MERVAL Index (MERcado de VALores, literally Stock Exchange) is the most important index of the Buenos Aires Stock Exchange.

The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization.

The Global Dow is a 150-stock index of corporations from around the world created by Dow Jones & Company.

The Europe Dow measures the European equity markets by tracking 30 leading blue-chip companies in the region.

The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index.

The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies.

The Asia Dow measures the Asia equity markets by tracking 30 leading blue-chip companies in the region.

The BSE SENSEX (Bombay Stock Exchange Sensitive Index), also-called the BSE 30 (BOMBAY STOCK EXCHANGE) or simply the SENSEX, is a free-float market capitalization-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE).

The Australian Stock Exchange (ASX) is Australia’s primary national stock exchange and equity derivatives market.

The PSE Composite Index, commonly known previously as the PHISIX and presently as the PSEi, is the main stock market index of the Philippine Stock Exchange.

The IDX Composite or Jakarta Composite Index is an index of all stocks that are traded on the Indonesia Stock Exchange (IDX).

The TWSE, or TAIEX, Index is capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.

The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange.

The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization.

The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse.

The RTS Index (abbreviated: RTSI, Russian: Индекс РТС) is a free-float capitalization-weighted index of 50 Russian stocks traded on the Moscow Exchange.

The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies.

Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results.  Investments will fluctuate and when redeemed may be worth more or less than when originally invested.

All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

Citations.

1 – online.wsj.com/mdc/public/page/2_3024-m_globalstockindexes.html [11/29/13]
2 – ncsl.org/research/labor-and-employment/national-employment-monthly-update.aspx [12/2/13]
3 – ism.ws/ismreport/mfgrob.cfm [12/2/13]
4 – ism.ws/ISMReport/NonMfgROB.cfm [11/5/13]
5 – marketwatch.com/Economy-Politics/Calendars/Economic [11/8/13]
6 – briefing.com/investor/calendars/economic/2013/11/8 [11/8/13]
7 – news.morningstar.com/articlenet/article.aspx?id=620267 [11/20/13]
8 – briefing.com/investor/calendars/economic/2013/11/25-29 [11/27/13]
9 – marketwatch.com/story/us-wholesale-costs-fall-again-in-october-2013-11-21 [11/21/13]
10 – bloomberg.com/news/2013-11-13/asian-futures-heed-u-s-rally-as-yelen-boosts-treasuries.html [11/13/13]
11 – bloomberg.com/news/2013-11-21/fed-qe-taper-likely-in-coming-months-on-better-data-minutes-say.html [11/21/13]
12 – cnn.com/2013/12/02/politics/obamacare-website/index.html [12/2/13]
13 – investing.com/news/forex-news/dollar-remains-steady-to-lower-in-thin-trade-255784 [11/29/13]
14 – investing.com/news/forex-news/forex—gbp-usd-hits-fresh-highs-after-u.k.-manufacturing-pmi-255844 [12/2/13]
15 – online.wsj.com/news/articles/SB10001424052702304579404579233363367081556 [12/2/13]
16 – mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [11/29/13]
17 – money.cnn.com/data/commodities/ [11/29/13]
18 – online.wsj.com/mdc/public/npage/2_3050.html?mod=mdc_curr_dtabnk&symb=DXY [11/29/13]
19 – briefing.com/investor/calendars/economic/2013/11/25-29 [11/27/13]
20 – dailyfinance.com/2013/11/26/case-shillers-housing-index-and-octobers-housing-s/ [11/26/13]
21 – freddiemac.com/pmms/ [12/2/13]
22 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F29%2F12&x=0&y=0 [11/28/13]
22 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F29%2F12&x=0&y=0 [11/28/13]
22 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F29%2F12&x=0&y=0 [11/28/13]
22 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F28%2F03&x=0&y=0 [11/28/13]
22 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F28%2F03&x=0&y=0 [11/28/13]
22 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F28%2F03&x=0&y=0 [11/28/13]
23 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [12/2/13]
24 – cnbc.com/id/101235707 [11/29/13]

CFGIowa Monthly Economic Update October 2013

THE MONTH IN BRIEF

A rampaging bull market overcame two significant challenges in October – a 16-day closure of most of the federal government, and the threat of a U.S. debt default. Congress broke the stalemate with a short-term rescue – a deal which guaranteed government funding until January 15 and extended the nation’s borrowing authority until February 7. Investors were relieved, and the S&P 500 added 4.46% to its YTD gain during the month. As expected, the Federal Reserve did not scale back its stimulus. As assorted commodities alternately rose and fell, global stock benchmarks mostly rose. Social Security recipients got a mild increase in payments for 2014, and uninsured individuals who visited healthcare.gov mostly got frustrated. Signs of the housing market cooling down a bit emerged, but there was still good news from the sector.1,2

DOMESTIC ECONOMIC HEALTH

Standard & Poor’s estimates that the October shutdown took 0.6% off Q4 Gross Domestic Product (GDP) and cost the U.S. economy $24 billion. It certainly dented consumer confidence: the October Conference Board index showed a one-month drop of 9.0 points to 71.2, and the month’s final University of Michigan consumer sentiment index came in at 73.2, the lowest reading since last November.3,4,5

The impasse in Washington delayed or postponed some regularly scheduled economic reports. We did learn that the jobless rate had ticked down to 7.2% in September, even with only 148,000 new jobs created (economists surveyed by Dow Jones Newswires had forecast a gain of 180,000). Consumer inflation rose 0.2% in September after ticking up 0.1% in August, while wholesale inflation decreased 0.1% in September after a 0.3% August advance. Retail sales retreated 0.1% in September, but were up 0.4% with auto buying factored out. Industrial output increased 0.6% in September, and durable goods orders rose 3.7%.4,5,6

Many uninsured consumers faced an impasse as they tried to use healthcare.gov, the federal government’s new website created to help people shop for health coverage in 36 states. The site was plagued by back-end design and security issues, leading some of its critics to call for the immediate resignation of Health & Human Services Secretary Kathleen Sebelius. Additionally, some insured Americans discovered they would have to buy new coverage in 2014 due to the inability of their current health insurance to meet the standards of the Affordable Care Act.7,8

In more positive news, the Institute for Supply Management’s manufacturing index rose to 56.4 in October, marking the fifth straight month of expansion. The last ISM report on the service sector (September) also showed expansion at 54.4, although this was a real drop from August’s reading of 58.6.9,10

As expected, the Federal Reserve refrained from tapering its $85-billion-per-month asset purchase program. Noting that “fiscal policy is restraining economic growth,” the Federal Open Market Committee’s October 30 statement also conceded that “the recovery in the housing sector slowed somewhat in recent months.” Social Security announced a 1.5% Cost of Living Adjustment (COLA) for 2014, one of the program’s smallest COLAs ever; that works out to an additional $19 a month for the average recipient.11,12

GLOBAL ECONOMIC HEALTH

Demand for exports seemed to be driving manufacturing growth in Asia. China’s official purchasing managers index (PMI) hit 51.4 in October, an 18-month high.  The HSBC/Markit PMI for China also rose to 50.9 in October. Good news, yet a Bloomberg poll of 52 economists projected China’s 2013 GDP at 7.6%, the poorest since 1999. Markit’s factory-sector PMI for Japan climbed 1.7 points in October to 54.2 and Taiwan’s rose to 53.0. October’s Markit manufacturing PMI for India showed sector contraction – it was at 49.6 for a second straight month.13,14

Great Britain’s Markit PMI slipped 0.3 points to a still-impressive 56.0 in October. The combined Markit PMI for the eurozone slipped from 52.2 in September to 51.5 last month, but that reading still marked the fourth consecutive time it was above 50. Eurozone unemployment was at 12.0%, but Markit noted 15 eurozone members reporting “modest growth of activity for the third month running, representing the first period of growth for these countries since early 2011.” Spain had actually emerged from its 2-year recession in Q3, and its jobless rate fell in Q3 as well.13,15  

WORLD MARKETS

Many benchmarks rose. Across the pond, the DAX gained 5.11% in October, the STOXX 600 3.84%, the CAC 40 3.78% and the FTSE 100 4.17%. Up north, the TSX Composite climbed 4.49%; to our south, the IPC All-Share gained 2.12%. While the Nikkei 225 and Shanghai Composite respectively lost 0.88% and 1.52% for the month, advances were more common in Asia: the Hang Seng added 1.52%, the Jakarta Composite 4.51%, the KOSPI 1.66% and the Sensex 9.21%. Looking at multinational/regional benchmarks, the MSCI World Index was up 3.83% for the month while the MSCI Emerging Markets Index gained 4.76%; the Asia Dow advanced 3.01%, the Europe Dow 4.24% and the Global Dow 4.38%.2,16i COmposite : the TSX Composite (-2.30%), the  gan’

COMMODITIES MARKETS

Performances were all over the place. While copper lost 0.63% and gold 0.34%, silver futures advanced 1.59% and platinum futures 2.98%. NYMEX crude fell 5.91% on the month and unleaded gasoline retreated 0.51%, but natural gas rose 0.39%. Among the major crop futures, sugar (+4.12%) and cocoa (+1.29%) were the gainers. Soybeans lost only 0.04%, but deeper October losses were in store for wheat (1.69%), corn (3.00%), coffee (7.59%) and cotton (11.50%). The U.S. Dollar Index lost 0.02 points on the month to wrap up October at 80.20.17,18

REAL ESTATE

Existing home sales fell 1.9% in September, but the National Association of Realtors said that the median home price was $199,200 – up 11.7% in the past 12 months, which marked the tenth consecutive month of double-digit annual price increases. August’s overall S&P/Case-Shiller Home Price Index mirrored this trend – it had prices up 12.8% year-over-year, improved from 12.3% in the July edition. NAR noted a 5.6% dip in pending home sales for September. October ended without September new home sales or new residential construction reports from the Census Bureau.4,19

Mortgage rates fell, with one exception. Comparing Freddie Mac’s October 31 and September 26 Primary Mortgage Market Surveys, we see the following decreases: 30-year FRMs, 4.32% to 4.10%; 15-year FRMs, 3.37% to 3.20%; 5/1-year ARMs, 3.07% to 2.96%. Interest rates on 1-year ARMs rose 0.01% in October to 2.64%.20

LOOKING BACK…LOOKING FORWARD

The S&P 500 closed at 1,756.54 on Halloween, while the Dow settled at 15,545.75 and the NASDAQ at 3,919.71. Small caps pushed higher as well: the Russell 2000 gained 2.45% last month, ending October at 1,100.15.2

 

% CHANGE

YTD

1-MO CHG

1-YR CHG

10-YR AVG

DJIA

+18.63

+2.75

+18.70

+5.86

NASDAQ

+29.81

+3.93

+31.66

+10.29

S&P 500

+23.16

+4.46

+24.39

+6.72

REAL YIELD

10/31 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

0.40%

-0.78%

3.14%

1.93%

Sources: online.wsj.com, bigcharts.com, treasury.gov – 10/31/132,21,22

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

 

Now we come into what is traditionally a sweet spot for the stock market – the fall. As the federal shutdown altered some of the data collection and research processes that normally go into the economic reports out of Washington, the market may take the upcoming editions of those reports with a few grains of salt. Private-sector reports may carry more weight this month and next. There is a sense of normalcy, as the market has again been concentrating on earnings – and normalcy is good for a mature bull market. The next big test for stocks will come in mid-December – will the new congressional supercommittee meet its deadline to craft a multi-year deficit reduction plan for the federal budget? If it doesn’t, we may have a replay of the October impasse on Capitol Hill – and a sense of déjà vu on Wall Street.

UPCOMING ECONOMIC RELEASES: As you will notice, the data stream is a bit off-kilter for November. Just ahead, we have August and September factory orders (11/4), the October ISM service sector PMI (11/5), September’s Conference Board leading indicators (11/6), the October Challenger job-cut report and the federal government’s delayed first estimate of Q3 GDP (11/7), the Labor Department’s October jobs report, the University of Michigan’s initial November consumer sentiment index and Commerce Department figures on September consumer spending (11/8), September wholesale inventories and October industrial production (11/15), the November NAHB housing market index (11/18), September business inventories, October’s CPI, retail sales and existing home sales and the October 30 FOMC minutes (11/20), the October PPI (11/21), October pending home sales, September and October housing starts and building permits, the September Case-Shiller and FHFA housing price indices, the second estimate of Q3 GDP and the Conference Board’s November consumer confidence survey (11/26), October consumer spending and durable goods orders and the final November University of Michigan consumer sentiment index (11/27). Thanksgiving falls on November 28, and due to the long weekend accompanying the holiday, there will be no further major economic releases until December. When will the Census Bureau put out some new home sales data? A combined September/October report is scheduled to appear December 4.


Please feel free to forward this article to family, friends or colleagues.  If you would like us to add them to our distribution list, please send us their address (click the link). We will contact them first and request their permission to add them to our list.


«RepresentativeDisclosure»

Fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings.

Investing in foreign securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

The Michigan Consumer Sentiment Index (MCSI) is a survey of consumer confidence conducted by the University of Michigan. The MCSI uses telephone surveys to gather information on consumer expectations regarding the overall economy.

The ISM index is based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders, and supplier deliveries. A composite diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys.

Purchasing Managers Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

The S&P / Case-Shiller U.S. National Home Price Index measures the change in the value of U.S. residential housing market. The S&P / Chase-Shiller  U.S. National Home Price Index tracks the growth in value of real estate by following the purchase price and resale value of homes that have undergone a minimum of two arm’s-length transactions. The index is named for its creators, Karl Case and Robert Shiller.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.

The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index.

NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services.

The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade.

The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange.

The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index.

The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse.

The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization.

The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization.

The Mexican IPC index (Indice de Precios y Cotizaciones) is a major stock market index which tracks the performance of leading companies listed on the Mexican Stock Exchange.

Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks.

The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange.

The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong.

The IDX Composite or Jakarta Composite Index is an index of all stocks that are traded on the Indonesia Stock Exchange (IDX).

KOSPI is the major stock market index of South Korea. The index represents all common stocks traded on the Korea Exchange.

The BSE SENSEX (Bombay Stock Exchange Sensitive Index), also-called the BSE 30 (BOMBAY STOCK EXCHANGE) or simply the SENSEX, is a free-float market capitalization-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE).

The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets.

The Asia Dow measures the Asia equity markets by tracking 30 leading blue-chip companies in the region.

The Europe Dow measures the European equity markets by tracking 30 leading blue-chip companies in the region.

The Global Dow is a 150-stock index of corporations from around the world created by Dow Jones & Company.

The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies.

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results.  Investments will fluctuate and when redeemed may be worth more or less than when originally invested.

All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

Citations.

1 – chicagotribune.com/news/chi-government-shutdown-20131016,0,1118789.story [10/17/13]
2 – online.wsj.com/mdc/public/page/2_3024-m_globalstockindexes.html [10/31/13]
3 – swampland.time.com/2013/10/17/heres-what-the-government-shutdown-cost-the-economy/ [10/17/13]
4 – briefing.com/investor/calendars/economic/2013/10/28-01 [11/1/13]
5 – tinyurl.com/lqwsp7p [10/25/13]
6 – stream.wsj.com/story/latest-headlines/SS-2-63399/SS-2-360718/ [10/22/13]
7 – arkansasonline.com/news/2013/oct/30/sebelius-apologizes-health-law-rollout-problems/ [10/30/13]
8 – arstechnica.com/information-technology/2013/10/healthcare-gov-deferred-final-security-check-could-leak-personal-data/ [10/30/13]
9 – ism.ws/ismreport/mfgrob.cfm [11/1/13]
10 – ism.ws/ISMReport/NonMfgROB.cfm [10/3/13]
11 – bloomberg.com/news/2013-10-30/fed-keeps-85-billion-qe-pace-awaiting-signs-economy-picks-up.html [10/30/13]
12 – money.cnn.com/2013/10/30/news/economy/social-security-benefits/ [10/30/13]
13 – bloomberg.com/news/2013-11-01/manufacturing-strengthens-from-china-to-south-korea-economy.html/ [11/1/13]
14 – tinyurl.com/qf55s9c [11/2/13]
15 – nytimes.com/2013/10/25/business/international/europes-economy-shows-modest-signs-of-life.html [10/25/13]
16 – mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [10/31/13]
17 – money.cnn.com/data/commodities/ [10/31/13]
18 – online.wsj.com/mdc/public/npage/2_3050.html?mod=mdc_curr_dtabnk&symb=DXY [10/31/13]
19 – latimes.com/business/money/la-fi-mo-existing-home-sales-20131021,0,6791691.story#axzz2jcIkT3V1 [10/21/13]
20 – freddiemac.com/pmms/ [11/3/13]
21 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=10%2F31%2F12&x=0&y=0 [11/3/13]
21 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=10%2F31%2F12&x=0&y=0 [11/3/13]
21 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=10%2F31%2F12&x=0&y=0 [11/3/13]
21 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=10%2F31%2F03&x=0&y=0 [11/3/13]
21 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=10%2F31%2F03&x=0&y=0 [11/3/13]
21 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=10%2F31%2F03&x=0&y=0 [11/3/13]
22 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [11/3/13]

CFGIowa Monthly Economic Update September 2013

THE MONTH IN BRIEF

September began with the possibility of U.S. military intervention in Syria; it ended with the probability of a federal government shutdown. In between those anxieties, the S&P 500 managed to rise 2.97%. Credit the Federal Reserve, which surprised financial markets worldwide with its decision to keep quantitative easing (QE) going at current levels for another month. Credit also some surprisingly strong data in the real estate and manufacturing sectors. Stock gains were worldwide last month; key commodities retreated. All in all, the events of September strained financial markets far less than many analysts expected.1

DOMESTIC ECONOMIC HEALTH

When the Federal Open Market Committee voted 9-1 not to taper QE3 on September 18, the S&P 500 and Dow hit new closing highs, the NASDAQ settled at a 13-year high, and gold futures climbed 4% in a day. The Fed’s acknowledgement that the economy still needed a little more help was sweet music to global markets fearing a poor fourth quarter. However, just two days later, Kansas City Fed president James Bullard suggested that the Fed could be open to a small taper this month.2,3

Elsewhere in Washington, partisan sparring over the federal budget escalated to the point of impasse. September drew to a close with no new measure to fund the government in place, leading to the furlough of 800,000 federal workers and the partial shutdown of non-essential government services. While the budget deadline was missed by Congress, the new online health insurance exchanges created by the Affordable Care Act were open for business on October 1.4

All of this aside, the economy showed more signs of its gradual U-shaped recovery. Consumer spending had risen 0.3% in August, with consumer incomes up 0.4%. Unemployment was at 7.3% in August (the lowest level since December 2008) with the creation of 169,000 new jobs. Manufacturing expanded for a fourth consecutive month, according to the Institute for Supply Management; its September PMI (Purchasing Managers Index) rose 0.5% to 56.2. (ISM’s August non-manufacturing PMI was even better at 58.6.) Durable goods orders were up just 0.1% in August; the Bureau of Economic Analysis made its final estimate of Q2 GDP (Gross Domestic Product), which was 2.5%.5,6,7,8

Consumer inflation was tame: both the overall and core Consumer Price Indexes were up just 0.1% in August. (The Producer Price Index rose 0.3% in August, but the core PPI was flat.) Even with muted inflation, retail sales rose an underwhelming 0.2% in August. September’s consumer confidence indices offered conflicting results: the Conference Board’s survey fell to 79.7 from the August mark of 81.8, yet the final index from the University of Michigan showed a gain of 0.7 points to 77.5.5,9,10,11

GLOBAL ECONOMIC HEALTH

While the possibility of a U.S.-Russia brokered deal and a chemical weapons disarmament plan from the Hague helped to reduce fear in global markets about Syria, global markets still had estimable political concerns to contend with. On September 30, Italy faced a government crisis: five ministers belonging to former prime minister Silvio Berlusconi’s center-right party quit their posts after the nation’s parliament let the country’s value-added tax increase to 22%. So would a new election be necessary, perhaps imperiling Italy’s already fragile coalition government? Would Italy be hit with credit downgrades? October opened with these and other questions plaguing the eurozone economy, which actually grew 0.3% in Q2. Euro area unemployment was still at 12.0% in August, but the Markit eurozone manufacturing PMI rose 1.1% to 51.4 during that month.1,12,13,14

The HSBC private-sector manufacturing PMI for China came in at a tepid 50.2 for September (compared to 50.1 in August); the nation’s official PMI stood at 51.1 last month. India’s factory sector contracted for a second month in September, though the Markit PMI reading improved to 49.6; the nation’s GDP slowed to 4.4% in Q2, and its central bank surprised analysts by raising interest rates. (The Indian rupee lost 22% of its value between May and August.) Elsewhere, Taiwan’s factory PMI was at 52.0 in September, South Korea’s at only 49.7.1,15,16

WORLD MARKETS

September was amazingly positive for world benchmarks. Of all the world’s newsworthy stock indices, only Pakistan’s KSE 100 lost ground (-1.48%). Gains were prevalent in the Asia Pacific markets – Shanghai Composite, 3.64%; Hang Seng, 5.19%; TAIEX, 1.89%; Kospi, 3.66%; Sensex, 4.08%; Nikkei 225, 7.97%; Asia Dow, 5.09%. The European gains? FTSE 100, 0.77%; DAX, 6.06%; STOXX 600, 4.42%; CAC 40, 5.33%; RTSI, 10.19%. North of us, the TSX Composite rose 1.05%. South of us, the Bovespa advanced 4.66% and the IPC All-Share rose 1.75%. The Global Dow gained 5.96% on the month, while the MSCI Emerging Markets Index and MSCI World Index respectively climbed 6.23% and 4.82%.17,18

COMMODITIES MARKETS

The month saw a retreat for three of the four major metals – gold dipped 4.69%, silver 7.64% and platinum 8.25%. Copper, however, rose 2.63%. Unleaded gasoline dropped 13.54% last month on the NYMEX, while oil slipped 5.10% and natural gas declined 0.03%. Crops were up and down, as usual. Corn dived 10.46% and soybeans slid 9.58%. On the upside, sugar posted a 6.78% gain for the month, wheat rose 6.37%, and cocoa climbed 10.08%; cotton gained 3.50% and coffee futures moved 1.38% higher. As for the U.S. Dollar Index, it fell 2.28% in September to end the month at 80.22.19,20

REAL ESTATE

Freddie Mac recorded a dip in interest rates on the 30-year FRM between August 29 (4.51%) and September 26 (4.32%). That development appealed to home buyers, and some of the latest housing market indicators were very appealing to economists – the 12.4% annualized gain shown in the overall S&P/Case-Shiller Home Price Index in July, the 7.9% rise in new home sales for August, and the 1.7% increase in existing home sales in August (to the best sales pace since February 2007). The National Association of Realtors did note a 1.6% fall in pending home sales in August after a 1.4% decline in July. The federal government reported a 0.9% gain in housing starts for that month.5,21,22

While conventional home loans averaged just 4.32% interest in late September, it was a long way from the low of 3.81% noted by Freddie Mac in May. In Freddie’s September 26 survey, average rates on 15-year FRMs, 5/1-year ARMs and 1-year ARMs were respectively at 3.37%, 3.07% and 2.63%; in the August 29 survey, they had been respectively measured at 3.54%, 3.24% and 2.64%.21,22

LOOKING BACK…LOOKING FORWARD

On September 30, the Dow settled at 15,129.67, the S&P 500 at 1,681.55 and the NASDAQ at 3,771.48. The monthly gains below were part of the following quarterly gains: DJIA, 1.48%; S&P, 4.69%; NASDAQ, 10.82%.1, 17

% CHANGE

YTD

1-MO CHG

1-YR CHG

10-YR AVG

DJIA

+15.46

+2.16

+11.95

+6.31

NASDAQ

+24.90

+5.06

+21.13

+11.11

S&P 500

+17.91

+2.97

+16.41

+6.88

REAL YIELD

9/30 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

0.45%

-0.78%

2.25%

1.95%

Sources: online.wsj.com, bigcharts.com, treasury.gov – 9/30/1317,23,24

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

 

When investors think of October, they commonly think of earnings season … but this October, the debt ceiling fight in Washington and the partial shutdown of the federal government have become top of mind. If the present budget deadlock and the escalating debt ceiling battle threaten to roil the markets – and make no mistake, they are serious threats – we can at least consider how well Wall Street fared in the volatility stemming from the Syria crisis. If there is a pullback (or a correction) in October, it might offer investors some good buying opportunities amid the frustration. If the market continues to be as resilient as it has been and if Congress gets tired of conflict, October might be another unexpectedly good month for stocks … just as September was.

UPCOMING ECONOMIC RELEASES: Across the balance of the month, we have the September ISM service sector PMI and Challenger job-cut report and August factory orders (10/3), the Labor Department’s September jobs report (10/4), the release of the September Fed policy meeting minutes and August wholesale inventories (10/9), the University of Michigan’s initial October consumer sentiment index, September retail sales, the September PPI and August business inventories (10/11), a new Fed Beige Book, the September CPI and October’s NAHB housing market index (10/16), September industrial output, housing starts and building permits (10/17), the Conference Board’s August index of leading indicators (10/18), September existing home sales (10/21), a fresh FHFA housing price index (10/23), September new home sales (10/24), September hard goods orders and the final October University of Michigan consumer sentiment index (10/25), September pending home sales (10/28), the August Case-Shiller home price index and the Conference Board’s October consumer confidence index (10/29), a Federal Reserve policy announcement (and possible taper) along with the first federal government estimate of Q3 GDP and the ADP employment report for October (10/30), and finally the Commerce Department report on September consumer spending and the October Challenger job-cut report  (10/31).


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«RepresentativeDisclosure»

Fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings.

Investing in foreign securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

Quantitative Easing is a government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by the urban consumers for a market basket of consumers for a market basket of consumer goods and services.

Purchasing Managers Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

The ISM index is based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders, and supplier deliveries. A composite diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys.

The Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPR are from the first commercial transaction for many products and services.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.

The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index.

NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services.

The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade.

The Karachi Stock Exchange KSE100 Index comprises the top company from each of the 34 sectors on the KSE, in terms of market capitalization. .

The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange.

The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong.

The TWSE, or TAIEX, Index is capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.

KOSPI is the major stock market index of South Korea. The index represents all common stocks traded on the Korea Exchange.

The BSE SENSEX (Bombay Stock Exchange Sensitive Index), also-called the BSE 30 (BOMBAY STOCK EXCHANGE) or simply the SENSEX, is a free-float market capitalization-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE).

Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks.

The Asia Dow measures the Asia equity markets by tracking 30 leading blue-chip companies in the region.

The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization.

The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange.

The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index.

The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse.

Citations.

1 – tinyurl.com/q3c6vvb [9/30/13]
2 – tinyurl.com/nkv5gh8 [9/18/13
3  – dailyfx.com/forex/market_alert/2013/09/20/Bullard_Suggests_Fed_May_Taper_in_October_Dollar_Rises.html [9/20/13]
4 – abcnews.go.com/Politics/congressional-irrationality-sends-800k-workers-home/story?id=20431889 [10/1/13]
5 – briefing.com/investor/calendars/economic/2013/09/23-27 [9/27/13]
6 – ncsl.org/issues-research/labor/national-employment-monthly-update.aspx [10/1/13]
7 – ism.ws/ISMReport/MfgROB.cfm [10/1/13]
8 – ism.ws/ISMReport/NonMfgROB.cfm [9/5/13]
9 – briefing.com/investor/calendars/economic/2013/09/16-20 [9/20/13]
10 – bls.gov/news.release/ppi.nr0.htm [9/13/13]
11 – usatoday.com/story/money/business/2013/09/13/august-retail-sales/2808737/ [9/13/13]
12 – theguardian.com/world/2013/sep/26/russia-guard-syria-chemical-weapons-sites [9/26/13]
13 – etftrends.com/2013/09/abrupt-resignations-in-coalition-government-upends-italy-etf/ [9/30/13]
14 – economy.com/dismal/outlook/country.aspx?geo=IEUZN [9/30/13]
15 – tinyurl.com/oy3oztl [10/1/13]
16 – nasdaq.com/article/indias-manufacturing-output-contracts-in-september—-markit-20131001-00043 [10/1/13]
17 – online.wsj.com/mdc/public/page/2_3024-m_globalstockindexes.html [10/1/13]
18 – mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [9/30/13]
19 – money.cnn.com/data/commodities/ [9/30/13]
20 – online.wsj.com/mdc/public/npage/2_3050.html?mod=mdc_curr_dtabnk&symb=DXY [10/1/13]
21 – freddiemac.com/pmms [10/1/13]
22 – bloomberg.com/news/2013-09-25/sales-of-new-u-s-homes-rose-in-august-following-july-plunge.html [9/25/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=10%2F1%2F12&x=0&y=0 [9/30/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=10%2F1%2F12&x=0&y=0 [9/30/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=10%2F1%2F12&x=0&y=0 [9/30/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=9%2F30%2F03&x=0&y=0 [9/30/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=9%2F30%2F03&x=0&y=0 [9/30/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=9%2F30%2F03&x=0&y=0 [9/30/13]
24 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [10/2/13]


CFGIowa Monthly Economic Update August 2013

THE MONTH IN BRIEF

August threw all kinds of challenges at stocks, and stocks retreated from them. Lackluster economic indicators, resignation that the Federal Reserve might soon taper its stimulus, rising yields on the 10-year note, a bit of cooling in the red-hot housing market, and the threat of U.S. military involvement in Syria all combined to keep the S&P 500 in check. The index slipped 3.13% during the poorest month for U.S. equities since May 2012; gold, silver, oil and the dollar fared much better.1

DOMESTIC ECONOMIC HEALTH

Most of August’s best economic indicators arrived in the first half of the month. The unemployment rate fell to 7.4% in July, with hiring at a decent pace (payrolls expanding by 162,000 new jobs). The Institute for Supply Management’s July manufacturing PMI showed a reading of 55.4, its service sector PMI a reading of 56.0. Retail sales were up 0.2% in July, with core retail sales (minus volatile car, gas and home improvement purchases) up 0.5%. Toward the end of the month, the Commerce Department revised Q2 GDP up to 2.5% from the initial estimate of 1.7%, a big change from 1.1% growth in Q1 and 0.1% growth in Q4 2012.2,3,4,5

Consumer spending, however, had nudged up just 0.1% in July – economists polled by Reuters had expected a 0.3% rise. Consumer sentiment fell to 82.1 in the final August University of Michigan survey (though the August Conference Board poll showed a 1.4% gain to 81.5). Hard goods orders plunged 7.3% in July after a 3.9% setback in June.1,6

Inflation pressure moderated, however – the overall Consumer Price Index rose 0.2% for July, and so did the core CPI. Year-over-year, the headline CPI advance was 2.0%. The Producer Price Index went flat for July with the core PPI up 0.1%; annualized wholesale inflation was running at 2.1%.7,8

President Obama called for the phase-out of Fannie Mae and Freddie Mac in August, proposing their replacement in the coming years with a new system reliant on private sector purchases of mortgages from lenders, with private capital bearing the bulk of any losses. According to White House officials, new federal government guarantees would help to preserve the fixed-rate 30-year home loan under these circumstances. The Obama administration’s idea of giving private capital a greater role in mortgage lending has bipartisan support – legislation sponsored by Sen. Bob Corker (R-TN) and Sen. Mark Warner (D-VA) is already making its way through Congress – but no real timeline for change has emerged.9

The NASDAQ exchange suffered a “flash freeze” in late August, with a software malfunction interrupting all trades for three hours. NASDAQ took full blame for the snafu, which revived an old debate about the risks of computer-driven trading.10

GLOBAL ECONOMIC HEALTH

On August 26, Secretary of State John Kerry stated that Syria’s government had used chemical weapons against its own people. On August 27, the U.S. and other nations were publicly considering a military response and global markets were beset by volatility – on that day, NYMEX crude topped $109 a barrel, the Dow fell 170 points, the CBOE VIX rose 12%, gold went back into a bull market and emerging market stocks hit a 7-week low. Fears of $150 oil emerged. President Obama requested a vote in Congress authorizing an attack on Syria; House and Senate leaders intend to vote on the matter in the week of September 9-13.11,12

August also saw the slide of India’s benchmark currency, the rupee. It had its worst month in 21 years, dropping 8.1% versus the dollar as a $2.2 billion exodus occurred from India’s stock and bond markets over fears of an economic slowdown. Worries about Syria and the related jump in oil prices simply made things worse. How much worse? The rupee’s August decline widened the Indian government’s account deficit so badly (to nearly $90 billion) that the Reserve Bank of India said it would supply dollars directly to local oil importers. Reuters reported that the RBI was seriously considering directing commercial banks to buy gold from private citizens. In better news from the Asia-Pacific region, the official China factory PMI rose to 51.0 in August, a 16-month peak.13,14,15

WORLD MARKETS

There were a few notable August advances – TSX Composite, +1.34%; Shanghai Composite, +5.25%; Bovespa, +3.68%. Retreats were more numerous – Hang Seng, -0.70%; Nikkei 225, -2.04%; IPC All-Share, -3.29%; Sensex, -3.75%; DAX, -2.09%; CAC 40, -1.48%; FTSE 100, -3.14%. Multi-country indices also pulled back: the Global Dow lost 2.33% for August, the Asia Dow 1.87%, the MSCI World Index 2.33% and the MSCI Emerging Markets Index 1.90%.16,17i COmposite : the TSX Composite (-2.30%), the  gan’

COMMODITIES MARKETS

Investors certainly renewed their appetites for precious metals in August. When it was all said and done, the month saw major gains for silver (19.02%), platinum (6.85%) and gold (4.54%), with gold settling August 30 at $1,396.10 an ounce. Copper, too, gained 4.20% on the month. NYMEX crude finished August at $107.65 per barrel, a 2.32% monthly gain. Natural gas futures advanced 5.80%. In contrast, unleaded gasoline prices managed to fall 0.61%. Soybeans rose 3.97% in August, and cocoa 4.44%; their fortunes were not mirrored by corn (-1.95%), cotton (-2.37%) or wheat (-3.42%). The 7.12% single-month jump in the U.S. Dollar Index was hardly surprising; it finished August at 82.03.18,19

REAL ESTATE

Home buying statistics seemed to show the influence of rising mortgage rates. The National Association of Realtors said existing home sales went +6.5% in July with the sales rate stronger than at any time since March 2007 – but the Census Bureau had new home sales down 13.4% in that month. New home buyers faced higher mortgage rates as they assumed loans for housing yet to be completed. For the record, NAR also noted a 1.3% drop in pending home sales in July.6,20

June’s overall S&P/Case-Shiller Home Price Index had home values rising 12.1% in 12 months, as opposed to 12.2% in the May edition. The Census Bureau said both building permits (+2.7%) and housing starts (+5.9%) increased for July.6,21

Where were mortgage rates at as August ended? Well, between August 1 and August 29, the average interest rate on the 30-year FRM went from 4.39% to 4.51%. As for other loan types across that interval, average rates on 15-year FRMs rose to 3.54% from 3.43%; 5/1-year ARMs saw average rates move from 3.18% to 3.24%. Average rates on the 1-year ARM were at 2.64% in both surveys.22

LOOKING BACK…LOOKING FORWARD

The Dow also had its worst month since May 2012, ending August at 14,810.31. The NASDAQ concluded the month at 3,589.87, the S&P 500 at 1,632.97, and the Russell 2000 at 1,010.90 (going -3.29% in August). The CBOE VIX rose 26.10% to 16.96.1

% CHANGE

YTD

1-MO CHG

1-YR CHG

10-YR AVG

DJIA

+13.02

-4.45

+13.92

+5.73

NASDAQ

+18.89

-1.01

+17.75

+9.83

S&P 500

+14.50

-3.13

+16.68

+6.20

REAL YIELD

6/28 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

0.68%

-0.63%

1.68%

2.29%

Sources: cnbc.com, bigcharts.com, treasury.gov – 8/30/131,23,24

are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

returns do not include dividends.

The Syria crisis has brought the potential for severe volatility back to Wall Street. Will its impact on stocks be brief and less significant than assumed? Will it prompt a short-term pause in the bull market? Or could things escalate, and rattle investor confidence to the point where YTD gains are severely threatened? This could be the biggest test of the year for equities, and yet stateside there is still a prevalent optimism that the economy is on the way back and that the recovery can continue with less help from the Fed. The current bull market has held up through four years of challenges; let’s hope that it can weather this one and celebrate a fifth anniversary next March.

UPCOMING ECONOMIC RELEASES:

September’s roster of key economic announcements looks like this: the August ISM manufacturing index (9/3), a new Federal Reserve Beige Book (9/4), the August ISM non-manufacturing index, the August Challenger job-cut and ADP employment reports and July factory orders (9/5), the Labor Department’s August jobs report (9/6), July wholesale inventories (9/11), the University of Michigan’s initial September consumer sentiment index, August retail sales, July business inventories and the August PPI (9/13), August industrial output (9/16), the August CPI and the September NAHB housing market index (9/17), the September Fed policy announcement and August housing starts and building permits (9/18), August existing home sales and the Conference Board’s August index of leading indicators (9/19), July’s Case-Shiller home price index, the Conference Board’s September consumer confidence survey  and the August FHFA housing price index (9/24), August new home sales and durable goods orders (9/25), August pending home sales and the federal government’s final take on Q2 GDP (9/26), and then the Commerce Department’s report on August consumer spending and the final September University of Michigan consumer sentiment index (9/27).


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«RepresentativeDisclosure»

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you.

This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.

The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index.

NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services.

The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade.

The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization.

The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange.

The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange.

The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong.

Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks.

The Mexican IPC index (Indice de Precios y Cotizaciones) is a major stock market index which tracks the performance of leading companies listed on the Mexican Stock Exchange. It is made up of a selection of shares that are representative of all the shares listed on the exchange from various sectors across the economy.

The BSE SENSEX (Bombay Stock Exchange Sensitive Index), also-called the BSE 30 (BOMBAY STOCK EXCHANGE) or simply the SENSEX, is a free-float market capitalization-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE).

The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange.

The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse.

The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization.

The Asia Dow measures the Asia equity markets by tracking 30 leading blue-chip companies in the region.

The Global Dow is a 150-stock index of corporations from around the world created by Dow Jones & Company.

The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies.

The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies.

Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results.  Investments will fluctuate and when redeemed may be worth more or less than when originally invested.

All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

Citations.

1 – tinyurl.com/p4put9e [8/30/13]
2 – ncsl.org/issues-research/labor/national-employment-monthly-update.aspx  [8/2/13]
3 – ism.ws/ISMReport/NonMfgROB.cfm [8/5/13]
4 – marketwatch.com/story/us-second-quarter-growth-boosted-to-25-2013-08-29 [8/29/13]
5 – nytimes.com/2013/08/14/business/economy/july-retail-sales-rose-0-2-despite-a-drop-in-auto-sales.html [8/14/13]
6 – marketwatch.com/Economy-Politics/Calendars/Economic [9/1/13]
7 – marketwatch.com/story/us-consumer-price-index-rises-02-in-july-2013-08-15-8913010 [8/15/13]
8 – nasdaq.com/article/us-ppi-flat-in-july-core-ppi-up-01-cm267531 [8/14/13]
9 – dailyfinance.com/2013/08/06/obama-shuttdown-freddie-mac-fannie-mae-mortgages/ [8/6/13]
10 – investorplace.com/2013/08/nasdaq-accepts-blame-for-flash-freeze/ [8/30/13]
11 – marketwatch.com/story/syria-intervention-fears-hit-global-markets-2013-08-27 [8/27/13]
12 – tinyurl.com/lexe8vw [9/1/13]
13 – bloomberg.com/news/2013-08-30/india-s-rupee-set-for-worst-month-since-1992-on-slowdown-concern.html [8/30/13]
14 – reuters.com/article/2013/08/29/us-india-economy-gold-idUSBRE97S0IW20130829 [9/1/13]
15 – reuters.com/article/2013/09/01/us-china-economy-pmi-idUSBRE98000H20130901 [9/1/13]
16 – online.wsj.com/mdc/public/page/2_3024-m_globalstockindexes.html [9/1/13]
17 – mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [8/30/13]
18 – money.cnn.com/data/commodities/ [9/1/13]
19 – online.wsj.com/mdc/public/npage/2_3050.html?mod=mdc_curr_dtabnk&symb=DXY [9/1/13]
20 – blog.comerica.com/2013/08/23/july-new-and-existing-home-sales/ [8/23/13]
21 – census.gov/construction/nrc/pdf/newresconst.pdf [8/16/13]
22 – freddiemac.com/pmms [9/1/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=8%2F30%2F12&x=0&y=0 [8/30/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=8%2F30%2F12&x=0&y=0 [8/30/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=8%2F30%2F12&x=0&y=0 [8/30/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=8%2F29%2F03&x=0&y=0 [8/30/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=8%2F29%2F03&x=0&y=0 [8/30/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=8%2F29%2F03&x=0&y=0 [8/30/13]
24 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldYear&year=2013 [9/1/13]

CFGIowa Monthly Economic Update July 2013

THE MONTH IN BRIEF

At the closing bell on July 31, the S&P 500 settled at 1,685.73 thanks to a 4.95% monthly gain – another triumph for a bull market that has overcome a host of challenges. This striking July advance came even as fundamental economic indicators sent mixed messages. The Federal Reserve said nothing definite about when it would taper QE3 (Quantitative Easing). Overseas, there were hints of a slightly better economic picture in Europe, contradictory signals out of China, and numerous stock market advances.1

DOMESTIC ECONOMIC HEALTH

July offered both encouraging and discouraging economic statistics. The Institute for Supply Management’s July PMIs seemed to show an economy gaining traction. ISM’s manufacturing PMI (Purchasing Managers Index) leapt to 55.4 compared to 50.9 in June, and its service sector PMI jumped to 56.0 from the previous 52.2. The Commerce Department said that consumer spending was up 0.5% in June, corresponding to the projections of economists surveyed by Reuters; consumer incomes rose another 0.3 on the heels of a 0.4% improvement in May. Unemployment declined to 7.4% in July, but the pace of hiring also declined. Non-farm payrolls expanded by 162,000 jobs (compared to 188,000 in June), with retail, bar and restaurant positions representing much of the additions. Durable goods orders had increased 4.2% in June, but they were flat with the volatile transportation category removed. As the quarter ended, the federal government issued its first estimate of Q2 GDP (Gross Domestic Product): 1.7%, indicative of the economy’s slow comeback.2,3,4,5,6

July also offered a mixed picture of consumer confidence. The Conference Board’s July poll came in at 80.3, 1.8 points lower than June’s reading and below the expectations of analysts surveyed by MarketWatch. The reading on the University of Michigan’s final July consumer sentiment index was better – 85.1, up a full point from June to its highest level since July 2007.6,7

Prices increased in June, but it seemed more an anomaly than a trend.  The Consumer Price Index rose 0.5%, but a 6.3% leap in gas prices was a major factor; the core CPI was up just 0.2%, and annualized core inflation had increased just 1.6%, the smallest amount in two years.  Wholesale prices jumped 0.8% in June, though the core Producer Price Index only advanced 0.2%.  Retail sales were up o.4% in June; there was a 1.8% gain in auto purchases and a 2.4% improvement in furniture sales. 8,9,10

In early July, the Obama administration decided to postpone the Affordable Care Act’s employer health insurance mandate for a year.  Businesses with 50 or more full-time employees won’t have to provide health insurance to workers until 2015; retail franchises and restaurant owners welcomed that decision.  The move raised big-picture questions about whether all aspects of the ACA 9such as the coming online health insurance exchanges) could be implemented on schedule.  In mid-July, Federal Reserve chairman Ben Bernanke cited the need for a “highly accommodative monetary policy for the foreseeable future,” buoying financial markets.  The central bank’s July 31 policy statement offered no hint as to when it would start to reduce its asset purchases, and it termed the current economic expansion “modest”, which seemed slightly less enthusiastic than its “moderate” assessment from June. 11,12,13,*,**

GLOBAL ECONOMIC HEALTH

Two closely-watched China manufacturing PMIs offered different estimates of the performance of the world’s biggest economic engine. The HSBC PMI came in at just 47.7 for July. The “official” PMI from China’s National Bureau of Statistics (which, incidentally, surveys a greater percentage of state-owned enterprises) rose 0.2 for July, showing a bit of expansion at 50.3. Still, this was nothing special. Neither was India’s July Markit manufacturing PMI reading of 50.1; Markit manufacturing PMIs for South Korea, Vietnam, Australia and Taiwan were all under 50 last month, with Australia’s dropping 7.6 points. HSBC and Markit service sector PMIs tracking Asian economies also moved lower in July; India’s showed contraction for the first time in 21 months at 47.9, and those for Japan (50.6) and China (51.3) showed slower growth.14,15

As mounting evidence of a slowdown came from Asia, another question emerged in Europe. Was the Eurozone recession coming to a close? The EU manufacturing sector grew in July for the first time since 2010 – the Markit PMI hit 50.5, up from 48.7 in June. Germany’s manufacturing PMI reached a 5-month peak of 52.1, France’s hit a 17-month high of 49.1, and Italy’s reached a 26-month high of 49.7. July also saw the fewest eurozone job losses in 16 months, and the German economy saw a net job gain.14,15,16

WORLD MARKETS

Big gains were the order of the month, especially in Europe. The FTSE 100 climbed 6.53%, the DAX 3.98%, the CAC 40 6.79%, the RTSI 2.97% and the STOXX 600 5.11%. In the Asia Pacific region, some losses crept in among the gains: the Sensex slipped 0.26% and the Nikkei 225 0.07%, but that was overshadowed by advances for the KOSPI (2.72%), the KSE 100 (10.98%), the Hang Seng (5.19), the Shanghai Composite (0.74%) and the Asia Dow (1.17%). On our side of the pond, the TSX Composite rose 2.95%, the MERVAL 12.82% and the Bovespa 1.64%.The Global Dow advanced 5.87% in July, the MSCI World Index 5.19% and the MSCI Emerging Markets Index 0.77%.1,17,***

COMMODITIES MARKETS

The price of NYMEX crude soared 9.15% in July. That put oil at $105.03 a barrel at the end of the month. Natural gas prices, on the other hand, descended 3.25%. Gold settled at $1,313.00 at month’s end, the culmination of a 7.46% monthly ascent. Silver went +1.45%, platinum +6.77% and copper +2.40%. As for crops, coffee lost 1.37%, but cocoa rose 4.74%, wheat 2.71% and sugar 2.48%. The U.S. Dollar Index lost 1.76% for the month.18,19,****

REAL ESTATE

On August 1, Freddie Mac’s Primary Mortgage Market Survey had the average rate on a 30-year fixed home loan at 4.39%, up from 4.29% on July 3 and 3.81% on May 30.20

Existing home sales fell 1.2% in June, with tightening inventory being a factor; still, the National Association of Realtors reported a 13.5% yearly improvement in the median sale price. The May S&P/Case-Shiller Home Price Index recorded a 12.2% overall yearly rise in home prices across 20 cities. New home sales were up 8.3% in June, with a 38.1% year-over-year increase in the sales pace (the best on record since 1992).6,21

Not all the news was so impressive. Pending home sales dipped 0.4% for June, partly reflecting the shrinking inventory of existing properties on the market. As for building permits and housing starts, they both fell in June: building permits sagged 7.5% from May but were up 16.1% annually, while starts dipped 9.9% but were still up 10.4% in 12 months.6,22

The 0.58% rise in conventional mortgage rates across two months was mirrored by other types of home loans. Average rates for 15-year FRMs went from 2.98% to 3.43%; average rates for 5/1-year ARMs and 1-year ARMs were but 2.66% and 2.54% on May 30, yet respectively 3.18% and 2.64% by August 1.20

LOOKING BACK…LOOKING FORWARD

To broadly recap,  July ended with the DJIA settling at 15,499.54, the NASDAQ at 3,626.37, the S&P 500 at 1,685.73 and the Russell 2000 at 1,045.26 (it rose 6.93% for the month). Fear ebbed: the CBOE VIX fell 20.23% for the month, settling at 13.45 on July 31.1

% CHANGE

YTD

1-MO CHG

1-YR CHG

10-YR AVG

DJIA

+18.28

+3.96

+19.15

+6.79

NASDAQ

+20.10

+6.56

+23.37

+10.90

S&P 500

+18.20

+4.95

+22.21

+7.02

REAL YIELD

6/28 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

0.38%

-0.69%

1.65%

2.41%

 

Sources: online.wsj.com, bigcharts.com, treasury.gov – 7/31/131,23,24

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

Basically, U.S. stocks just achieved about two years of gains in seven months. This begs a question: how much higher can the S&P 500 climb this year? When 2013 started, especially bullish analysts thought the index might hit 1,700 before 2014 arrived. At the start of August, it was already at that level. When the market is this hot, warnings of a pullback or a correction reliably appear – and they certainly have, but few investors seem to be paying much notice to them. With luck, 2013 could wind up a truly exceptional year for Wall Street – a year of exceptional gains, aided by an exceptional stimulus, sustained by exceptional confidence. Fall is not far away; how much more upside could this market have? Could the S&P gain another 2-3% by year’s end? Another 6-7%? Or will unforeseen disturbances and the Fed’s gradual exit from the bond market invite struggles? So far, this bull market has passed a number of significant tests; if it continues to do so, 2013 will be remembered as a tremendous year for the stock market investor.

UPCOMING ECONOMIC RELEASES:

For the rest of August, here is how the schedule of news items plays out: June wholesale inventories (8/10), July retail sales and June business inventories (8/13), July’s PPI (8/14), July’s CPI, July industrial output and the August NAHB housing market index (8/15), July’s housing starts and building permits plus the University of Michigan’s initial August consumer sentiment index (8/16), July existing home sales and the July 31 Fed policy meeting minutes (8/21), the Conference Board’s July index of leading indicators and the June FHFA housing price index (8/22), July new home sales (8/23), July hard goods orders (8/26), June’s Case-Shiller home price index and the Conference Board’s August consumer confidence survey (8/27), July pending home sales (8/28), the second estimate of Q2 GDP (8/29), and the final August University of Michigan consumer sentiment index and the July consumer spending report (8/30). The Labor Department issues the July jobs report on September 6.


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Disclosure

* Quantitative Easing is a government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.

** The Institute for Supply Management (ISM) index is based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders, and supplier deliveries.  A composite diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys.

*** Investing in foreign securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

**** Fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index.

NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services.

The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade.

The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange.

The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. Moscow Exchange is the largest stock exchange in Russia, located in Moscow, trading equities, bonds, derivatives and currencies. It was officially established on 19 December 2011 through the merger of the two largest Moscow-based stock exchanges, the Moscow Interbank Currency Exchange and the Russian Trading System.

The Dow Jones STOXX 600 Index captures more than 90% of the aggregate market cap of European-based companies.

The BSE SENSEX (Bombay Stock Exchange Sensitive Index), also-called the BSE 30 (BOMBAY STOCK EXCHANGE) or simply the SENSEX, is a free-float market capitalization-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE).

Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks.

The KOSPI Index is a capitalization-weighted index of all common shares on the Korean Stock Exchanges.

The Karachi Stock Exchange (KSE) is Pakistan’s largest and one of the oldest stock exchanges in South Asia by market capitalization.

The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong.

The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange.

The Asia Dow measures the Asia equity markets by tracking 30 leading blue-chip companies in the region.

The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization.

The price-weighted MERVAL Index (MERcado de VALores, literally Stock Exchange) is the most important index of the Buenos Aires Stock Exchange.

The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange.

The Global Dow is a 150-stock index of corporations from around the world created by Dow Jones & Company.

The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets.

The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies.

Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results.  Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices.

The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

Citations.

1 – online.wsj.com/mdc/public/page/2_3024-m_globalstockindexes.html [7/31/13]
2 – ism.ws/ISMReport/NonMfgROB.cfm [8/5/13]
3 – tinyurl.com/lh438e5 [8/2/13]
4 – chron.com/news/us/article/US-employers-add-162K-jobs-rate-falls-to-7-4-pct-4702834.php [8/2/13]
5 – briefing.com/investor/calendars/economic/2013/07/22-26 [7/26/13]
6 – marketwatch.com/Economy-Politics/Calendars/Economic [8/1/13]
7 – tinyurl.com/ke8ykkl [7/26/13]
8 – forbes.com/sites/afontevecchia/2013/07/16/spiking-gasoline-prices-push-cpi-inflation-higher-but-weak-core-fuels-taper-uncertainty/ [7/16/13]
9 – briefing.com/investor/calendars/economic/2013/07/08-12 [7/12/13]
10 – usatoday.com/story/money/business/2013/07/15/retail-sales-rise-in-june-on-autos/2517443/ [7/15/13]
11 – kansascity.com/2013/07/03/4328512/qa-on-impact-of-health-law-delay.html [7/3/13]
12 – tinyurl.com/msb38q6 [7/10/13]
13 – nasdaq.com/article/closing-update-us-stocks-end-mixed-after-fomc-meeting-minutes-cm263222 [7/31/13]
14 – tinyurl.com/knwt8rt [8/1/13]
15 – telegraph.co.uk/finance/economics/10223494/Eurozone-recession-will-end-this-quarter-as-businesses-return-to-growth.html [8/5/13]
16 – tinyurl.com/mwakh4v [8/5/13]
17 -mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [7/31/13]
18 – money.cnn.com/data/commodities/ [7/31/13]
19 – online.wsj.com/mdc/public/npage/2_3050.html?mod=mdc_curr_dtabnk&symb=DXY [8/5/13]
20 – freddiemac.com/pmms/ [8/5/13]
21 – bloomberg.com/news/2013-07-24/new-home-sales-in-u-s-rise-more-than-forecast-to-five-year-high.html [7/24/13]
22 – census.gov/construction/nrc/pdf/newresconst.pdf [7/17/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=7%2F31%2F12&x=0&y=0 [7/31/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=7%2F31%2F12&x=0&y=0 [7/31/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=7%2F31%2F12&x=0&y=0 [7/31/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=7%2F31%2F03&x=0&y=0 [7/31/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=7%2F31%2F03&x=0&y=0 [7/31/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=7%2F31%2F03&x=0&y=0 [7/31/13]
24 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [8/5/13]

 

CFGIowa Monthly Economic Update June 2013

July 2013

THE MONTH IN BRIEF

Sometimes the direction of the stock market can change on a few sentences, even a few words. That was certainly the case on June 19, when Federal Reserve Chairman Ben Bernanke mentioned the possible end of QE3 in 2014 and the prospect of reducing the central bank’s monthly bond purchases later in 2013. A global selloff occurred after his remarks, and the S&P 500 lost 1.50% for June. Still, the major U.S. indices fared pretty well compared to foreign benchmarks. It was a miserable month for commodities, particularly gold. You could find plenty of positives in the housing sector, even with home loan rates ascending. While stocks retreated last month, most investors remained confident in the bull market’s strength.1,2

DOMESTIC ECONOMIC HEALTH

June brought a lot of good news about the economy, even as Wall Street groaned about the prospect of the Fed tapering QE3. The Institute for Supply Management’s June manufacturing PMI jumped north 1.9 points to 50.9, indicating renewed expansion. The latest Labor Department jobs report had employers adding 175,000 new jobs in May, although the unemployment rate crept up to 7.6%. Consumer spending had improved in May (up 0.3% with household incomes rising 0.5%), and consumer confidence rose in June– the month’s final survey from the University of Michigan came in at 84.1, approaching a six-year peak, while the Conference Board’s June poll rose to 81.4, its best mark since January 2008. Retail sales grew 0.6% in May.3,4,5,6,7

Inflation was again trivial: the Consumer Price Index had advanced just 0.1% for May and but 1.4% in a year. Producer prices, on the other hand, went north 0.5% in May. Durable goods orders jumped 3.6% in May.8,9,10

Judicial rulings, legislative inaction and commentary from opinion leaders also made economic news last month. The Supreme Court struck down Section 3 of the Defense of Marriage Act (which had stopped same-sex marriages from being federally recognized), paving the way for gay and lesbian couples to file joint federal tax returns and access partner health insurance benefits, and gain eligibility for Social Security survivorship benefits. Congress did not find a solution to prevent interest rates on federally funded student loans from doubling to 6.8% on July 1, translating to a $2,600 average hit to a student borrower. (Capitol Hill legislators were talking about a retroactive fix, however.) The International Monetary Fund publicly urged the Federal Reserve to maintain QE3 at current levels at least until the end of 2013 while cutting its 2014 forecast for U.S. growth to 2.7%. Standard & Poor’s upgraded America’s credit outlook to “stable” from “negative”, significantly reducing the chance of another U.S. credit rating downgrade like the one it issued in 2011.9,11,12,13

 * Quantitative Easing is a government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.

GLOBAL ECONOMIC HEALTH

Eurozone unemployment reached a new all-time high last month at 12.1%; eurozone consumer inflation hit 1.6% in June, compared with 1.4% in May and 1.2% in April. Germany was the bright spot – its jobless rate was down at 5.3% in June. The eurozone Markit PMI rose half a point to 48.8 in June – not good, but a 16-month peak. Ireland and Spain had manufacturing PMIs of 50 or better; those of Italy, Germany and France were all under 50 (meaning sector contraction).14,15

China has recently coped with a dangerous “shadow” banking system: high-interest, off-balance-sheet loans linked to real estate and stock speculation. In June, the Chinese government tried to discourage such informal lending by allowing cash conditions to tighten, while instructing the nation’s banks to depend less on short-term borrowing and improve their capital ratios. The People’s Bank of China let short-term interest rates surpass 7% at one point in June. This led to a four-year low for Chinese stocks and fears of a credit freeze. The central bank intervened and provided cash infusions to ward off that last threat, but still maintained its stance. China’s Markit PMI declined to a 9-month low of 48.2, while the government’s “official” PMI slipped to 50.1, a 4-month low. Markit manufacturing PMIs showed expansion in India (50.3) and Indonesia (51.0) and contraction in Taiwan (49.5) and South Korea (49.4).16,17,18

WORLD MARKETS

Name a consequential stock index, and you will name an index that pulled back in June. The S&P 500’s loss wasn’t so bad next to these others: FTSE 100, -8.08%; DAX, -6.15%; CAC 40, -7.69%; Micex, -4.76%; FTSE Eurofirst 300, -7.56%; Nikkei 225, -4.43%; KOSPI, -6.19%; Sensex, -3.79%, Hang Seng, -9.25%; Shanghai Composite, -14.74%; TSX Composite, -4.87%; Bovespa, -15.31%;  MSCI Emerging Markets Index, -6.79%; MSCI World Index, -2.61%.19,20

* Investing in foreign securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

COMMODITIES MARKETS

A strengthening dollar, some sentences from Ben Bernanke and anxieties about demand in China and other emerging markets made June a rough month for commodity futures. The June gains: oil, +1.54%; soybeans, +4.21%; cotton, +5.15%. In the loss column: copper, -7.87%; silver, -11.94%; platinum, -8.37%; gold, -10.79%; wheat, -5.66%; cocoa, -1.54%; coffee, -5.02%; sugar, -2.65%; natural gas, -14.42%. NYMEX crude ended June at $96.56; gold sank to a two-and-a-half-year low on the month’s last COMEX trading day, settling at $1,211.60. Even the U.S. Dollar Index lost some ground in June – 0.29%, to be precise.21,22

*The fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings.

REAL ESTATE

The National Association of Realtors said existing home sales rose 4.2% for May, with the median price at $208,000 (15.4% better than a year before). NAR also said that pending home sales had climbed 6.7% in May to the highest level since December 2006. As for new home buying, the Commerce Department reported a third straight monthly gain – 2.1%. April’s edition of the S&P/Case-Shiller Home Price Index showed a 12.1% annualized increase in home prices across 20 metro markets, which was the index’s best yearly gain since March 2006. U.S. housing starts were up 6.8% in June while building permits were down 3.1%.5,10,23,24

Was the door closing on the days of cheap mortgages? On June 27, Freddie Mac announced that the average rate on the 30-year FRM was at 4.46%, up from 3.81% on May 30. Other home loan types also showed major interest rate increases during that interval. The average rate on the 15-year FRM rose from 2.98% to 3.50%, rates on the 5/1-year ARM averaged 3.08% compared to 2.66%, and rates on the 1-year ARM went from 2.54% to 2.66%.25

LOOKING BACK…LOOKING FORWARD

Even with June’s losses, the Dow racked up its best first half of a year since 1999. The S&P 500 advanced more in the year’s opening half than it had in 15 years. The Russell 2000’s June loss wasn’t so bad – just 0.68%. Note the (once again) positive real yield on the 10-year TIPS.2

 

% CHANGE

YTD

1-MO CHG

1-YR CHG

10-YR AVG

DJIA

+13.78

-1.36

+18.31

+6.59

NASDAQ

+12.71

-1.52

+19.43

+10.94

S&P 500

+12.63

-1.50

+20.86

+6.45

REAL YIELD

6/28 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

0.53%

-0.48%

1.48%

1.90%

 

Sources: cnbc.com, bigcharts.com, treasury.gov – 6/28/132,26,27

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

While the Fed will taper its easing effort at some point and eventually wrap it up, it is still buying $85 billion of bonds per month in the near term and a fair amount of faith remains in the current bull market’s longevity. A recent USA TODAY article cited some interesting data from Ned Davis Research Group (NDR): since 1963, it has taken bear markets an average of 24 months to arrive after the Fed has tightened. In the year after such policy moves, the broad U.S. stock market was up 73% of the time, and up 3.4% on average. Of course, the stock market has violated all kinds of historical “norms” in the past decade, and few bears would have imagined all-time peaks for the Dow and S&P 500 just four years after stocks lost half their value. Optimism may be muted in the wake of the Fed’s inevitable decision, but it hasn’t disappeared.1,10

UPCOMING ECONOMIC RELEASES:

Here are the key economic news items scheduled for July: the ISM May non-manufacturing index, the June ADP employment report and the June Challenger job-cut report (7/3), the Labor Department’s June jobs report (7/5), the June 19 Fed policy meeting minutes and data on May wholesale inventories (7/10), the June PPI and the University of Michigan’s initial July consumer sentiment survey (7/12), June retail sales and May business inventories (7/15), June’s CPI and NAHB housing market index (7/16), June housing starts and building permits and a new Fed Beige Book (7/17), the Conference Board’s June index of leading indicators (7/18), June existing home sales (7/22), the May FHFA housing price index (7/23), June new home sales (7/24), June durable goods orders (7/25), the final University of Michigan consumer sentiment poll for July (7/26), June pending home sales (7/29), May’s Case-Shiller home price index and the Conference Board’s July consumer confidence survey (7/30), and then on July 31, a Federal Reserve policy announcement, the initial estimate of Q2 GDP and the comparatively early arrival of the July ADP employment report. The numbers on June consumer spending will appear on August 2.


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Disclosure

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index.

NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services.

The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade.

The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange.

The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. Moscow Exchange is the largest stock exchange in Russia, located in Moscow, trading equities, bonds, derivatives and currencies. It was officially established on 19 December 2011 through the merger of the two largest Moscow-based stock exchanges, the Moscow Interbank Currency Exchange and the Russian Trading System.

The FTSEurofirst 300 Index is part of the FTSEurofirst Index Series and the FTSEurofirst 300 Indices, which are tradable indices measuring the performance of European portfolios.

Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The KOSPI Index is a capitalization-weighted index of all common shares on the Korean Stock Exchanges.

The BSE SENSEX (Bombay Stock Exchange Sensitive Index), also-called the BSE 30 (BOMBAY STOCK EXCHANGE) or simply the SENSEX, is a free-float market capitalization-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE).

The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong.

The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange.

The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization.

The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange.

The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies.

The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets.

The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results.  Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices.

 

The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

 

Citations.

1 – usatoday.com/story/money/markets/2013/06/19/stocks-wednesday/2437101/ [6/19/13]

2 – cnbc.com/id/100852152 [6/28/13]

3 – reuters.com/article/2013/07/01/us-usa-economy-manufacturing-idUSBRE9600MU20130701 [7/1/13]

4 – ncsl.org/issues-research/labor/national-employment-monthly-update.aspx [6/7/13]

5 – nytimes.com/2013/06/28/business/economy/consumer-spending-and-home-sales-were-up-in-may.html [6/28/13]

6 – reuters.com/article/2013/06/28/us-usa-economy-sentiment-idUSBRE95R0MA20130628 [6/28/13]

7 – stltoday.com/business/local/u-s-retail-sales-jump-percent-in-may-on-autos/article_33200d05-0de6-5d75-a666-5d422d700c76.html [6/13/13]

8 – online.wsj.com/article/SB10001424127887323566804578553151902340728.html [6/18/13]

9 – nasdaq.com/article/midday-update-stocks-sliding-after-imf-cuts-us-growth-forecast-consumer-sentiment-dips-cm253273 [6/14/13]

10 – cnbc.com/id/100842287 [6/25/13]

11 – bankrate.com/financing/banking/doma-decision-to-have-big-impact/ [6/26/13]

12 – businessweek.com/ap/2013-07-01/student-loan-rates-double-without-congress-action [7/1/13]

13 – reuters.com/article/2013/06/10/us-usa-rating-sp-idUSBRE9590K820130610 [6/10/13]

14 – reuters.com/article/2013/07/01/us-eurozone-economy-idUSBRE9600AT20130701 [7/1/13]

15 – markiteconomics.com/Survey/PressRelease.mvc/2bc1f71d2a9f427183cd528a3ed7832a [7/1/13]

16 – reuters.com/article/2013/06/25/us-markets-china-idUSBRE95O05E20130625 [6/25/13]

17 – reuters.com/article/2013/07/01/us-china-economy-pmi-idUSBRE96001I20130701 [7/1/13]

18 – finfacts.ie/irishfinancenews/article_1026211.shtml [7/2/13]

19 – markets.on.nytimes.com/research/markets/worldmarkets/worldmarkets.asp [6/28/13]

20 – mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [6/28/13]

21 – money.cnn.com/data/commodities/ [6/28/13]

22 – online.wsj.com/mdc/public/npage/2_3050.html?mod=mdc_curr_dtabnk&symb=DXY [6/30/13]

23 – usatoday.com/story/money/business/2013/06/20/may-existing-home-sales/2440693/ [6/20/13]

24 – census.gov/construction/nrc/pdf/newresconst.pdf [6/18/13]

25 – freddiemac.com/pmms/ [7/1/13]

26 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F28%2F12&x=0&y=0 [6/28/13]

26 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F28%2F12&x=0&y=0 [6/28/13]

26 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F28%2F12&x=0&y=0 [6/28/13]

26 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F27%2F03&x=0&y=0 [6/28/13]

26 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F27%2F03&x=0&y=0 [6/28/13]

26 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F27%2F03&x=0&y=0 [6/28/13]

27 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [7/1/13]

CFGIowa Monthly Economic Update May 2013

THE MONTH IN BRIEF

May brought more record closes for the Dow, more affirmations of the housing comeback, more household confidence, and certainly more volatility as investors wondered if the Federal Reserve might soon do less. The major concern of the month was how quickly and dramatically the Fed might wind down its easing effort. Commodities struggled against a strengthening dollar; domestic indicators were a mixed bag. Still, there was enough optimism to send the S&P 500 2.08% higher for the month.1

DOMESTIC ECONOMIC HEALTH

The May 1 Fed policy minutes (released May 22) stated that “a number” of Fed officials were open to reducing the scale of QE3 as soon as June. As easing has driven this bull market perhaps more than any other factor, this unnerved Wall Street. If economic indicators improved in spring, would the Fed stimulus diminish?2

As it happened, some key economic indicators faltered. Consumer spending slipped 0.2% in April (consumer incomes were flat in that month), and the closely watched Institute for Supply Management manufacturing PMI hit its lowest level in four years in May  – 49.0, indicating sector contraction. The Labor Department said the economy generated 165,000 new jobs in April, in line with the decent but unspectacular hiring growth seen in the past year (169,000 new jobs per month); unemployment ticked down to 7.5%.3,4

What really improved in May was consumer confidence. The Conference Board’s May poll rose to 76.2 from the 68.1 reading in April; the final May consumer sentiment survey from the University of Michigan came in at 84.5, improved from a preliminary May mark of 83.7. Ongoing headlines about new record highs for the Dow may have helped.5

Consumer prices declined in April, and that may have cheered households up as well. The Consumer Price Index fell 0.4%, the biggest monthly retreat since December 2008. (It had fallen 0.2% in March.) The take-home pay of Americans rose 0.5% in April, and retail sales edged up 0.1%. Annualized consumer inflation – as measured by the overall CPI – was a very weak 1.1% in April. (That was the tamest since September 2010.) Wholesale inflation also lessened in April – the Producer Price Index sank 0.7%, the most in three years. Durable goods orders rose 3.3% for April, 1.3% with the volatile transportation category factored out.6,7,8

GLOBAL ECONOMIC HEALTH

Eurozone manufacturing rebounded strongly in May. The overall eurozone Markit PMI improved 1.6 points to 48.3, a 15-month peak; Germany’s PMI improved to 49.4, Spain’s to 48.1 (a 24-month high) and France’s to 46.4 (a 13-month high). Still, the big picture saw manufacturing contracting in the euro area for the 22nd straight month. Economists polled by Markit also projected the bloc’s GDP at -0.2% for Q2, which would match the retreat of Q1 and mark the seventh quarter in a row without economic growth in the region. The European Central Bank lowered its benchmark interest rate to 0.5% last month.9,10

Manufacturing shrank in most of the key Asian economies as well. The exception? Japan. Markit’s PMI for that nation rose 0.4 points to 51.5 for May. China’s official PMI came in at 50.8, but the Markit PMI dropped 1.2 points to 49.2, the first contraction in seven months (a development which threw a shock into Japan’s stock market and weighed on other exchanges). Taiwan’s PMI descended to 47.1, India’s to 50.1 (poorest since March 2009), South Korea’s to 51.1, Vietnam’s to 48.8 and Indonesia’s to 51.6.11,12

WORLD MARKETS

European indices generally moved north in May; benchmarks in the Asia Pacific region (and elsewhere in the Americas) had a tougher time of it. In the plus column: KOSPI, +1.89%; Sensex, +1.31%; Shanghai Composite, +5.63%; TSE 50, +1.18%; TSX Composite, +1.56%; CAC 40, +2.38%; FTSE Eurofirst 300, +1.29%; DAX, +5.50%; FTSE 100, +2.38%. In the minus column: Bovespa, -4.30%; Bolsa, -1.60%; Nikkei 225, -0.62%; Hang Seng, -1.52%; All Ordinaries, -4.93%; Micex, -3.02%; MSCI Emerging Markets, -2.94%; MSCI World, -0.28%.i COmposite : the TSX Composite (-2.30%), the  gan’13,14

COMMODITIES MARKETS

The U.S. Dollar Index rose 1.63% in May, so it was not exactly a banner month for the broad commodities market. May saw descents for gold (6.06%), silver (8.14%), platinum (2.98%), natural gas (8.33%), oil (1.63%), cocoa (5.64%), wheat (2.46%), corn (3.11%), coffee (5.79%) and sugar (5.32%). Copper did manage an advance of 2.40% in May.15,16

REAL ESTATE

As has been the case of late, the best news out of the economy came from this sector. The March edition of the S&P/Case-Shiller Home Price Index showed a 10.9% overall yearly gain, compared with 9.3% in February. New home sales rose 2.3% in April, and existing home sales were up 0.6% in that month, with distressed properties accounting for only 18% of transactions compared to 28% in April 2012. The Census Bureau said that the pace of new home buying had improved 29.0% in a year, and the National Association of Realtors noted an 11.0% yearly increase in the median existing home price to $192,800. NAR had pending home sales improving by 0.3% in April. While housing starts fell 16.5% in April, building permits rose 14.3% (with apartment projects the major influence on both statistics).3,17,18,19

May brought a significant jump in home loan rates. In Freddie Mac’s May 2 Primary Mortgage Market Survey, the average interest rate on the 30-year FRM was 3.35%; by the May 30 survey, it had hit 3.81%. This mirrored what happened to the 15-year FRM – interest rates on that loan type averaged 2.56% on May 2, 2.98% by May 30. Average interest rates for 5/1-year ARMs rose 0.1% to 2.66% in the same interval while rates on1-year ARMs actually descended a bit, going from 2.56 to 2.54%.20

LOOKING BACK…LOOKING FORWARD

The small caps stood tall in May: the Russell 2000 surpassed the 1,000 mark for the first time. It gained 3.87% on the month, ending May at 984.15. As these numbers show, investors didn’t exactly sell and go away last month. Another notable development: the real yield of the 10-year note was nearly back in positive territory at the end of May.1,21

% CHANGE

YTD

1-MO CHG

1-YR CHG

10-YR AVG

DJIA

+15.35

+1.86

+21.96

+7.08

NASDAQ

+14.45

+3.82

+22.23

+11.65

S&P 500

+14.34

+2.08

+24.45

+6.92

REAL YIELD

5/31 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

-0.05%

-0.50%

1.58%

1.77%

 

Sources: cnbc.com, bigcharts.com, treasury.gov – 5/31/131,21,22

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

Historically speaking, June has not been a good month for stocks – on average, the S&P 500 has gone -0.30% in June since 1945. As recently as late May, analysts were wondering if a pullback (or a correction) was in the offing, as even moderately good economic data might encourage Fed officials to taper off easing. How things changed in a week: the subpar ISM manufacturing index reading and retreat in personal spending were bad news, but encouraging developments for a stock market worried that the Fed might perceive the economy as stronger rather than weaker. One of the more ardent Wall Street bulls, S&P’s Sam Stovall, just noted that “the S&P 500’s performance in June could surprise to the upside,” referencing that since 1945, the index has averaged a 0.4% gain in the month following a 7-month winning streak. June may prove a wild card; it may bring more volatility than previous months as investors watch for any little hint of what the Fed might do, how the labor market is faring, how the service and manufacturing sectors are holding up this spring, and how freely consumers are spending and buying. For the record, the next Fed policy meeting wraps up on June 19.23,24

UPCOMING ECONOMIC RELEASES:

The data stream for the rest of the month is as follows … the ISM May non-manufacturing index and a new Fed Beige Book (6/5), the Labor Department’s May jobs report (6/7), April wholesale inventories (6/11), May retail sales ad April business inventories (6/13), May’s PPI and industrial output and the University of Michigan’s initial June consumer sentiment survey (6/14), June’s NAHB housing market index (6/17), May’s CPI and data on May housing starts and building permits (6/18), a Federal Reserve policy announcement (6/19), May existing home sales (6/20), the Conference Board’s June consumer confidence survey, the April Case-Shiller home price index, April’s FHFA housing price index and the numbers on May new home sales and durable goods orders (6/25), the final estimate of Q1 GDP (6/26), the Commerce Department’s May consumer spending report and NAR’s pending home sales report for May (6/27), and then the final University of Michigan consumer sentiment survey for June (6/28).


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Disclosure

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The Global Dow℠ is a 150-stock index of the most innovative, vibrant and influential corporations from around the world. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The BSE SENSEX (Bombay Stock Exchange Sensitive Index), also-called the BSE 30 (BOMBAY STOCK EXCHANGE)or simply the SENSEX, is a free-float market capitalization-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE). The S&P/ASX 200 index is a market-capitalization weighted and float-adjusted stock market index of Australian stocks listed on the Australian Securities Exchange from Standard & Poor’s. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The EURO STOXX 50 Index, Europe’s leading Blue-chip index for the eurozone, provides a blue-chip representation of supersector leaders in the eurozone. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange.  The IPC All-Share is the main benchmark stock index of the Bolsa Mexicana de Valores (Mexican Stock Exchange) and is the broadest indicator of the BMV’s overall performance. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results.  Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

Citations.

1 – cnbc.com/id/100779852 [5/31/13]
2 – reuters.com/article/2013/05/22/markets-usa-stocks-idUSL2N0E321R20130522 [5/22/13]
3 – marketwatch.com/Economy-Politics/Calendars/Economic [6/3/13]
4 – ncsl.org/issues-research/labor/national-employment-monthly-update.aspx [5/3/13]
5 – briefing.com/investor/calendars/economic/2013/05/27-31 [5/31/13]
6 – businessweek.com/news/2013-05-16/consumer-prices-in-u-dot-s-dot-dropped-more-than-forecast-in-april [5/16/13]
7 – usatoday.com/story/money/business/2013/05/13/april-retail-sales/2154725/ [5/13/13]
8 – thestreet.com/story/11933260/1/sp-poised-for-three-day-losing-streak-amid-qe-wind-down-chatter.html [5/24/13]
9 – bbc.co.uk/news/business-22752897 [6/3/13]
10 – markit.com/assets/en/docs/commentary/markit-economics/2013/jun/EZ_Manufacturing_ENG_1306_PR.pdf [6/3/13]
11 – markit.com/assets/en/docs/commentary/markit-economics/2013/jun/Asia_trade_13_06_3.pdf [6/3/13]
12 – reuters.com/article/2013/06/01/us-china-economy-pmi-idUSBRE95001W20130601 [6/1/13]
13 – markets.on.nytimes.com/research/markets/worldmarkets/worldmarkets.asp [5/31/13]
14 – mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [5/31/13]
15 – online.wsj.com/mdc/public/npage/2_3050.html?mod=mdc_curr_dtabnk&symb=DXY [5/1/13]
16 – money.cnn.com/data/commodities/ [5/31/13]
17 – csmonitor.com/Business/new-economy/2013/0523/New-home-sales-rise-but-market-still-a-long-way-from-normal [5/23/13]
18 – realtor.org/news-releases/2013/05/april-existing-home-sales-up-but-constrained [5/22/13]
19 – latimes.com/business/money/la-fi-mo-housing-starts-construction-building-permits-economy-20130516,0,7678305.story [5/16/13]
20 – freddiemac.com/pmms/ [5/30/13]
21 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=5%2F31%2F12&x=0&y=0 [5/31/13]
21 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=5%2F31%2F12&x=0&y=0 [5/31/13]
21 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=5%2F31%2F12&x=0&y=0 [5/31/13]
21 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=5%2F30%2F03&x=0&y=0 [5/31/13]
21 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=5%2F30%2F03&x=0&y=0 [5/31/13]
21 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=5%2F30%2F03&x=0&y=0 [5/31/13]
22 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [6/3/13]
23 – businessweek.com/printer/articles/520656?type=bloomberg [6/3/13]
24 – cnbc.com/id/100785848 [6/3/13]

 

CFGIowa Monthly Economic Update May 2013

THE MONTH IN BRIEF

Offhand, when was the last month in which stocks didn’t advance? That would be October, and if it seems like a distant memory, credit the Federal Reserve, a decent Q1 earnings season, and a prevalent optimism that is hard to dismiss. The S&P 500 pushed higher during the month to settle at a new record close of 1,597.57 on April 30 – even after an abysmal March jobs report and some soft indicators at home and abroad. It was a bad month for commodities investors, with the big headline being gold’s lapse into a bear market on April 12. There was better news out of Europe, if not out of China. The real estate market continued to improve, the usual monthly volatility in the pace of home sales aside.1,2,3

DOMESTIC ECONOMIC HEALTH

The most stunning news of April came early in the month, when the Labor Department said that the economy had generated but 88,000 new jobs in March. Sure, the jobless rate fell to 7.6%, but that was only because fewer Americans were looking for work – the labor force participation rate hit a 34-year low of 63.3%. Of course, the Labor Department often greatly revises these monthly hiring figures.4

Was manufacturing growth tapering off? The Institute for Supply Management’s manufacturing PMI came in at 50.7 in April, below the disappointing March reading of 51.3. ISM’s March service sector PMI declined to a still-encouraging 54.4 in April from its 56.0 March reading. Construction spending was down 0.7% in March, while overall durable goods orders lessened by 5.7%. Retail sales dipped 0.4% in March (the poorest month since last June). Given indicators like these, perhaps it wasn’t surprising that the federal government’s initial estimate of Q1 GDP was 2.5% – not the 3.0% or better growth that many economists had assumed they would see.5,6,7,8

Consumer spending beat expectations with a 0.2% gain in March, with colder weather being the biggest factor: inflation-adjusted spending on utilities rose by the largest monthly amount since October 2001. Gas prices had fallen 4.4% in March, and inflation also lessened: the overall Consumer Price Index went south 0.2% and the overall Producer Price Index retreated 0.6%; the core PPI rose 0.2%, the core CPI 0.1%.8,9,10

The Conference Board’s April consumer confidence poll soared to a 5-month peak of 68.1 in April from its 61.9 mark for March. The University of Michigan’s final April consumer sentiment index reached 76.4, surprising to the upside – economists polled by Briefing.com had expected a final April reading of 72.4.1,7,11

GLOBAL ECONOMIC HEALTH

Would China’s apparent economic recovery amount to an illusion? Its official GDP reading for Q1 was 7.7%, down from 7.9% in Q4. Additionally, its HSBC PMI reading fell to 50.5 in April, a two-month low. Economists worried that its GDP would be closer to 7% than 8% in coming quarters. This disappointment provided another hit to the global commodities market, signaling reduced demand for gold and other resources in the PRC.12

While the banking crisis in Cyprus had cooled, eurozone unemployment had hit 12.1% in March, and Germany’s manufacturing PMI showed contraction in April (49.2). However, these last two developments seemed to increase the odds of the European Central Bank lowering its benchmark interest rate (which was at 0.75% as April ended). Ten-year bond yields in Italy and Spain were respectively at 4.1% and 4.3% as the month wrapped up, a far cry from the danger zone they entered last summer; the yield on Spain’s 10-year note fell for an eighth straight month. Italy’s political stalemate ended after two months, with new prime minister Enrico Letta receiving a parliamentary vote of confidence.11,13,14,15  

WORLD MARKETS

Many marquee indices fared well in April. The gainers included the Global Dow (+3.27%), the MSCI World Index (+2.90%), the MSCI Emerging Markets Index (+0.44%), the Nikkei 225 (+11.80%), the Sensex (+3.55%), the S&P/ASX 200 (+4.52%), the FTSE 100 (+0.29%), the CAC 40 (+3.36%), the DAX (+1.52%) and the Euro STOXX 50 (+0.99%). In the loss column for April, we find the TSX Composite (-2.30%), the IPC All-Share (-4.11%), the Bovespa (-0.78%) and the Shanghai Composite (-2.62%).i COmposite : the TSX Composite (-2.30%), the  gan’2,16

COMMODITIES MARKETS

It wasn’t all bad in April: natural gas futures rose 9.0%, cocoa futures gained 9.1%, and wheat futures rose 6.3%. Now for the bad news: gold fell 7.8% last month to an April 30 COMEX close of just $1,474.00. Silver cratered 14.6% in April; copper fell 6.4%, platinum 4.3% and palladium 9.2%. Corn (-6.5%) and soybeans (-0.4%) both lost ground for a third consecutive month. NYMEX crude dipped 3.9% in April to end the month at $93.46 a barrel while RBOB gasoline futures dropped 9.8%. The U.S. Dollar Index lost 1.52% in April, settling at 81.72 on April 30.11,17,18,19

REAL ESTATE

The pace of existing home sales was 10.3% better in March 2013 than it was in March 2012, according to the National Association of Realtors; the Census Bureau reported an 18.5% year-over-year improvement in the pace of new home purchases.  The February S&P/Case-Shiller Home Price Index showed its best overall 12-month gain since May 2006 (+9.3%). NAR also noted pending home sales at a 3-year peak in March, with the annual gain at 7.0%. Existing home sales did decline 0.6% in March; new home sales rose 1.5%.11,20,t in the sales pace at 18.5%.3,21

What happened to mortgage rates in April? We saw notable declines. Freddie Mac’s March 28 Primary Mortgage Market Survey had the average interest rate for the 30-year FRM at 3.57%; it was at 2.76% for the 15-year FRM, 2.68% for the 5/1-year ARMs and 2.62% for the 1-year ARM. In the last April survey (April 25), the numbers were as follows: 30-year FRM, 3.40%; 15-year FRM, 2.61%; 5/1-year ARM, 2.58%; 1-year ARM, 2.62%.22

LOOKING BACK…LOOKING FORWARD

The NASDAQ and S&P are now on 6-month winning streaks – the longest win streaks they have realized in the current bull market. The DJIA advanced for a fifth straight month in April. Here are the settlement prices from April 30: DJIA, 14,839.80; S&P, 1,597.57, NASDAQ, 3,328.79; Russell 2000, 947.46. (The RUT actually lost 0.43% for April.)1,2

% CHANGE

YTD

1-MO CHG

1-YR CHG

10-YR AVG

DJIA

+13.25

+1.79

+12.31

+7.50

NASDAQ

+10.24

+1.88

+9.27

+12.73

S&P 500

+12.02

+1.81

+14.28

+7.42

REAL YIELD

4/30 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

-0.64%

-0.30%

1.50%

2.16%

 

Sources: online.wsj.com, bigcharts.com, treasury.gov – 4/30/132,23,24

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

Hopefully, we won’t see domestic economic indicators falter in May and June, as was the case in 2011 and 2012. Overseas indicators (growth and manufacturing in China, the lingering recession in Europe) may not promise much, however. On a positive note, the Fed is still printing plenty of money and sticking to its accommodative monetary policy, which has boosted stocks of late more than any other factor. The undeniable psychological lift from the Fed’s open-ended easing hasn’t worn off, and investor morale is still high. The market doesn’t seem to be facing headwinds comparable to spring 2011 or spring 2012, though they certainly could arise. If the S&P does top 1,600 in the first half of May and close above 1,600 at the end of the month, you can’t say that Wall Street would be shocked. “Sell in May, go away?” Maybe not. Many investors still see more upside in this bull market.

UPCOMING ECONOMIC RELEASES:

For the balance of May, here is the schedule of consequential announcements … the Labor Department’s April jobs report and the ISM April service sector index (5/3), March wholesale inventories (5/9), April retail sales (5/13), April’s PPI and industrial production and the May NAHB housing market index (5/15), the April CPI plus the report on April housing starts and building permits (5/16), the Conference Board’s April index of Leading Economic Indicators and the University of Michigan’s preliminary May consumer sentiment survey (5/17), April existing home sales and the release of the May 1 Fed minutes (5/22), April new home sales and March’s FHFA housing price index (5/23), April durable goods orders (5/24), the March Case-Shiller home price index and the Conference Board’s May consumer confidence poll (5/28), the second federal government estimate of Q1 GDP and NAR’s pending home sales report for April (5/30), and May’s final University of Michigan consumer sentiment survey plus the April consumer spending report (5/31).


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Disclosure

*The ISM index is based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employments, production inventories, new orders, and supplier deliveries. A composite diffusion index is created that monitors conditions in national manufacturing based in the data from these surveys.

Purchasing Managers Index (PMI) is an indicator of the economics health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

The Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services.

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

**The fast price swings of commodities will result in significant volatility in an investor’s holdings.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The Global Dow℠ is a 150-stock index of the most innovative, vibrant and influential corporations from around the world. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The BSE SENSEX (Bombay Stock Exchange Sensitive Index), also-called the BSE 30 (BOMBAY STOCK EXCHANGE)or simply the SENSEX, is a free-float market capitalization-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE). The S&P/ASX 200 index is a market-capitalization weighted and float-adjusted stock market index of Australian stocks listed on the Australian Securities Exchange from Standard & Poor’s. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The EURO STOXX 50 Index, Europe’s leading Blue-chip index for the eurozone, provides a blue-chip representation of supersector leaders in the eurozone. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange.  The IPC All-Share is the main benchmark stock index of the Bolsa Mexicana de Valores (Mexican Stock Exchange) and is the broadest indicator of the BMV’s overall performance. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results.  Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

Citations.

1 – money.cnn.com/2013/04/30/investing/stocks-markets/ [4/30/13]
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4 – nytimes.com/2013/04/06/business/economy/us-adds-only-88000-jobs-jobless-rate-falls-to-7-6.html [4/5/13]
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7 – briefing.com/investor/calendars/economic/2013/04/22-26 [4/26/13]
8 – nasdaq.com/article/us-stocks-slip-with-weak-consumer-sentiment-retail-data-20130412-00393#.UWhv1cpXqXk [4/12/13]
9 – reuters.com/article/2013/04/29/us-usa-economy-spending-idUSBRE93S0DV20130429 [4/29/13]
10 – 247wallst.com/2013/04/16/tame-march-cpi-supports-market-recovery/ [4/16/13]
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12 – cnbc.com/id/100662646 [4/22/13]
13 – iol.co.za/business/international/global-pmis-give-reasons-for-doubt-1.1505321 [4/24/13]
14 – bloomberg.com/news/2013-04-26/jpmorgan-sees-spanish-bond-gains-as-liquidity-fuels-rally-1-.html [4/26/13]
15 – cnn.com/2013/04/29/world/europe/italy-politics/ [4/29/13]
16 – mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [4/30/13]
17 – coinnews.net/2013/04/30/gold-and-silver-plummet-in-april-us-mint-bullion-coins-soar/ [4/30/13]
18 – bloomberg.com/news/2013-04-30/oil-falls-with-metals-aluminum-to-zinc-commodities-at-close.html [4/30/13]
19 – online.wsj.com/mdc/public/npage/2_3050.html?mod=mdc_curr_dtabnk&symb=DXY [5/1/13]
20 – csmonitor.com/Business/new-economy/2013/0423/New-home-sales-climb-1.5-percent-bolstering-housing-recovery [4/23/13]
21 – blogs.wsj.com/developments/2013/04/29/pending-home-sales-rose-in-march/ [4/29/13]
22 – freddiemac.com/pmms/ [5/1/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=4%2F30%2F12&x=0&y=0 [4/30/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=4%2F30%2F12&x=0&y=0 [4/30/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=4%2F30%2F12&x=0&y=0 [4/30/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=4%2F30%2F03&x=0&y=0 [4/30/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=4%2F30%2F03&x=0&y=0 [4/30/13]
23 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=4%2F30%2F03&x=0&y=0 [4/30/13]
24 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [5/1/13]

CFGIowa Monthly Economic Update April 2013

April 2013

THE MONTH IN BRIEF

Stocks just couldn’t be stopped in March. The S&P 500 rose 3.60%, all the way to a new record close of 1,569.19 on March 28 (the last market day of the month). The Dow and Russell 2000 reached all-time peaks as well. Even another crisis in Europe couldn’t stop the advance. Stateside indicators were broadly positive (which was not the case for foreign stock indices and the performance of key commodities). Even with sequester cuts affecting the federal budget and the payroll tax holiday a memory, the overall outlook for the economy and the market seemed to brighten.1

DOMESTIC ECONOMIC HEALTH

On March 1, an $85 billion reduction in federal spending over the next six months was authorized by law – a 13% cut for the armed forces and a 9% cut for other government agencies. The spending cuts (also known as sequestration) would be gradually enacted, and some analysts felt they would be smaller than announced or retroactively amended. While sequestration resulted from a stalemate between the White House and Congress, fears that Congress would fail to pass a crucial  short-term budget bill by March 27 faded away when lawmakers did so on March 21.2,3

The Commerce Department’s latest consumer spending data showed Americans spending, saving and earning more. In February, personal spending rose 0.7% and personal incomes 1.1%; the savings rate improved to 2.6%. Higher gas prices and swelling dividends influenced the jumps in spending and income, however – and rising pump prices also accounted for about half of the month’s 1.1% advance in retail sales. Still, consumer spending was up 0.3% in February when adjusted for inflation. Speaking of inflation, the Consumer Price Index and the Producer Price Index each rose 0.7% for February. Annualized consumer inflation was still no threat at 1.3%; the Federal Reserve’s current target is 2.0%.4,5,6,7

America’s two most-watched consumer confidence polls flashed opposite signals in March: the University of Michigan’s final March consumer sentiment survey rose 1.0% to 78.6, but the Conference Board’s March poll dropped 8.3% to 59.7.4,5

The Institute for Supply Management’s March manufacturing PMI disappointed, falling to 51.3 (the weakest reading since December) from the prior mark of 54.2. On the other hand, its February non-manufacturing index climbed to 56.0 (a one-year peak) from the 54.2 reading in January. In related news, durable goods orders rose 5.7% in February, with new transportation orders driving the gain; industrial production also rose 0.7% in that month.7,8,9,10

Would the Fed taper off its stimulus effort in the coming months? Perhaps not. Fed Chairman Ben Bernanke reassured investors in mid-March that while the central bank might soon adjust the amount of its monthly bond purchases, it would keep easing for the foreseeable future. The federal government also put out its final estimate of Q4 GDP: +0.4%, the poorest quarterly advance since 2011.5,11

GLOBAL ECONOMIC HEALTH

Another EU member required a bailout: Cyprus, hardly an economically significant nation within the euro area but still a potential harbinger of a fractured eurozone. On March 16, Cyprus was offered a €10 billion rescue package from the European Central Bank to recapitalize its lenders – but on March 19, its parliament rejected the bailout terms. The most controversial stipulation: a tax of up to 10% on bank accounts. Rumors had the country appealing to Russia and Middle Eastern investors for aid; finally, it accepted an ultimatum and agreed to a modified €10 billion ECB bailout on March 25. Its banks reopened on March 28 after being shuttered for almost two weeks, with limits on withdrawals to quell a panic.12,13

The HSBC purchasing manager indices tracking manufacturing in several Asian nations improved last month: 51.6 in China, 50.8 in Vietnam, 52.0 in South Korea, 51.3 in Indonesia, 51.2 in Taiwan. (India’s HSBC PMI reading declined 2.2% to 52.0.) The Bank of China’s official PMI was at 50.9 in March, the highest level in 11 months. Also making headlines: “Abenomics”, the sweeping economic policies of new Japanese prime minister Shinzo Abe. Abe is for aggressive central bank easing and stimulus spending, and fresh optimism that Japan will leave its current recession seemed prevalent in its soaring stock market and in a Bank of Japan survey that had business sentiment rising after falling for consecutive quarters.14,15  

WORLD MARKETS

In the west, the TSX Composite (-0.56%), Bovespa (-1.87%) and BOLSA (-0.10%) all fell last month as our major indices gained. In Europe, March gains were logged by the FTSE 100 (+0.80%), CAC 40 (+0.23%) and DAX (+0.69%); the EURO STOXX 50 fell 0.36%. Losses were common in the Asia Pacific region last month, felt by the S&P Asia 50 (-2.19%), the S&P/ASX 200 (-2.70%), the Sensex (-1.10%), the Hang Seng (-3.13%) and the Shanghai Composite (-5.21%); the Nikkei 225, on the other hand, climbed 6.82% to go +22.95% for the first quarter. MSCI’s World Index rose 2.10% for March, while its Emerging Markets Index fell 2.09%.16,17

COMMODITIES MARKETS

A strengthening dollar and renewed belief in the economy took a toll on some commodity futures. Key precious and base metals had a mixed March: silver (-0.4%) and platinum (-0.6%) pulled back, gold (+1.1%) and palladium (+4.6%) advanced. At the end of March, COMEX gold settled at $1,595.70. Oil futures gained 5.6% in March (NYMEX crude ended the month at $97.23) while natural gas futures jumped 15.1%. Cotton futures rose 5.8% in March. The U.S. Dollar Index logged another monthly gain (+1.27%) and settled at 82.99 on March 28.18,19,20,21

REAL ESTATE

Despite some monthly volatility, the year-over-year change in this sector remained profoundly positive. New home sales fell 4.6% in February, but were up 12.3% annually. Existing home sales rose 0.8% in February, bringing the yearly increase to 10.2%; the median price of a residential resale reached $173,600, 11.6% improved from February 2012. Pending home sales did fall 0.4% in February, but the yearly gain was 5.0%; January’s Case-Shiller Home Price Index rose 1.0% after a 0.9% gain in December. Housing starts were up 0.8% in February and 27.7% annually.5,22,23,24

Comparing Freddie Mac’s Primary Mortgage Market Surveys of February 28 and March 28, average home loan interest rates increased on both 30-year FRMs (3.51% to 3.57%) and 5/1-year ARMs (2.61% to 2.68%) in that interval. On the other hand, average rates for 1-year ARMs declined from 2.64% to 2.62% while rates on 15-year FRMs were 2.76% in both editions of the survey.25

LOOKING BACK…LOOKING FORWARD

The DJIA achieved nine record closes in March, ending the month with another one: 14,578.54. The S&P ended March at 1,569.19, the NASDAQ at 3,267.52 and the Russell 2000 at 951.54 (the RUT was up 4.44% for the month).1,26

 

% CHANGE

YTD

1-MO CHG

1-YR CHG

10-YR AVG

DJIA

+11.25

+3.73

+11.06

+7.90

NASDAQ

+8.21

+3.40

+5.24

+13.86

S&P 500

+10.03

+3.60

+11.64

+8.17

REAL YIELD

3/28 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

-0.64%

-0.11%

1.13%

2.09%

 

Sources: cnbc.com, bigcharts.com, treasury.gov – 3/28/131,27,28

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

So where is the top for this market? Ardent bulls see the S&P marching steadily toward 1,550 or even 1,600 across the balance of the year, even if the current optimism fades and something approaching a correction occurs. Bears see a bubble forming off the collective euphoria. So which side has it right? No crystal ball exists to provide us with the answer to that question, but there is an old saying to keep in mind: bull markets tend to doggedly ascend a “wall of worry.” Right now, your notable or emerging worries to stocks include the lingering crisis in the eurozone, a strengthening dollar, the potential hit to the economy this spring from the sequester cuts, the only-guesstimated nuclear weapons potential of Iran and North Korea, and anxieties that the Fed and other central banks might wrap up quantitative easing campaigns too quickly. At the start of April, none of these market threats had dented investor confidence all that much. Perhaps that confidence will take the rally to new peaks this month.

UPCOMING ECONOMIC RELEASES:

Looking at the rest of April, here are the highlights of the economic news stream … ISM’s March non-manufacturing index (4/3), the March employment report from the Labor Department (4/5), February wholesale inventories (4/9), the March 20 Fed minutes (4/10), the March PPI, March retail sales, February business inventories and the University of Michigan’s preliminary April consumer sentiment survey (4/12), April’s NAHB housing market index (4/15), the March CPI plus data on March housing starts, building permits and industrial production (4/16), a Fed Beige Book (4/17), the Conference Board’s March index of Leading Economic Indicators (4/18), March existing home sales (4/22), March new home sales and February’s FHFA housing price index (4/23), March durable goods orders (4/24), the initial estimate of Q1 GDP and the month’s final University of Michigan consumer sentiment survey (4/26), March consumer spending and pending home sales (4/29), and finally the February Case-Shiller home price index and the Conference Board’s April consumer confidence poll (4/30).


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Disclosure

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange.  The Mexican Stock Exchange (Spanish: Bolsa Mexicana de Valores, BMV; BMV: BOLSA) is Mexico’s only stock exchange. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The EURO STOXX 50 Index, Europe’s leading Blue-chip index for the eurozone, provides a blue-chip representation of supersector leaders in the eurozone. The S&P Asia 50 is an equity index drawn from four major Asian markets – Hong Kong, Singapore, South Korea, and Taiwan. The S&P/ASX 200 is recognized as the primary investable benchmark in Australia. The BSE SENSEX (Bombay Stock Exchange Sensitive Index), also-called the BSE 30 (BOMBAY STOCK EXCHANGE)or simply the SENSEX, is a free-float market capitalization-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE). The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

 

Citations.

1 – www.cnbc.com/id/100600350 [3/28/13]
2 – www.reuters.com/article/2013/03/01/us-usa-fiscal-idUSBRE91P0W220130301 [3/1/13]
3 – www.cbsnews.com/8301-250_162-57575622/congress-finally-averts-fiscal-crisis-with-time-to-spare/ [3/21/13]
4 – www.nytimes.com/reuters/2013/03/29/business/29reuters-consumer-spending.html [3/29/13]
5 – www.csmonitor.com/Business/2013/0329/Strong-rise-in-consumer-spending-caps-good-week-in-economic-news [3/29/13]
6 – articles.marketwatch.com/2013-03-13/economy/37663012_1_retail-sales-gas-stations-building-material-stores [3/13/13]
7 – www.jec.senate.gov/republicans/public/index.cfm?p=EconomicNews&ContentRecord_id=faa3f919-b827-4254-808b-83eb3f6d8602 [3/15/13]
8 – www.nasdaq.com/article/us-march-manufacturing-pmi-slows-to-513-vs-542-in-february–ism-20130401-00482#.UVn1hldXqXk [4/1/13]
9 – www.ism.ws/ISMReport/NonMfgROB.cfm [3/5/13]
10 – www.foxbusiness.com/economy/2013/03/26/durable-goods-orders-big-ticket-items-durable-goods/ [3/26/13]
11 – www.sfgate.com/news/article/Bernanke-Stimulus-hinges-on-sustained-improvement-4370751.php [3/20/13]
12 – www.telegraph.co.uk/finance/financialcrisis/9951858/Cyprus-bailout-timeline.html [3/28/13]
13 – www.businessweek.com/ap/2013-03-28/news-summary-cyprus-banks-reopen-after-crisis [3/28/13]
14 – economictimes.indiatimes.com/news/international-business/asian-manufacturing-picks-up-in-march-data-shows/articleshow/19319865.cms [4/1/13]
15 – www.foxbusiness.com/news/2013/03/31/japan-business-mood-improves-as-market-reacts-to-abenomics/ [3/31/13]
16 – bloomberg.com/markets/stocks/ [3/31/13]
17 – mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [3/28/13]
18 – bullionpricestoday.com/bullion-prices-mixed-in-first-quarter-2013-gold-silver-coins-mixed/ [3/29/13]
19 – www.proactiveinvestors.com/companies/news/42162/oil-caps-longest-winning-streak-of-2013-gold-drops-42162.html [3/28/13]
20 – www.reuters.com/article/2013/03/28/markets-commodities-idUSL2N0CK14Y20130328 [3/28/13]
21 – online.wsj.com/mdc/public/npage/2_3050.html?mod=mdc_curr_dtabnk&symb=DXY [3/29/13]
22 – www.realtor.org/news-releases/2013/03/existing-home-sales-and-prices-continue-to-rise-in-february [3/21/13]
23 – www.census.gov/construction/nrc/pdf/newresconst.pdf [3/22/13]
25 – www.freddiemac.com/pmms/ [4/1/13]
26 – blogs.barrons.com/stockstowatchtoday/2013/03/28/sp-500-breaks-record-closing-high/ [3/28/13]
27 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=3%2F28%2F12&x=0&y=0 [3/28/13]
27 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=3%2F28%2F12&x=0&y=0 [3/28/13]
27 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=3%2F28%2F12&x=0&y=0 [3/28/13]
27 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=3%2F28%2F03&x=0&y=0 [3/28/13]
27 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=3%2F28%2F03&x=0&y=0 [3/28/13]
27 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=3%2F28%2F03&x=0&y=0 [3/28/13]
28 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [4/1/13]

CFGIowa Monthly Economic Update March 2013

March 2013

THE MONTH IN BRIEF

As February ended, a central question seemed to preoccupy Wall Street: “When will the Dow hit a new record high?” Nothing seemed to shake the Street’s upbeat mood – not the $85 billion in federal budget cuts slated for March 1, not the real estate bubble in China or political uncertainty in Italy, not the still-anemic Q4 GDP reading or the abrupt decline in personal incomes. All told, the data stream offered much to keep Wall Street in a good mood: impressive numbers from the housing sector, rebounding consumer sentiment, continuing expansion in the manufacturing and service sectors. So the Dow ended the month at 14,054.49, with bulls holding an unyielding belief that it could reach a new all-time high in March – and the index did just that.1,2

DOMESTIC ECONOMIC HEALTH

February wrapped up with no agreement between Congress and the White House to postpone the sequestration – a 9% budget reduction for domestic programs, a 13% reduction for defense programs and a 2% cut in Medicare payments to physicians. March 27 presents a deadline for an appropriations bill to keep federal government operations sufficiently funded; the sequester cuts might be retroactively altered or undone as a result.3

Word came from the Commerce Department that consumer incomes fell 3.6% in January, a clear effect of higher payroll taxes. Yet consumer spending held up, rising 0.2% in that month. So did consumer sentiment: the University of Michigan’s monthly index was at 77.6 in February, and the Conference Board’s consumer confidence poll soared to 69.0 last month, even with the jobless rate at 7.9%.4,5

If a rising stock market and general perception of an improving economy influenced the above numbers, tame inflation may have as well. In January, the Consumer Price Index was flat again. Retail prices had only increased 1.6% in 12 months. The troubling asterisk: core CPI (with food and energy prices factored out) rose 0.3% in January, a gain unmatched since May 2011. Also, retail sales increased just 0.1% in January compared to 0.5% in December. Wholesale inflation (as measured by the federal government’s Producer Price Index) was up 0.2% for January, and had increased 1.4% in the past year.6,7,8

The world certainly pays attention to the Institute for Supply Management’s twin purchasing manager indices, and the latest readings on the economy from ISM have been quite positive. Its non-manufacturing index rose to 54.2 in February (the best mark since June 2011) while its service sector index read 56.0 last month, up from 55.2 in January for the highest reading in 12 months.9,10

When the Federal Reserve’s January policy meeting minutes came out, they raised eyebrows – the Federal Open Market Committee had agreed to review its easy money policies in March, perhaps signaling an earlier-than-expected end to QE3. The Bureau of Economic Analysis revised its estimate of Q4 GDP to +0.1%.5,11

GLOBAL ECONOMIC HEALTH

By the end of the month, Wall Street had one eye on China and another on Italy. The PRC finally set some limits on its runaway real estate market, imposing a whopping 20% capital gains tax on real property sales, demanding higher mortgage rates and down payments and requiring cities to adopt yearly price easing targets for their housing markets. China’s manufacturing PMIs barely showed expansion in February: the official PRC PMI came in at 50.1, while the HSBC PMI read 50.4. The People’s Bank of China forecasts 3% inflation in 2013, compared to 2.6% in 2012; Bloomberg sees China’s economy growing 8.1% in 2013, up from the 13-year low of 7.8% recorded by its government last year. 12,13

Italy’s national election produced a deadlock, raising fears that austerity measures stipulated by the European Central Bank could be rejected. Incumbent Prime Minister Mario Monti had been effectively challenged by Beppe Grillo, a populist fiercely opposed to the euro, and – of all people – disgraced former Prime Minister Silvio Berlusconi. (Italy’s jobless rate hit a 21-year peak of 11.7% in February.) On the upside, European Commission president José Manuel Barroso announced a federal surplus in Ireland and smaller payment imbalances for Italy, Portugal, Spain, and Greece. On the downside, the smaller deficits for those last four nations could be traced largely to a reduction in imports stemming from sinking demand.4,14

WORLD MARKETS

Foreign benchmarks experienced much more turbulence than ours last month. A list of some losses: Hang Seng, -3.29%; NIFTY 50, -6.55%; MERVAL, -11.95%; Bovespa, -3.91%; Euro STOXX 50, -2.57%; CAC 40, -0.26%; DAX, -0.44%; MSCI World Index, -0.02%; MSCI Emerging Markets Index, -1.35%. The gains: S&P/ASX 200, +3.27%; KOSPI, +3.51%; TOPIX, +3.79%; FTSE 100, +1.34%; TSX Composite, +1.08%; S&P Asia 50, +0.52%.1,15

COMMODITIES MARKETS

When was the last time gold racked up a five-month losing streak on the COMEX? You have to go back to 1997 to find another example of that, yet that was its dubious achievement in February. All key metals seemed to retreat last month: gold went 5.0%, silver -9.3%, copper -4.9%, platinum -5.5% and palladium -1.5%. Gold settled at just $1,572.30 on the COMEX on February 28. The perception of an improving economy also hurt oil, which ended February at $92.05 a barrel, its lowest NYMEX settlement price of the year. (It would head lower in early March). Natural gas futures, rose 4.4% in February. The U.S. Dollar Index rose 3.46% last month.16,17,18

REAL ESTATE

Could a seller’s market be emerging? That possibility doesn’t seem so absurd given the latest round of indicators. Existing home sales had improved 0.4% in January even as the inventory of homes reached its lowest level April 2005, the National Association of Realtors noted; year-over-year, home prices were up 12.9%. NAR also found pending home sales rising 4.5% in January, and December’s S&P/Case-Shiller Home Price Index recorded a 6.8% 12-month increase. January also saw a 15.6% jump in new home sales, which had increased 28.9% in a year.19,20,21,22

Between January 31 and February 28, home loan rates generally decreased. In that interval (according to Freddie Mac), the average interest rate on the 30-year FRM went from 3.53% to 3.51%. Average rates for the 15-year FRM went from 2.81% to 2.76%; the 5/1-year ARM, 2.70% to 2.61%; the 1-year ARM, 2.59% to 2.64%.23

LOOKING BACK…LOOKING FORWARD

In addition to the gains logged by the big three in February, the Russell 2000 rose 1.00% to end the month at 911.11. The DJIA ended February at 14,054.49, the NASDAQ at 3,160.19 and the S&P 500 at 1,514.68.1,24

% CHANGE

Y-T-D

1-YR CHG

5-YR AVG

10-YR AVG

DJIA

+7.25

+1.40

+8.51

+7.81

NASDAQ

+4.66

+0.57

+6.52

+13.63

S&P 500

+6.20

+1.11

+10.91

+8.01

REAL YIELD

2/28 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

-0.64%

0.28%

1.10%

1.77%

Sources: online.wsj.com, bloomberg.com, bigcharts.com, treasury.gov – 2/28/121,25,26,27
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.
These returns do not include dividends.

While the Dow hit a new intraday high and closed at a record high on March 5, the underappreciated factoid is that the S&P 500 advanced in both January and February. As CNBC.com columnist Bob Pisani noted recently, that has happened 26 times since 1945. In each of those 26 years, the S&P finished up for the year. In 24 of those 26 years, its gain was 10% or better. In fact, the average annual ascent across those 26 years (including yield) was 24%. Historical data is simply a rear-view mirror and no guide to the future – but bulls are as optimistic as ever about this market. Could another deficit battle on Capitol Hill set stocks back? Will developments in Europe exert a drag? At this moment, little seems to shake the faith of Wall Street, which sees a clearly improving economy and a market climate with weaker headwinds.28

UPCOMING ECONOMIC RELEASES: For the balance of March, the economic calendar plays out as follows … January factory orders and a new Fed Beige Book (3/6), the Labor Department’s February job report and January wholesale inventories (3/8), February retail sales and January business inventories (3/13), the February PPI (3/14), February’s CPI and industrial production and the University of Michigan’s preliminary March consumer sentiment survey (3/15), the March NAHB housing market index (3/18), February housing starts and building permits (3/19), a Fed policy announcement (3/20), February existing home sales, January’s FHFA housing price index and the Conference Board’s February Leading Economic Indicators index (3/21), February new home sales and durable goods orders, the Conference Board’s March consumer confidence poll and the January Case-Shiller home price index (3/26), February pending home sales (3/27), the final estimate of Q4 GDP (3/28), and February consumer spending and the final March University of Michigan consumer sentiment survey (3/29).


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This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The CNX Nifty, also called the Nifty 50 or simply the Nifty, is a stock market index and benchmark index for Indian equity market. The price-weighted MERVAL Index (MERcado de VALores, literally Stock Exchange) is the most important index of the Buenos Aires Stock Exchange. The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The EURO STOXX 50 Index, Europe’s leading Blue-chip index for the eurozone, provides a blue-chip representation of supersector leaders in the eurozone. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The S&P/ASX 200 is recognized as the primary investable benchmark in Australia. The KOSPI Index is a capitalization-weighted index of all common shares on the Korean Stock Exchanges. The TOPIX Index is the most broadly based Japanese stock index, covering all companies within the First Section of the TSE (around 1,600 stocks). The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The S&P Asia 50 is an equity index drawn from four major Asian markets – Hong Kong, Singapore, South Korea, and Taiwan. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

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