Market Month in Review - July

08/10/2012

July was a good month for the markets. Most averages returned gains and consumer sentiment inched higher. However, it looks like a return to robust growth in US GDP will have to wait until 2014 at the earliest. Another area of the economy that seems to have turned around is housing with most indicators pointing to stabilization and even some growth. Please contact your FineMark Professional with any questions.

The Markets

Reassuring words out of Europe helped equities build on the previous month's strong gains. The Dow industrials managed to squeak over the 13,000 mark once again, and after bouncing around between roughly 1330 and 1360 for much of July, the S&P 500 finally ended the month above that range. As it has for much of the year, the Russell 2000 once again trailed its large-cap brethren, while the Nasdaq's strong gains of the first quarter kept it on top year-to-date despite a flat month. Finally, despite some volatility, the Global Dow ended July less than three points higher than where it began.

Treasury yields continued to fall, hitting record lows as strong demand for a relative safe haven pushed prices up. The dollar strengthened as the euro fell to end the month at roughly $1.23, while oil bounced around in the $80-$90 a barrel range, ending at roughly $88. Gold also was choppy, ranging from $1,550 to $1,620 an ounce by month's end.

The Month in Review

  • With Spanish bond yields once again well above 7% and Italian yields on the rise, euro-zone leaders signed off on a €100 billion rescue package for Spain's banks, while the president of the European Central Bank also pledged to do whatever is necessary to preserve the euro. Those measures might include using the region's rescue fund to make direct purchases of sovereign bonds to ensure that troubled countries aren't shut out of global credit markets. Meanwhile, Europe's official statistics agency said unemployment on the continent hit a record 11.1%.
  • The U.S. economy grew more slowly during the second quarter. The Bureau of Economic Analysis's initial estimate showed a 1.5% increase in gross domestic product compared to Q1's 2% growth. While personal consumption, exports, and business investments in equipment and inventory all rose, the increases were partly offset by higher imports and cuts in state and local government spending.
  • The Bureau of Labor Statistics said the 80,000 new jobs added to the U.S. economy in June weren't enough to affect the unemployment rate, which remained stalled at 8.2%.
  • The Chinese economy showed signs of slowing, particularly in manufacturing, which fell to its lowest level in seven months. That prompted the country's central bank to cut its interest rate on one-year bonds for the second time in two months, lowering it to 6%.
  • Inflation remained tame at the consumer level. According to the Bureau of Labor Statistics, a flat June put the increase in the Consumer Price Index at 1.7% for the last 12 months. Meanwhile, wholesale prices edged up slightly in June, but the annual increase remained at only 0.7%.
  • British regulators launched a criminal investigation of multiple global banks in connection with the deliberate manipulation of the London Interbank Offered Rate (LIBOR), which is used around the world to set interest rates on a wide variety of mortgages and other debt instruments. Barclays PLC was fined £290 million after admitting it had repeatedly submitted false LIBOR-related data since 2005.
  • The Commerce Department said consumer spending was down 0.1% while retail sales fell for the third straight month, in part because of lower gas prices. Meanwhile, the Bureau of Economic Analysis said personal income was up 0.5% in June; that's as much as the previous two months combined.
  • With the start of the summer home-buying season, home prices in the 20 cities measured by the S&P/Case-Shiller index rose an average of 2.2% in May; it was the second straight month of higher prices. And after a strong May, the Commerce Department said sales of new single-family homes dropped 8.4% in June despite mortgage rates that Freddie Mac called the lowest on record (the 30-year fixed rate was 3.49%). Also, the National Association of Realtors® said home re-sales fell 5.4%, though both new sales and re-sales were substantially higher than a year earlier.
Eye on the Month Ahead

The Fed announcement that kicks off the month could affect investor sentiment. And while euro-zone leaders' verbal support for the shared currency helped calm markets, investors will soon look for concrete actions to prevent interest rates abroad from spiraling higher. Also, another massive redemption of Greek bonds is scheduled on August 20.

Key dates and data releases: Federal Open Market Committee announcement, U.S. manufacturing (8/1); factory orders (8/2); unemployment/payrolls, U.S. services sector (8/3); labor productivity/costs (8/8); international trade (8/9); import/export prices (8/10); wholesale inflation, retail sales, business inventories (8/14); consumer inflation, industrial production, international capital flows (8/15); housing starts, leading economic indicators, options expiration (8/17); Federal Open Market Committee minutes, home resales (8/22); new home sales (8/23); durable goods orders (8/24); pending home sales (8/27); home prices (8/28); second estimate of Q2 gross domestic product, Fed "beige book" report (8/29); personal income/spending (8/30).

Data sources for non-equities performance: U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold, NY close); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. Equities data reflects price changes, not total return.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indexes listed are unmanaged and are not available for direct investment.