Market Month in Review - July
We are now solidly into the 3rd quarter of 2013 and the summer is coming to a close. The equity markets have remained strong throughout July after a brief rest in June. The focus remains on the Federal Reserve however and when they will begin to reduce the bond-buying program. Interest rates have already crept higher this summer in anticipation of reducing the easy money policy. Enjoy the reminder of your summer and if you have any questions please feel free to contact your FineMark Professional.
Reassuring words from the Federal Reserve helped alleviate the anxiety seen in June about the imminent demise of easy money (at least for the moment). Coupled with benign economic data, that seemed to give investors the confidence to return to equities worldwide. The S&P 500, Dow, and Russell 2000 all saw new record closes during the month, and despite some tech earnings disappointments, the Nasdaq had the second-best performance for both the month and the year. The small caps of the Russell 2000 continued to have the best year-to-date track record and have now more than tripled since the index's March 2009 low, while the S&P is up almost 1.5 times over the same period.
The benchmark 10-year Treasury bond yield edged up as prices fell, though at a much more moderate pace than was seen in June. Gold managed to retrieve half of its June losses to close at roughly $1,310 an ounce, but it has lost more than 20% since the beginning of the year. Oil prices rose approximately 7% to end July at $105 a barrel. And after a brief rally at the beginning of the month, the dollar finished down almost 2% against a basket of six foreign currencies.
The Month in Review
- The U.S. economy grew at an estimated annual rate of 1.7% during the second quarter. That's more than the previous quarter's 1.1% (reduced from 1.8% based on updated methodology for calculating gross domestic product by the Bureau of Economic Analysis). Business investment that rose 9% and a 1.8% increase in consumer spending helped offset a 9.5% increase in imports and a 1.5% reduction in federal government spending.
- The U.S. economy added 195,000 jobs in June, and estimates for April and May were revised upward. However, the Bureau of Labor Statistics said that because more people tried to rejoin the workforce, the unemployment rate remained stuck at 7.6%.
- New home sales surged 8.3% to reach their highest level since May 2008, according to the Commerce Department. Monthly sales of existing homes were more sluggish, according to the National Association of Realtors®. However, they were still more than 15% higher than a year earlier, and foreclosures and short sales hit their lowest levels since October 2008. Sales increased despite rising mortgage rates; Freddie Mac said the rate for a 30-year fixed mortgage reached 4.51%, its highest level since June 2011. Low inventories continued to push up prices. In the cities measured by the S&P/Case-Shiller 20-city index, a 12.2% year-over-year gain in home prices was the best since March 2006, and May's 2.4% monthly increase put home prices back at their spring 2004 levels. Multifamily buildings accounted for most of a 10% drop in housing starts, while building permits were down 7.5% for the month.
- Spiking gas prices were largely responsible for increases in both consumer and wholesale inflation, according to the Bureau of Labor Statistics. Wholesale prices rose 0.8% in June, the largest increase since September 2012, while consumer inflation was up 0.5% for the month and up 1.8% for the last 12 months.
- Retail sales rose slightly less than they had a month earlier; the Commerce Department said improved auto sales were the main reason for the 0.4% gain.
- Manufacturing reports were generally positive. Durable goods orders benefitted from strong orders for aircraft, which helped push overall orders to their highest level since the Commerce Department began tracking them in 1992. Industrial production also accelerated; the Federal Reserve's gauge was up 2% from a year earlier. Both the Philly Fed and Empire State manufacturing surveys saw gains--the Philly Fed hit its highest level in more than two years--and the Institute for Supply Management's measures of activity in both the manufacturing and services sectors continued to show growth.
- The Fed spent much of July trying to reassure investors that its plans to taper off its economic support were not on any preset course, and that the bond purchases and low interest rates that have helped support the economy would remain in place for the foreseeable future until economic growth warrants a change.
- Detroit became the largest U.S. municipality ever to file for bankruptcy. The decision by the city's emergency manager to treat holders of general-obligation bonds on the same basis as other unsecured creditors raised some concern in municipal bond markets about the precedent that could potentially be set.
Eye on the Month Ahead
The Fed will likely continue to be the focus of investor attention. Though the next Fed meeting isn't scheduled until September, any economic improvement could fuel speculation about whether that meeting could mark the beginning of the end of easy- money policies. Traditionally light trading volumes in August could exaggerate any market movements in either direction.
Key dates and data releases: auto sales, U.S. manufacturing, construction spending (8/1); unemployment/payrolls, personal income/spending, factory orders (8/2); U.S. services (8/5); balance of trade (8/6); retail sales, business inventories (8/13); wholesale inflation (8/14); consumer inflation, Empire State/Philly Fed manufacturing surveys, industrial production, international capital flows (8/15); housing starts, business productivity/costs (8/16); home resales, Federal Open Market Committee meeting minutes (8/21); new home sales (8/23); durable goods orders (8/26); home prices (8/27); 2nd estimate of Q2 GDP (8/29); personal incomes/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.
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