Market Comments as of July 31, 2013:
So much for the doldrums of summer. Stocks bounced back with a vengeance in July as indexes advanced into record territory and those investors/traders not on vacations welcomed Bernanke’s latest stand and the Fed’s apparent game of “kick the can.” The month brought continued debate about the longevity of the bond buying program, relatively lackluster earnings news, and a potential stall in the surging housing sector as mortgage rates pushed higher. Bernanke toned down his prior rhetoric that had led folks to believe key stimulus was ending soon; financials outpaced techs in the earnings game; and some homebuyers put their big decisions on hold. Bond funds suffered with record outflows and some investors sought the safe-haven of (negligibly yielding) money market accounts. Still, plenty turned to stocks which recovered quite nicely from June’s pullback. Not a bad way to spend the summer doldrums.
On the Corporate (Political) Fronts:
Too-big-to-failers Citigroup, Goldman Sachs, and Morgan Stanley led the favorable earnings reports with enhanced trading profits, while tech biggees like Intel and Microsoft struggled along with the ailing PC market. Dell kept putting off its shareholder vote to improve prospects for victory as some large shareholders disapproved of the privatization plan, while Michael tried to change the voting rules. Auto sales surged at the strongest pace in over five years, though Detroit became the largest US city to file for bankruptcy protection as the sector surge proved too-little-too-late to prevent population losses and a reduced tax base. Boardrooms remained active (generally a good sign of the times) as AMR (American Airlines) looks to emerge from a bankruptcy of its own and merge with US Airways, Saks is being acquired by Canadian-based Hudson Bay, and health-care giant Perrigo is buying Irish biotech firm Elan.
While home sales declined in the recent month, they still stand near five-year highs and homebuilders remain confident despite the uptick in rates. Manufacturing climbed back into expansion mode and the economy is adding jobs at a steady pace, though the unemployment rate is well above the Fed’s targeted level. Retail sales disappointed, but consumer sentiment registered its best reading in six years. While the Fed is getting closer to “tapering” its bond purchases, the powers-that-be stated that any policy shift can be reversed on a dime and the funds rate will stay low (near zero) until unemployment falls to 6.5% (from 7.6%) or below.
It’s a Small World:
So much for that worldwide rebound…the IMF recently reduced its forecast for global growth for both 2013 and 2014. China’s gov seems to be “freaking out” about 7.5% GDP growth and its powers-that-be implied that stimulus could be enacted if it were to fall below 7.0%. Europe cannot make any real progress. While the overall manufacturing sector jumped back into expansion mode with its best showing in 18 months (led by Germany and France), the euro-zone’s jobless rate climbed to 12.2%, a record high for the region. And suddenly Arab Spring does not offer the democratic promise of last year as new political (and military) turmoil broke out in Egypt. Actually, a summer vacation does not sound half bad (but not to the Middle East).