Posted by: thepinetree on 08/19/2010 11:06 AM
Updated by: thepinetree on 08/20/2010 09:17 AM
Expires: 01/01/2015 12:00 AM
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Weekly Market Update Week of August 16, 2010 From Donna Stevenson of Pacific West Financial
Copperopolis, CA...After slight gains on Monday, all three major indexes – the Dow, the S&P 500, and the Nasdaq – closed lower every day from Tuesday through Friday amidst weak economic data and disappointing earnings results. Equities also faced pressure from the Federal Reserve’s warning that the recovery is weakening. In a statement made Tuesday, the Fed admitted that “The pace of recovery in output and employment has slowed in recent months." It also added that while it still expects the economy to grow, the improvement will be "more modest in the near term than had been anticipated." This outlook was among the most pessimistic to come from the Fed in over a year, and it seems to have cast a cloud over stock performance. For the week, the Dow lost 3.3%, the S&P dropped 3.8%, and the Nasdaq slid 5%.
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Adding to the week’s poor performance is the fact that trading volume is typically lower in the summer months, and has particularly been so in August. This is commonly referred to as the “Hamptons Effect” – the time when many traders are purported to be on vacation. Take Friday’s volume as an example: Just under 2 billion shares changed hands in NYSE Composite as of 1:30 p.m. Eastern, compared with the daily average of about 5.4 billion shares. Instead of trading stocks, it seems that mounting uncertainty has prodded investors to seek safety. The U.S. dollar index climbed 0.3%, and Treasurys likewise rose, pushing the yield on the 10-year note down to 2.681%.
What about the rest of the world? Results were mixed. The Shanghai composite rose 1.2%. The Nikkei was up 0.4%. Hong Kong’s Hang Seng was down 0.2%. Germany’s DAX fell 0.4%. France’s CAC 40 slid 0.3%. Britain’s FTSE 100 gained 0.2%. And, adding to investors worries about the euro-zone economy were weaker-than-expected Italian auction results, increases in Ireland's borrowing costs, and a rise in the net borrowing of Spanish banks.
That’s probably enough bearish sentiment to digest for one week.
Coming from a slightly more positive perspective, James Paulsen, chief investment strategist at Wells Capital Management commented regarding last week’s activity: "I take what's happened [in the market] recently with a grain of salt.” He later added, "There have been big moves without many big players playing. And those that are playing are left to their own imagination." In the week ahead, U.S. stock investors will get results from several well-known U.S. companies, as well as key economic reports. Hopefully this will infuse their “imaginations” with fresh optimism!
Key things to watch this week:
Tuesday – Productivity and Costs, Redbook, FOMC Meeting Announcement
Wednesday –International Trade, Treasury Budget, EIA Petroleum Status Report
Thursday – Jobless Claims, EIA Natural Gas Report
Friday – Consumer Price Index, Retail Sales, Consumer Sentiment, Business Inventories
Data as of 08/13/2010
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance, Google Finance, Barron’s, djindexes.com, MSCI Barra. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not available.
HEADLINES:
Retired Coast Guard admiral Thad Allen issued a directive Saturday for BP to conduct more pressure testing on the busted well in the Gulf of Mexico ahead of plans to resume drilling of a relief well. Meanwhile, President Obama pledged to stand by the Gulf Coast residents until the region fully recovered from the BP oil spill during a weekend trip Saturday in Florida with his family.
China surpassed Japan as the world’s second-largest economy last quarter, capping the nation’s three-decade rise from Communist isolation to emerging superpower. Japan’s nominal gross domestic product for the second quarter totaled $1.288 trillion, less than China’s $1.337 trillion.
The Blackstone Group, a private equity giant, agreed on Friday to buy Dynegy, the Houston power company that once sought to buy Enron, for $4.7 billion including debt, in the largest leveraged buyout so far this year.
U.S. wheat prices fell 1.5% on Friday as late-session profit-taking offset worries that a Black Sea region drought will leave a third of Russia's land bare until next spring. It seems many traders wanted to lighten their load due to recent volatility in wheat prices, which soared to two-year highs last week before tumbling in four of the past six trading sessions. Prices were down 3.2% this week and down 16.5% from last week's highs.
Fannie Mae told mortgage lenders on Friday that they don't need to pull a second credit report before a loan closes, clarifying new lending policies that took effect earlier this year. Back in June, Fannie instituted a "loan quality initiative" designed to cut down on sloppy underwriting and to reduce the chances that lenders might be required to buy back a defaulted loan. The initiative effectively led lenders to pull two credit reports, one when determining if a borrower was eligible for a loan, and a second immediately before the loan closed to make sure the borrower hadn't taken on additional debt. But lenders had voiced concerns that such policies were likely to result in loan approvals being delayed or canceled because prospective homeowners often charge credit cards for big-ticket items like moving services or furniture purchases shortly before a home purchase.
The bill signed Friday by President Obama providing $600 million to help secure the U.S.-Mexico border will add 1,500 government jobs and give a modest boost to the hard-hit regional economy.
QUOTE OF THE WEEK:
“Life isn't about finding yourself. Life is about creating yourself.” – George Bernard Shaw
RECIPE OF THE WEEK:
Peach Frozen Yogurt
The tartness of the yogurt blends perfectly with the sweetness of the peaches in this frozen dessert that’s perfect for summer.
Ingredients:
3 cups peeled, pitted and finely chopped peaches or nectarines (about 4 medium)
2 16-ounce cartons vanilla yogurt
1/4 cup honey
Directions:
1. Place 1-1/2 cups of the chopped peaches in a food processor bowl or blender container with yogurt and honey. Cover and process or blend until smooth. (If using blender, blend a small amount at a time and do not over blend.) Stir in remaining chopped peaches. Pour into a 2-quart pan. Cover and freeze for 4 hours or until firm.
2. Break the frozen mixture into small pieces and place in a chilled mixer bowl; beat with an electric mixer on medium speed until fluffy, starting slowly and gradually increasing the speed. Return mixture to pan and freeze, covered, for 6 hours or until firm.
3. Let frozen yogurt stand at room temperature for 10 to 20 minutes before serving. Makes 6 cups (twelve 1/2-cup servings).
GOLF TIP OF THE WEEK:
A Drill to Achieve Better Contact
To build a more precise swing, practice the "Gateway Drill". Stick two tees in the ground just outside the heel and the toe of your driver (About 1 half inch on either side). Tee up a ball directly between the tees, and then swing the clubhead through the “gateway”. If the clubhead isn't clipping the tees, you should be making contact in the center of the clubface.
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Securities offered through Pacific West Securities, Inc., Member FINRA/SIPC
Sources:
Marketwatch
The Wall Street Journal Online
Barrons
CNN Money
http://content.usatoday.com/communities/greenhouse/post/2010/08/obama-florida-gulf-trip/1
http://www.bloomberg.com/news/2010-08-16/china-economy-passes-japan-s-in-second-quarter-capping-three-decade-rise.html
http://www.nytimes.com/2010/08/14/business/14dynegy.html?src=busln
http://www.reuters.com/article/idUSTRE67B2XF20100813
http://online.wsj.com/article/SB10001424052748703960004575427733851461048.html?mod=googlenews_wsj
http://money.cnn.com/2010/08/13/news/economy/border_security_bill/index.htm
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The Shanghai composite is made up of all the A-shares and B-shares that trade on the Shanghai Stock Exchange. The index is calculated by using a base period of 100; the first day of reporting was July 15, 1991. The Shanghai Stock Exchange is a nonprofit organization run by the China Securities Regulatory Commission (CSRC). Stocks, funds and bonds are all traded on the exchange, which has listing requirements including that a company must be in business and be earning a profit for at least three years before joining the exchange.
The Nikkei is a price-weighted index comprised of Japan's top 225 blue-chip companies on the Tokyo Stock Exchange.
The Hang Seng is an index of the 40 largest companies that trade on the Hong Kong Exchange. The Hang Seng Index is maintained by a subsidiary of Hang Seng Bank, and has been published since 1969. It is widely quoted as a barometer for the Hong Kong economy.
The DAX represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange. The prices used to calculate the DAX Index come through Xetra, an electronic trading system. A free-float methodology is used to calculate the index weightings along with a measure of average trading volume. The DAX was created in 1988 with a base index value of 1,000. DAX member companies represent roughly 75% of the aggregate market cap that trades on the Frankfurt Exchange.
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