The market bounced around this week on weak economic data, ending slightly down through the close on Thursday. Fears of Greece’s default persisted after Moody’s downgraded the country again, and threatened to downgrade French and German banks with high exposure to Greek debt. While the market halted the longest losing streak since 2002, it continues to move sideways. Lower crude and commodity prices have helped keep inflation moderate. Housing starts picked up with the warm weather, yet unemployment continues to hover around 9% with no major decreases in jobless claims.
Economic Data
- Retail Sales were down 0.2% in May, the first decline since June 2010.
- Excluding a drop in auto sales, retail sales grew at 0.3%.
- Spending at electronics and appliances stores, furniture stores, grocery stores, and general merchandise stores fell.
- Non-store retailers and building supply stores lead sales growth for the month.
- April and May data was revised down as well, which did not help economic news.
- Inflation Data
- The Consumer Price Index (CPI) for May rose 0.2%, leveling off from previous months’ readings, but remained slightly above targets.
- Core CPI rose 0.3%, continuing to rise over the past two months as price increases are passed through.
- Core inflation ticks up at 1.5% the rate from one year ago, however it is still within the Fed’s target, meaning no changes in monetary policy.
- May’s Producer Price Index rose at the slowest pace since last summer at 0.2%, mostly due to costs for finished goods increasing.
- Core prices rose 0.2% in May, excluding food and energy.
- An indicator of momentum in the economic recovery is steady core prices of finished goods.
- Rapid price inflation at intermediate stages of production will put some upward pressure on the core index, a trend that should continue.
- The Consumer Price Index (CPI) for May rose 0.2%, leveling off from previous months’ readings, but remained slightly above targets.
- Industrial Production rose 0.1% in May, with manufacturing output rising 0.4%.
- Supply chain disruptions from Japan slowed auto manufacturing modestly.
- May’s non-auto manufacturing rose the highest in 2011 at 0.6%.
- Following an unseasonably warm April, moderate weather led to a 2.8% drop in utility output.
- Mining output rose 0.5%, for a three-month gain.
- Housing showed some signs of life as new home starts rose to an annualized 560,000 units in May, 3.5% above April’s numbers
- Mortgage applications also ticked up as the spring buying season opened, because more people typically look for homes during this time of year.
- Jobless claims dropped by 16,000 to 414,000.
- The previous week’s numbers were revised higher;
- Continuing claims fell by 21,000, and
- The labor market and the economy continue to struggle to gain momentum.
Company News
- Best Buy Company, Inc. (NYSE: BY) shares rose 4.5%, as the company beat Wall Street’s expectations with earnings of $0.35 per share and revenue of $10.9 billion.
- Revenue fell by $19 million, or 12%.
- Best Buy is focusing on high-tech gadgets, increasing online sales, and a larger presence in China.
- Earnings guidance for the year remains between $3.30 and $3.55, with analysts expecting $3.46 per share.
- The Kroger Co. (NYSE: KR) shares rose 2% after the retailer posted a 16% gain in net income over last year with $432.2 million, or $0.70 per share.
- Sales increased by 11% to $27.5 billion beating estimates of $26.4 billion, or $0.64 per share.
- The Kroger Co. revised yearly earnings up between $1.85 and $1.95, and expects to be on the higher side.
- Same-store-sales rose 4.6%.
Mergers & Acquisitions Activity and More
- V.F. Corp. (NYSE: VFC) purchased The Timberland Company (NYSE:TBL) for more than $2.2 billion expanding its outdoor products line.
- VFC is offering a 43.4% premium over last week’s closing price, or $43 for each Timberland shares.
- Timberland shares jumped 44%, and VFC shares climbed 10% on the news.
- VFC said the boards of both companies have approved the deal, and expects the deal to close during the third quarter.
- J.C. Penney Company, Inc. (NYSE: JCP) shares rose 17.5%, as the company snagged former Apple executive Ron Johnson as their next CEO.
- Johnson is famous for designing Apple’s retail stores and developing the Genius Bar.
Eurozone Fears
- Fears of a Greek default roared to life again this week.
- Greece’s credit rating was downgraded by Moody’s to the lowest level above default;
- The country now has the lowest rating in the world, and
- German and French banks, with high exposure to Greek bonds were threatened with downgrades by Moody’s, which sent European and U.S. stocks down.
Interest Rates
- Two-year Treasury yield fell to 0.38%, above the all-time lows set in November 2010.
- Five-year Treasury yield lowered to 1.54%, but remains 0.5% above the all-time lows.
- 10-year Treasury rate was down to 2.95%, and is roughly 0.80% lower since Feb.
- 30-year Treasury yield was up to 4.20%, but is still 0.50% lower over the past few months.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
