Bumpy Week As Investors Closely Watched Economic News

Markets

For the week of Monday, July 29, 2013 through Friday, August 2, 2013:

• Standard & Poor’s 500 Index: 1.10%
• Dow Jones Industrial Average: 0.65%
• NASDAQ Composite: 2.13%

The week began with stocks slipping, as investors awaited a flood of economic news slated for the week. Despite the slip, the benchmark indices held much of their July gains. The Dow Jones Industrial Average edged down again on Tuesday, as investors considered a strong rise in home prices against a slip in consumer confidence and mixed corporate earnings.

The bumpy ride continued through mid-week, but the Dow was able to close July with a gain.  The markets failed to find direction from the Federal Reserve’s latest policy statement, though the release was taken as a positive by the bond market. As expected, the Fed said that it would keep up its stimulus efforts. Officials pointed to modest growth, higher mortgage rates and low inflation as factors in its decision.

Stock climbed Thursday on the back of a better-than-expected factory reading from China and the Fed’s statement that it will keep stimulus efforts in place.  The markets finished higher Friday with a late buying spree that sent both the Dow and S&P 500 to close at record levels.

Economic Data

• Chain Store Sales:
  • The ICSC chain store sales index fell 1.6%.
    • This was the largest weekly decline since June.
  • The 2.2% year-over-year growth was just below the 2.3% year-to-date average.
• Case-Shiller Home Price Index:
  • Existing-home prices accelerated in May.
    • The 10-city composite increased 11.8% year-over-year.
    • The 20-city composite increased 12.2% over the same period.
  • Non-seasonally adjusted, the 10- and 20-city composites are up 2.5% and 2.4%, respectively.
    • Compared to April, the 10-city index was up 1.1%
    • The 20-city was up 1% from April.
• Conference Board Consumer Confidence:
  • Consumer Confidence Index slipped 1.8 points in July to 80.3.
    • This measure is the second consecutive month above 80.
    • This is the first time that has occurred since January 2008.
  • Consumer’s confidence is at its highest level since May 2008.
• MBA Mortgage Applications Survey:
  • Mortgage Application Activity fell 3.7%.
    • This is the seventh straight weekly decline.
    • Refinance activity fell 3.8%.
    • Purchase applications slid 3.4%.
  • Mortgage interest rates were relatively unchanged.
• Gross Domestic Product:
  • Real GDP grew 1.7% in the second quarter’s preliminary estimate.
    • The estimate will be revised twice more.
    • The preliminary estimate beat expectations, up from 1.1% growth in the first quarter.
  • Faster growth was helped by nonresidential investment, particularly structures and exports.
    • Consumer spending and faster growth imports were the drag on the report.
  • The data included full revisions dating back to 1929, with changes including the inclusion of research and development as part of investment spending.
  • The revisions increased GDP growth over the last decade, with a large upward revision to growth in 2012.
• Federal Open Market Committee Meeting:
  • Against consensus predictions, The Federal Open Market Committee made:
    • No changes to its balance sheet;
    • No changes to interest rate policy, and
    • Left its forward guidance unchanged.
  • We thought the Fed would signal what conditions would be needed to begin tapering its asset purchases.
    • There was little in the statement to suggest the Fed will not taper this year, despite GDP growth and inflation are running below the forecast.
  • The Fed paid more attention to inflation in its statement.
    • Inflation is running well below the central bank’s target of 2%.
• Jobless Claims:
  • Initial claims fell 19,000 to 326,000 during the week.
  • Claims data has been unstable recently, as a result of typical factors, including auto plant shutdowns, which often occur this time of year.
• ISM Manufacturing Index:
  • Factory conditions improved more than expected in July, as the ISM manufacturing index increased from 50.9 to 55.4.
    • This is the second consecutive monthly increase.
    • This also puts the index at its highest level since June 2011.
  • The details were more favorable than in June, as the new orders index climbed from 51.9 to 58.3.
  • Production also jumped above 60 for the first time since early 2011.
  • After falling below 50 in June, the employment index bounced back, rising from 48.7 to 54.4.

Earnings:

• AFLAC Inc. (NYSE: AFL)
  • Aflac earned $889 million, or $1.90 a share, compared to $483 million, or $1.03 a share one year ago.
    • Revenue rose 2.4% to $6 billion year-over-year.
    • Analysts expected $1.51 a share and revenue of $5.84 billion.
  • U.S. premium income rose 3.5% to $1.3 billion.
• Coach, Inc. (NYSE: COH)
  • Coach reported income of $221.3 million, or $0.78 a share, compared to $251.4 million, or $0.86, last year. 
    • Excluding some items, profit was $0.89 a share, matching the analysts’ estimates.
  • Revenue increased to $1.22 billion, but still missed the $1.24 billion average analysts’ expected.
• AGL Resources Inc. (NYSE: GAS)
  • AGL reported profit of $49 million, or $0.41 a share, compared to $34 million, or $0.28 a share one year ago.
  • Operating revenue increased to $904 million, a 32% rise.
• Southern Company (NYSE: SO)
  • Southern Company reported earnings of $297 million, or $0.34 a share, compared to $623 million, or $0.71 a share, one year ago.
  • Excluding one-time costs, Southern would have earned $575 million, but still missed the earnings per share estimate from analysts.
• Exxon Mobil Corporation (NYSE: XOM)
  • Exxon earned $6.86 billion or $1.55 a share, missing analysts’ estimated earnings of $1.90 per share.
  • Revenue was $106.47 billion, compared to $127.36 billion, last year.

Interest Rates

• Rates reversed course from last week and increased across the board…
  • The two-year Treasury rate inched up one basis point to 0.32%.
  • The five-year Treasury rate increased six basis points to 1.43%.
  • The 10-year Treasury rate improved eight basis points to 2.64%
  • The 30-year Treasury yield also jumped eight basis points to 3.70%.

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