Holiday-Shortened Week Ends on a Positive Note with Strong Same-Store-Sales

Markets:

For the week of July 5, 2011 through Thursday, July 7, 2011

• Standard & Poor’s 500 Index: 1.01%
• Dow Jones Industrial Average: 1.09%
• NASDAQ Composite: 2.01%

It was a shortened trading week following the Independence Day holiday on Monday. The markets surged early in the week based on good economic data. Retail sales were strong because of a decrease in gasoline prices, freeing up some income for consumers. News from the manufacturing sector showed growth, but slightly less than expected. We think manufacturing will heat up in the second half of the year. There was still no agreement on the United States debt ceiling, but reports indicate that both sides of Congress are willing to negotiate. Our opinion is that the limit will be raised by the deadline, and that both sides will make concessions to avoid default. The employment situation showed signs of improvement with the ADP Jobs Report. However, the Bureau of Labor Statistics Employment Situation released on Friday painted a different picture as the unemployment rate ticked up to 9.2% and economy added far fewer jobs than expected.

Retail Sales News

• Monthly Retail Sales Data was strong for June with the following companies:
  • Costco Wholesale Corp’s (NASDAQ: COST) same-store-sales rose 14% lead by strong gasoline sales;
    • Expected sales were 12.7%.
  • Same-store-sales for Target Corp. (NYSE: TGT) rose 4.5% on the high end of estimates;
  • Kohl’s Corporation (NYSE: KSS) beat expectations of 2.9%, reporting 7.5% same-store-sales;
  • Nordstrom Inc.’s (NYSE: JWN) same-store-sales grew to 7.9% above the 5% estimate;
  • The Gap, Inc. (NYSE: GPS) increased sales to 1%, while forecasters predicted a decline of 2.3%;
  • Falling short of expectations was J.C. Penney Company, Inc (NYSE: JPC) missing by 0.3% with sales of 2%, and
  • Overall, we feel this is a good sign that spending is heating up a little.

Economic Data

• The manufacturing sector showed growth for May with an uptick of goods orders and an increase of capital investment on equipment.
  • Expectations for 1% growth of ordered goods were just missed with an actual increase of only 0.8%;
  • Capital investment by U.S. companies, excluding aircraft, rose 1.6%, and
  • Growth in the manufacturing sector is continuing.
• United States Debt Ceiling
  • There are still no bills to go forward in Congress that will raise the level of the nation’s debt past the $14.29 trillion mark by the August 2 deadline.
  • A deal will need to be reached soon to keep the United States from losing its AAA credit rating.
    • We believe an agreement will be reached and the debt limit will be raised by the deadline.
    • While we do not think there will be income tax rate increases, we expect some deductions will likely be eliminated, effectively raising taxes.
  • Talks are scheduled to continue over the weekend.
• Employment Numbers
  • The ADP Jobs Report was released on Thursday showing that June payrolls for the private sector grew by 157,000 jobs.
    • The ADP Report is typically above the actual number reported by BLS
  • Initial jobless claims for the week ended July 2 were 418,000, a decrease of 14,000.
    • Continuing claims for unemployment benefits fell to 3.681 million, a decrease of 43,000.
• The banking sector rose as reports surfaced regarding possible settlements over improper foreclosure proceedings could be reached soon with state and federal authorities.
  • Earlier this week, Bank of America Corp. (NYSE: BAC) agreed to settle with investors over its poorly written mortgage bonds.
    • The settlement was seen as a sign that the foreclosure fiasco could be near an end, and the bank could put the whole mess behind it.
    • However, a group of investors has filed a lawsuit to be excluded from the settlement claiming the deal was reached with entities that do business with Bank of America.
    • This could be a huge setback as the bank tries to move on from the ordeal.

Interest Rates

• Two-year Treasury bonds maintained a 0.47% rate, still below the 0.80% seen in April.
• The five-year Treasury rate dropped 0.04% to 1.74%, but remains up 0.45% in the past few weeks.
• The 10-year Treasury yield dipped to 3.16%, but held the 30 bps recent rise.
• The 30-year Treasury rose barely to 4.40%, slowly rising 0.25% in the last few weeks.

Disclosures

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