Markets:
For the week of July 18, 2011 through Thursday, July 21, 2011
- Standard & Poor’s 500 Index: 2.10%
- Dow Jones Industrial Average: 1.96%
- NASDAQ Composite: 1.60%
Despite no deal being reached in Washington to raise the debt ceiling or reduce the deficit, the markets reacted instead to strong second quarter earnings reports this week and rose.
The European Central Bank and IMF are still trying to broker a deal to assist Greece in order to keep borrowing costs down and reduce risks to Greek bondholders. The word is that a deal will be announced soon. Earnings season has kicked off strong with more than 75% of companies beating estimates and driving the markets higher. The financial sector has had a few hiccups, as there are still losses related to the real estate collapse and toxic mortgages being absorbed by major banks.
Politics
- United States Debt Ceiling
- Rumors emanating from Washington D.C. this week hinted a deal was close to being reached on the deficit reduction/debt ceiling, but little actual progress has been made.
- We feel that a deal will be reached by the deadline to keep our AAA credit rating and avoid a technical default or default.
- New Home starts were up for the month of June for the strongest increase this year.
- Housing starts rose 14.6% over May to 629,000 annualized units.
- We find this as great news since construction jobs were hit the hardest during the recession.
- Existing home sales fell slightly for the month of June by 0.8%
- Sales have been falling for three consecutive months.
- The number of contracts cancelled rose in June taking a bite out of sales.
- New claims for jobless benefits rose this week by 10,000 back to 418,000.
- The previous week was revised up to 408,000.
- Continuing claims for extended unemployment benefits for the week ending July 9 fell by 50,000 to 3,698,000 .
- The European Central Bank and International Monetary Fund (IMF) have been arranging a deal for Greece.
- The deal is to reduce risk to Greek debt holders, while Greece completes austerity measures to grow its economy.
- One deal may reduce the interest payments owed by Greece in a selective default that rolls bonds into new bonds with longer maturities.
- The main purpose is to give the European banks time to build capital and shield themselves from the bad Greek debt.
Earnings
- International Business Machines, Corp. (NYSE: IBM)
- IBM beat earnings by $0.07, increased revenue by 12%.
- Behind the earnings, new contract signings for services increased 16%.
- Apple, Inc. (NASDAQ: AAPL)
- The technology giant beat earnings expectations by quadrupling sales from a year ago, selling nearly every iPad they could produce.
- Estimate $3.25 billion and $3.51 per share: Actual $7.31 billion and $7.79 per share
- The Coca-Cola Company (NYSE: KO) increased profit by 18% for the quarter.
- PepsiCo, Inc. (NYSE: PEP) increased profit by 18%; however, shares fell 4% after the announcement.
- Goldman-Sachs Group, Inc. (NYSE: GS) missed earnings estimates by 24% for the quarter.
- Revenue was off 13% from analysts expectations mostly as a result of of decreased trading revenue.
- Bank of America Corp. (NYSE:BAC) lost $9.1 billion this quarter, with $8.5 billion due to a settlement over poor-quality mortgage bonds.
- The total is now $12.7 billion in mortgage-based losses this year.
- Wells Fargo & Company (NYSE: WFC) increased earnings for the quarter due to releasing cash set aside to cover bad mortgages.
- However, new mortgage signings have declined, showing the continued weakness in the housing market.
Interest Rates
- The two-year Treasury rose to 0.39% still near the all-time low set last November.
- The five-year Treasury inched to 1.50%, but remained almost 1% lower than early 2011 levels.
- The 10-year Treasury rate climbed to 2.96%, still down 0.75% from February levels.
- The yield on the 30-year Treasury increased to 4.28%, remaining in the 4.20%-4.35% range it has traded recently.
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.
