Strong Week for U.S. Stocks, Anticipating Weekend Eurozone Talks

For the week of Monday, June 4, 2012 through Friday, June 8, 2012:

• Standard & Poor’s 500 Index: 3.73%
• Dow Jones Industrial Average: 3.59 %
• NASDAQ Composite: 4.04%

The markets ended the week on a much stronger note than it has in recent weeks. The markets saw strong gains early in the week that continued as investors anticipate the European Union’s weekend talks concerning Spain’s bailout.

Our concern lies with the small- business owner, who is likely holding out on hiring until the November elections. Right now, hiring in the private sector is low as business owners are not taking on the risk of new employees. We believe employers are hording cash, thus growth is slow.

Economic Data

• Factory Orders:
  • Indicative of a slowing global economy, factory orders fell in April.
    • Missing expectations, orders for manufactured goods fell 0.6% in April.
    • Shipments of durable goods were revised down slightly, growing 0.6%.
    • Unfilled orders fell 0.1%, while inventories were unchanged.
    • Core capital goods orders were revised to show a 2.1% decline.
    • Shipments were revised down as well, showing a 1.5% decline.
• ISM Nonmanufacturing Index:
  • The ISM nonmanufacturing survey index increased slightly from 53.5 to 53.7, showing some stabilization in May for the service economy.
  • Business activity and new orders gained, while employment fell to a level just above the threshold for expansion.
  • The inventory detail was also discouraging for growth.
    • All told, while the nonmanufacturing economy is no longer losing momentum, a turn toward stronger growth does not appear imminent.
• Chain Store Sales Snapshot:
  • The Chain Store Sales index broke its string of five consecutive declines with a 0.4% gain in the latest week.
  • However, the year-over-year growth slipped to 2.8%, its lowest level in 10 weeks.
  • The report showed customer traffic was:
    • Higher than last year at apparel stores;
    • Flat at department stores, and
    • Much weaker at discounters.
• MBA Mortgage Applications Survey:
  • The mortgage applications composite index increased 1.3% in the week ending June 1, supported by a rebound in refinance applications.
  • The refinance index gained 2% from the previous week, and mortgage interest rates continued to trend lower.
  • The purchase index fell 1.8%, extending its recent losing streak.
• Productivity and Costs:
  • Nonfarm business productivity fell 0.9% in the first quarter of 2012 on a seasonally adjusted annualized basis, revised sharply lower from the first reading as hours worked increased more than previously reported and output was revised down.
  • The reading was substantially below the lesser decline called for by consensus and the forecast.
  • Productivity growth will be harder to achieve in the coming stages of the recovery, calling firms to add more workers to expand output.
• Beige Book:
  • The Federal Reserve’s Beige Book from early April to late May showed modest to moderate growth.
  • There were no visible signs of a slowing U.S. recovery in the most recent Beige Book report.
• Jobless Claims:
  • The latest weeks decline in jobless claims was roughly in line with expectations.
  • The easing is a welcome sign for a labor market that spun its wheels in May and has been struggling to regain the momentum of early 2012.
  • Initial claims decreased to 377,000 for the week ending June 2.
  • The prior week’s data was revised from 383,000 to 389,000.
  • Continuing claims increased in the prior week.

Interest Rates

• Investors rushed to stocks and commodities after hopes rose for policy action to tame the eurozone’s debt crisis.
  • The two-year Treasury rate held flat at 0.27%.
  • The five-year Treasury rate rose eight basis points to 0.73%.
  • The 10-year Treasury rate jumped 11 basis points to 1.67%.
  • The 30-year Treasury yield bounced up 11 basis points off the record low seen last week to 2.754%.

Disclosures:

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