We Will Not Likely See QE3 Anytime Soon

For the week of Monday, June 18, 2012 through Friday, June 22, 2012

• Standard & Poor’s 500 Index: -0.58%
• Dow Jones Industrial Average: -0.99%
• NASDAQ Composite: 0.68%

The markets ended the week mixed. We saw inflation numbers released that were not nearly as big as anticipated. Stocks closed higher early in the week on hopes the Federal Reserve would conclude its two-day monetary policy meeting by announcing new stimulus measures. However, we soon learned the Fed decided to hold off on more aggressive action to fuel the economy, indicating we will not see QE3 anytime soon. The Fed will be extending Operation Twist, purchasing Treasury securities with remaining maturities of six years to 30 years through the remainder of 2012. We suspect the Fed is keeping their moves reserved in case there is a full-blown meltdown in Europe.

While Greece was able to settle on a government, we do not have high hopes that the country will commit to the austerity measures needed for another round of funding. We feel there is still a great amount of risk in Europe as Spanish borrowing costs rose to a record high in the last week.

Economic Data

• Chain Store Sales Snapshot:
  • The chain store sales index was unchanged in the latest week.
  • Year-over-year growth rose to 3.6% for the week.
  • Customer traffic improved in the week at malls, but outlet traffic weakened compared to last year.
• Housing Starts:
  • May’s mixed data is an overall good sign for residential construction.
    • Housing starts dropped to 708,000 annualized units, a 4.8% decline in May.
    • However, April starts were revised upward nearly 4%.
  • Single-family starts are at their fastest pace since December.
    • Permits are 7.9% month over month;
    • Completions declined 10.3%, and
    • Year-over-year comparisons for all three measures were positive.
• MBA Mortgage Applications Survey:
  • The mortgage applications composite index declined 0.8% in the week ending June 15.
  • This was as a result of an 8.5% drop in the purchase index removing most of the prior week’s positive gain.
  • The refinance index rose 1% higher, as a result of falling mortgage rates.
• FOMC Minutes:
  • The Federal Open Market Committee decided to extend its Operation Twist program by purchasing
  • Treasury securities with remaining maturities of six years to 30 years through the remainder of 2012.
  • Extending this program was the path of least resistance for policymakers.
    • This extension will carry them beyond the presidential election.
  • The Fed’s actions will nudge long-term rates, including mortgages, lower, but they should not have a substantial impact on the economy.
  • This should buy the Fed more time to determine if more aggressive monetary policy easing is needed.
• Existing Home Sales:
  • Existing-home sales declined slightly to 4.55 million annualized units in May.
  • Despite a 1.5% drop from April the assessment that the housing market is reviving still stands.
  • Sales are up 9.6% from last May.
  • Months of inventories ticked up in May but remain reasonable at 6.6 months.
• Jobless Claims:
  • Although still above the expected level, jobless claims edged lower in the latest week.
  • Unfortunately, the small decline does little to bolster optimism about the near-term trajectory for the labor market.
  • Initial claims decreased by 2,000 to 387,000 for the week ending June 16.
    • The prior week’s data was revised from 386,000 to 389,000.
    • Continuing claims were unchanged in the prior week.

Interest Rates

• Treasury rates remained relatively flat for the week amidst the U.S. Federal Reserve saying it would extend its holdings of long-term government bonds by $267 billion in effort to bring down borrowing costs.
• The two-year Treasury rate inched up to 0.30%, passing its 2012 average of 0.28%.
• The five-year Treasury rate gained 3 basis points to 0.74%, but is still below its one-year average.
• The 10-year Treasury rate added one basis point to 1.62%, moving above the record lows just two weeks ago.
• The 30-year Treasury yield rose two basis points to 2.74%, but is well below the six-month average of 3.05%.

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.