Week Ends Up on Commitment from Eurozone

For the week of Monday, July 23, 2012 through Friday, July 27, 2012

• Standard & Poor’s 500 Index: 1.71%
• Dow Jones Industrial Average: 1.97%
• NASDAQ Composite: 1.12%

The markets ended the week up after Europe vowed not to let their crisis grow to the scale of the United States’ Great Recession.

The week started with bad news from Europe, which sent investors flocking to the U.S. Treasury market. Treasurys, from five- to 30-year maturities, fell to new lows. By Wednesday, positive earnings from the Dow Industrials buoyed the index higher for the first time in four days. However, the world’s biggest company by market capitalization, Apple, Inc., posted an earnings miss. This resulted in the stock’s largest drop since October.

Europe’s top central banker sparked a global rally in stocks late in the week, after reassuring investors that the central bank would be vigilant about holding together the eurozone.

Economic Data

• Chain Store Sales Snapshot:
  • For the sixth week straight, the chain store sales index rose, with a 1% gain in the latest week.
  • While temperatures remained above normal, they were not as hot as prior weeks, supporting back-to-school shopping, particularly for apparel.
  • Year-over-year growth accelerated to 3.3%:
    • This was the strongest in five weeks,
    • but only slightly above the year-to-date average.
• MBA Mortgage Applications Survey:
  • The mortgage applications composite index rose 0.9% for the week ending July 20.
    • Refinance applications drove the weekly gain.
    • The refinance index rose 1.8%, extending the prior week’s sharp increase.
  • The 30-year fixed mortgage rate remained steady at last week’s record low of 3.74%.
  • The purchase index, which has trended flat over the past few months, declined 3.2%, illustrating continued weak homebuyer confidence.
• New Home Sales:
  • Against expectations, sales of new single-family homes in June declined 8.4% month over month to 350,000 annualized units.
  • The Census Bureau revised upward the May figure significantly to 382,000, the strongest pace since April 2010.
  • For a third consecutive quarterly gain, the second quarter sales are up an annualized 13%.
  • The available new-home supply inched upward for the first time in years to a supply of 4.9 months.
  • Pricing remains weak, with the median price down 3% from this time last year.
• Jobless Claims:
  • Jobless claims experienced a larger than anticipated decline.
  • We believe the improvement is not cause for unbridled optimism, as the wide swing is merely part of the pattern of seasonal volatility.
    • This is typical for this time of year.
  • Initial claims dropped by 35,000 to 353,000 for the week ending July 21.
  • The prior week’s data were revised from 386,000 to 388,000
• Durable Goods:
  • Unchanged from May, new orders for durable manufactured goods rose 1.6% in June.
    • Excluding transportation, new orders fell 1.1%.
    • Total shipments rose merely 0.1%, while inventories were up 0.3%.
  • The details of the report were mixed with core capital orders falling 1.4%, while shipments rose 1.2%.
  • The report points toward slowing business investment and softer conditions for manufacturers.

Earnings

• Apple, Inc. (NASDAQ: AAPL):
• Apple Inc. delivered a rare earnings disappointment, with lower-than-expected sales of its iPhone.
• Apple sold 26 million iPhones in the quarter, a 28% increase from the same quarter a year ago.
  • It appears consumers are holding out for a new version of the iPhone, expected later this year.
    • This was down from the 35.1 million phones sold in first quarter 2012.
  • This was only the second time in the last 39 quarters that Apple has missed analyst profit and revenue expectations.
• The company said the battered European economy weighed on results overseas.
• Profit increased 20.7% to $8.8 billion, or $9.32 a share, from a year earlier
• However, this was down from 94% growth the previous quarter.
• Apple ended the June quarter with $117.2 billion in cash, up from $110.2 billion at the end of its second quarter.

Interest Rates

• Treasuries touched new historical lows across the spectrum, as unfavorable news from Europe forced investors into U.S. Treasuries.
  • The two-year Treasury rate held flat at a yield of 0.22%.
  • The five-year Treasury rate fell two basis points to a new low of 0.57%.
  • The 10-year Treasury rate fell nearly eight basis points.
    • This sets a new historical low of 1.42%.
  • The 30-year Treasury yield tumbled 13 basis points.
    • It, too, touched a new all-time low of 2.48%.

Disclosures

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