Can the ‘Stealth’ Summer Rally Continue?

Can the ‘Stealth’ Summer Rally Continue?

After a very quiet summer week on Wall Street (half the traders must have been on vacation), markets closed up, consolidating the gains made since the June 4th low. Last week the S&P gained 1.07%, the Dow picked up 0.85%, and the Nasdaq gained 1.78%. Before getting into what transpired last week, let’s take a moment to reflect on how far we’ve come this year. The S&P has been positive eight weeks out of the last ten, has gained 11.79% for the year, and is up 25.44% since this time in 2011. Despite a rocky second quarter and concerns about a double-dip recession, the markets are actually performing well. We know it can be hard to maintain composure when markets hit turbulence, but overall equity performance is getting better.

Federal Reserve Chairman Ben Bernanke started off Monday with reassurances that broad market measures are still pointing towards a recovery. While he didn’t discuss monetary policy, we can be sure he recognizes that the economy isn’t out of the woods yet and is still prepared to take action if needed. Though the week was light on economic news, jobless claims turned up lower than expected and our trade deficit narrowed, indicating that the economy is doing better, overall. Markets ticked up after his remarks, continuing their quiet rally.

Analysts have been surprised by the stealthy summer rally, as corporate revenues are down and economic fundamentals are still lukewarm. One explanation for why stocks are moving higher despite weak market internals is that traders expect Fed action next month. The downside to this is that if the Fed disappoints, equities could tumble. As we get closer to the end of the year, we can also expect additional media focus on the impending fiscal cliff, the expiration of tax cuts, and deep government spending cutbacks due to kick in January 1st; if the federal government doesn’t develop a plan, it could definitely rein in any market gains for the year.

In short, let’s remain cautious about our summer ‘sugar high’ rally, and understand that there will likely be additional turbulence ahead as election season heats up, the Fed announces its policy plans, and investors turn to our leaders for decisive action.



ECONOMIC CALENDAR:

Tuesday: Producer Price Index, Retail Sales, Business Inventories

Wednesday: Consumer Price Index, Empire State Mfg. Survey, Treasury International Capital, Industrial Production, Housing Market Index, EIA Petroleum Status Report

Thursday: Housing Starts, Jobless Claims, Philadelphia Fed Survey

Friday: Consumer Sentiment

HEADLINES:

USDA revises crop estimates lower because of historic drought. The USDA reduced its forecasts for corn and soybean crops due to the impact of the drought on the Corn Belt. Analysts were shocked at the dramatic reduction, which is down 13% since 2011 and will strongly affect food and commodities prices later this year. Some analysts believe that overall food prices could go up by as much as 5% next year.

Mortgage rates remain above 3.5% for second week. Interest rates on fixed rate mortgages rose to 3.59% after dropping to an historic low of 3.49% two weeks ago. Interest rates tend to follow Treasury yields, and the increase in rates has followed positive economic announcements, which have reduced demand for Treasury securities.

U.S. trade deficit falls to lowest level in 18 months. The trade deficit fell in June, helped by a steep drop in oil imports and a modest increase in exports. Despite Europe’s troubles, exports to the Eurozone increased by 1.7%.

Unemployment claims fell to 361,000 last week, consistent with modest gains in hiring. Despite July numbers skewed by seasonal factors, the distortions seem to have stopped and the job market may have pulled out of its midyear slump. Although the job market is not healthy, the economy added 163,000 new jobs in July, the biggest increase since February.



QUOTE OF THE WEEK:

"Go the extra mile to acquire what you want to both attract and give away” Dr. Wayne Dyer



Share the Wealth of Knowledge! Please share this market update with family, friends, or colleagues. If you would like us to add them to our list, simply click on the "Forward email" link below. We love being introduced!





Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.



Diversification does not guarantee profit nor is it guaranteed to protect assets The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

The Housing Market Index (HMI) is a weighted average of separate diffusion indices based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. Each resulting index is then seasonally adjusted and weighted to produce the HMI.

The Pending Home Sales Index, a leading indicator of housing activity, measures housing contract activity, and is based on signed real estate contracts for existing single-family homes, condos and co-ops. The PHSI looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years. The results are weighted to produce the index.

The BLS Consumer Price Indexes (CPI) produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. Survey responses are seasonally adjusted and weighted to produce a composite index.

The Conference Board Leading Economic Index (LEI) is a composite economic index formed by averages of several individual leading economic indicators, which are weighted to produce the complete index.

Google Finance is the source for any reference to the performance of an index between two specific periods.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

By clicking on these links, you will leave our server as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.