Will May Plunges bring June Lunges for U.S Markets? By Ken Mahoney
After a choppy session on Friday, stocks turned upward during the last hour of trading, encouraged by an increase in consumer sentiment and a decrease in bad news coming out of the euro zone. For the week, the Dow gained 2.81%, snapping a three-week losing streak and marking the Dow’s biggest weekly gain since February. The S&P 500 rose 2.51% for the week, posting its best weekly gain since early March.
Friday's gains came in spite of a Commerce Department report showing that U.S. consumer spending fell for the first time since September. The 1.2% drop was a surprise, as economists predicted a 0.2% increase. Because consumer spending accounts for two-thirds of U.S. economic activity, retail sales reports are commonly referred to as a gauge of how well the recovery is progressing. At the same time though, the University of Michigan's consumer sentiment index rose to 75.5 in June, up from 73.6 in May. In this case, it seems that the boost in consumer confidence won out over retail sales.
The markets also got a midweek boost when U.S. Federal Reserve Board Chairman Ben Bernanke said the Fed would act as needed to support the economic recovery. As of late, Mr. Bernanke has been more optimistic since the crisis peaked in 2008. “As long as we have the confidence of the markets that we will be able to exit from this situation with a sustainable fiscal program, then I think we’ll be O.K.,” he told Mr. Simpson of Idaho.
Despite two straight days of gains, analysts expect the markets to remain choppy as high unemployment and uncertainty related to Europe, Wall Street reform initiatives, and the future of BP tug at the markets. In the week ahead, economic reports are due on manufacturing, real estate and inflation, among others. This economic news will be important as investors look for direction on the remainder of the quarter, and the second half of the year.
Key things to watch this week:
Tuesday – Treasury International Capital, Housing Market Index
Wednesday – Housing Starts, Producer Price Index, Industrial Production
Thursday – Consumer Price Index, Jobless Claims, Leading Indicators, Philadelphia
Fed Survey
Data as of 06/11/2010 1-Week Y-T-D 1-Year 5-Year 10-Year
Standard & Poor's 500 2.51 -2.11 15.4 -1.77 -2.50
Dow 2.81 -2.08 16.0 -0.57 -0.38
NASDAQ 1.10 -1.13 20.7 1.75 -4.21
MSCI EAFE 0.12 -13.8 0.74 -1.43 -2.12
10-year Treasury Note (Yield Only) 3.20 N/A 3.71 4.17 6.09
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance, Google Finance, Barron’s, djindexes.com, MSCI Barra. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not available.
HEADLINES:
In an interview with website Politico, U.S. President Barack Obama has said the oil disaster in the Gulf of Mexico will have the same impact on Americans’ psyche as 9/11. He stated, “In the same way that our view of our vulnerabilities and our foreign policy was shaped profoundly by 9/11, I think this disaster is going to shape how we think about the environment and energy for many years to come."
Retail sales fell for the first time in eight months in May, the government said Friday, widely missing analyst expectations. Total retail sales fell 1.2% to $362.5 billion last month, compared with April's upwardly revised 0.6% increase, the Commerce Department said.
The board of BP PLC will on Monday discuss U.S. demands to suspend dividend payments to shareholders until the British company pays for the cleanup of the Gulf of Mexico oil spill. The London meeting comes as U.S. President Barack Obama begins a two-day visit to the Gulf Coast to view the damage from the massive slick and talk to affected residents. BP has a number of options regarding dividend payments and analysts believe the company is unlikely to scrap it altogether. It can also defer it, pay it into shares or pay it into a ring-fenced account. Any decision is not expected to be announced immediately, with BP executives due to meet Obama in Washington on Wednesday.
On Thursday, some 40 lawmakers gathered in a House committee room to give speeches and kick off a marathon, two-to-three week session of deal-making on key differences buried in Wall Street reform bills passed by the Senate in May and the House last December. These bills aim to curb risk taking, protect consumers, and prevent financial firms from getting too big to fail.
Federal regulators will investigate whether Apple's business practices harm competition in the market for software used on mobile devices, according to a published report. The Federal Trade Commission is preparing to review allegations that Apple has shut other companies out of the important new computing platform, sources told the Wall Street Journal.
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Sources:
Marketwatch
The Wall Street Journal Online
Barrons
CNN Money
http://news.bbc.co.uk/2/hi/world/us_and_canada/10307782.stm
http://money.cnn.com/2010/06/11/news/economy/retail_sales/index.htm
http://finance.yahoo.com/news/BP-board-discusses-dividend-apf-465947320.html?x=0&sec=topStories&pos=5&asset=&ccode=
http://money.cnn.com/2010/06/10/news/economy/Wall_Street_Reform/index.htm
http://money.cnn.com/2010/06/11/technology/Apple_FTC/index.htm
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.
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