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Market Update - July 30, 2014

The Fed has just announced that they are easing their bond buyback program by $10 billion to $25 billion per month, sighting an improved labor market and decline in unemployment. The markets have reacted to the news with slight improvement. We are seeing some overall lower numbers on the DJIA & the S&P; while the NASDAQ is showing some strength, partially due to Twitter’s better-than-expected earnings. The irony of the market’s weakness today is that the Q2 GDP numbers were revealed to be stronger than expected… which one would think may push the markets higher. However, coupled with the GDP numbers comes the looming fear that the stabilizing & improving economy may in turn cause the Fed to speed up the raising of the Federal Funds Rate.

GDP surged 4% in the second quarter after a less-than-stellar first quarter, which was hindered by the harsh winter conditions. Employment growth, as well as strong indicators from the factory and services sectors, has helped increase overall confidence. Consumer spending, which plays a huge role in measurable economic activity, has also been moving forward at a pace of 2.5%

In local economic activity, on any given day on any given street, one can see home & roof repair being done as home owners finalize repairs from the hail storm in May. It is always important to get a minimum of 3 estimates for any major repair job, and do your homework before hiring any contractors. Recommendations from friends or neighbors are always a good place to start, in order ensure the most reliable and fully licensed contractor is entrusted to the task.

Market Update - July 28, 2014

This afternoon, we are seeing the markets swing back with positive momentum. This morning started off a bit shaky as stocks continued to decline, but the markets are now showing some signs of life, trying to break their 3 day skid.

Earnings season continues this week, as we will see 2nd quarter results from an estimated 300 companies.

There will be some important economic reports released this week including the 2nd quarter GDP report on Wednesday, as well as the July employment numbers on Friday.

Market Update - July 22, 2014

Stocks are climbing this morning after showing some losses yesterday. Currently, all three major indexes are showing gains. Earnings reports are playing a big part in today’s advances, with companies in general continuing to show strength.

 

The consumer price index rose .3 percent last month, and there was also positive news from the National Association of Realtors. Existing home sales rose 2.6 percent in June, which was better than expected.

 

Last week, Fed Chief Janet Yellen also appeared before two congressional committees to discuss monetary policy.

 

Yellen repeated many of the recent themes, including her lack of concern over the recent uptick in prices and her belief that interest rates should stay low for a considerable period of time (prepared testimony Federal Reserve website). It’s one way the Fed is trying to boost the economy and create jobs.

 

Discussing the possibility of a sooner-rather-than-later rate hike, she said that if we get faster than forecasted improvement in the labor market, “Increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned (prepared testimony Federal Reserve website)."

 

The Fed has already said the future path of interest rates is highly dependent on the economic outlook, and central bankers are likely eyeing the recent improvement in employment growth (BLS data).

Market Update - July 17, 2014

This morning we are seeing some mixed markets after a strong close yesterday. While earnings of some big names helped prop the markets up yesterday, today there are concerns about the possible sanctions in Russia, as well as a the latest report on housing starts , which fell a bit in June. Beyond the sanctions currently imposed (roughly 10 companies), the worry is that moving forward, economic relations could deteriorate further. Putin has stated that relations between the US & Russia were nearing a “dead end”, which could have a negative impact on current US business interests in Russia.

We did see some positive news in the jobs market, which showed a decrease in the applications for jobless claims.

Coming tomorrow, you can expect the latest reports on Consumer Sentiment and Leading Indicators, as well as continued earnings reports.

Here in Montana, our sunset time has finally peaked, and starting tonight you will notice sunset coming before 9:00 p.m. A good reminder that it is a great time to get outdoors and take advantage of all that Montana summers have to offer.

Market Update - July 14, 2014

The U.S. is the world’s largest economy, the dollar is still the world’s reserve currency, and U.S. markets are the deepest and the most transparent in the world. It’s one reason why foreign investors feel safe parking cash and investing in the U.S.

 

Index

Weekly Return %

thru Jul 11, 2014

YTD Return %

Dec 31, 2013 – Jul 11, 2014

DJIA1

-0.7

+2.2

NASDAQ Composite2

-1.6

+5.7

S&P 500 Index3

-0.9

+6.5

Bond   Yields

Jul 11   Yield & Weekly Change

Yield - % a/o Dec 31, 2013

3-month T-bill

0.02           +0.01

0.07

2-year Treasury

0.48           -0.04

0.38

10-year Treasury

2.53           -0.12

3.04

30-year Treasury

3.34           -0.13

3.96

Commodities

Jul 11 Price & Weekly Change

Year end 2013

Oil per barrel4

     $100.49               -3.60

    $98.42

Gold per ounce5

$1,335.00           +15.75

$1,201.50

Sources: U.S. Treasury, MarketWatch, St. Louis Federal Reserve, CNBC, Energy Information Admin.

 

But markets are global and what happens abroad can, and does, influence what happens at home. A loosening of the monetary strings by the European Central Bank last month played a role in extending the winning streak in U.S. equities. But what Europe gives, it can sometimes take away.

 

After a relative calm over the last year, the European banking crisis resurfaced on Thursday after a larger bank in Portugal said it is delaying the repayment of short-term debt sold to some clients, raising fears investors could see losses (Financial Times, Wall Street Journal).

 

European stocks took a beating and some of the selling spilled over into the U.S. But shares at home pared losses as cooler heads prevailed.

 

The difficulties in Portugal are a reminder that problems among Europe’s banks have not been solved. Yet, market reaction in the U.S. suggests any damage to the European banking system would probably be contained.

 

Q2 Earnings Season

 

In the meantime, Q2 earnings season is set to kick into high gear.

 

Earnings are important because they are a key component of the pricing equation for stocks since investors purchase equities due to expectations of net income and dividends.

 

We typically see the major banks report earlier in the season followed by the larger industrials at the peak. As the volume of reports begins to trail off in late July and early August, we’ll get the numbers from the large retailers (Briefing.com).

 

It’s early but so far, of the 27 companies in the S&P 500 that have reported for Q2, 56% have reported profits above analysts’ expectations, below the long-term average of 63% (Thomson Reuters).

 

Analysts tend to be conservative in their projections, which is the reason most companies top the consensus forecast. But with just 5% of companies having released, the slow start doesn’t necessarily mean Q2 will disappoint. Let’s wait a couple of weeks. At that point, the pieces of the profit puzzle will begin to fall into place.

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