| July 2012 | |||||||||||||||||||||||||||||||
| MONTHLY QUOTE
“Pleasure in the job puts perfection in the work.”
MONTHLY TIP Does the cost of your homeowners insurance seem too high? Raising your deductible, installing an alarm, or even moving your coverage over to an insurer with whom you have other kinds of policies might potentially save you some money.
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THE MONTH IN BRIEF June was full of developments, some hardly expected. A pro-bailout party won a narrow majority in Greece’s special elections. An EU summit produced a plan to rescue troubled European lenders without adding to existing sovereign debt. Buoyed in particular by those two events, the Dow gained 3.93% for the month. To the surprise of many, the Supreme Court upheld President Obama’s health care reforms. The housing sector seemed more promising than other sectors of the economy. June could have been a terrible month for stocks; instead, it turned what would have been a dismal quarter into a merely lackluster one.1 DOMESTIC ECONOMIC HEALTH As manufacturing looked stagnant, consumer confidence also seemed to be flagging. The much-watched Thomson Reuters/University of Michigan consumer sentiment survey finished June at 73.2, a 6-month low. The Conference Board’s consumer confidence poll dropped to 62.0 in June from May’s 64.4 reading. Consumer spending was flat in May, the Commerce Department noted; consumer prices had fallen 0.3% in that month, yet retail sales also fell 0.2%. Annualized consumer inflation was down to just 1.7%. Producer prices fell 1.0% in May; durable goods orders rose a solid 1.1% with transportation orders behind most of the gain.3,4,5,6,7 In late June, the Supreme Court ruled 5-4 that the requirement for individual insurance within the 2010 Affordable Care Act was constitutional. To many, its reasoning was controversial: in the majority opinion, Chief Justice John G. Roberts, Jr. portrayed the mandate that Americans buy health insurance as a tax permitted by the Constitution, as the absence of insurance would be linked to a quantifiable federal tax penalty. The victory for the Obama administration was qualified; the law’s expansion of Medicaid was judged to violate states’ rights.8 In mid-June, Moody’s Investors Service issued its threatened downgrade of 15 major banks, including Bank of America, JPMorgan Chase, Goldman Sachs, Citigroup and Morgan Stanley. However, the downgrades weren’t as severe as investors were expecting and financial stocks even rose in relief.9 GLOBAL ECONOMIC HEALTH Manufacturing sector contractions seemed all too common in June. Great Britain’s benchmark manufacturing index went negative for the second straight month; French and Italian PMIs were also under 50. South Korea and Taiwan both saw their manufacturing sectors shrink for the first time since January. China’s HSBC PMI came in at 48.2 and Japan’s fell to 49.9. A key factor in the June slowdown in Asia-Pacific manufacturing: lessening demand for Asian exports from Europe.14 WORLD MARKETS COMMODITIES MARKETS After an awful May, the commodities market looked rather mixed in June. Gold (+2.14%) and copper (+3.89%) had a good month, silver less so (-0.52%). The biggest June gains on the NYMEX came in the crop and energy sectors – wheat rose 17.63%, natural gas 16.60% and corn 14.32%. Coffee futures rose 4.76% and heating oil gained 0.25%. Other marquee commodity futures retreated for the month as follows: cotton, -0.31%; crude oil, -1.81%; RBOB gasoline, -3.34%. At month’s end, the price of gold was $1,597.70 an ounce, the price of oil was at $84.96 a barrel, and unleaded gasoline was averaging $3.35 at the pump. 11 REAL ESTATE The Census Bureau reported new home sales up 7.6% in May with the sales pace better than in any month since April 2010, and the National Association of Realtors announced that its pending home sales index at hit 101.1 (a level characteristic of a healthy housing market) after a 4.6% monthly increase. The April Case-Shiller Home Price Index showed prices rising in 19 out of 20 cities – the second straight month that prices rose in a majority of the index’s 20 metro markets. While existing home sales fell 1.5% in May, residential resales were still up 9.6% from a year before. Across 12 months, existing home prices had climbed 7.9%.18,19 LOOKING BACK…LOOKING FORWARD
Sources: cnbc.com, bigcharts.com, treasury.gov – 6/29/121,21,22,23 Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. SO WHAT DOES JULY HOLD? Will this be the month that Greece signals an exit from the euro? That possibility looms, but other news items may exert significant, additional pull on the markets. If the June jobs report is disappointing (and some economists think it will be), investors may grow increasingly hopeful that the Fed will act. If China’s apparent slowdown is further affirmed by indicators, this could exert a drag in addition to tepid readings from our economy. So July might be a very challenging month for stocks; perhaps central bank action and improved domestic indicators will help Wall Street rise above the turbulence. UPCOMING ECONOMIC RELEASES: Here are some key economic news items ahead in July … June’s ISM non-manufacturing index (7/5), the June jobs report (7/6), May wholesale inventories and the release of the June 20 FOMC minutes (7/11), the June PPI and the initial July consumer sentiment survey from the University of Michigan (7/13), June retail sales and May business inventories (7/16), the June CPI and June industrial output (7/17), a new Fed Beige Book and data on June housing starts and building permits (7/18), June existing home sales and the June edition of the Conference Board’s Leading Economic Indicators index (7/19), June’s new home sales (7/25), June durable goods orders and pending home sales (7/26), the second estimate of Q2 GDP and the final University of Michigan consumer sentiment survey for July (7/27), and finally the June personal spending report, the Conference Board’s July consumer confidence poll, the May Case-Shiller home price index and the conclusion of a Fed policy meeting (all on 7/31).
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Citations. 1 – www.cnbc.com/id/48011828/ [6/29/12] 2 – www.ism.ws/ISMReport/MfgROB.cfm [7/2/12] 3 – www.reuters.com/article/2012/06/29/usa-economy-idUSL2E8HT2ZG20120629 [6/29/12] 4 – briefing.com/investor/calendars/economic/2012/06/25-29 [6/29/12] 5 – www.usatoday.com/money/economy/story/2012-06-13/econ-reports-0614-cpi-jobless-claims/55592570/1 [6/15/12] 6 – www.washingtonpost.com/business/economy/retail-sales-drop-again-in-may-report-says/2012/06/13/gJQANa80aV_story.html [6/5/12] 7 – www.reuters.com/article/2012/06/27/us-usa-economy-durables-idUSBRE85Q0PR20120627 [6/27/12] 8 – www.latimes.com/news/politics/la-pn-justice-roberts-leads-supreme-court-support-of-healthcare-law-20120628,0,3606595.story [6/28/12] 9 – money.msn.com/market-news/post.aspx?post=95f998bd-6fbe-4de1-9b51-8cb1f437973a [6/22/12] 10 – www.washingtonpost.com/world/winner-of-greek-elections-moves-to-form-government-that-will-embrace-bailout/2012/06/18/gJQArSvzkV_story.html [6/18/12] 11 – money.msn.com/market-news/post.aspx?post=95f998bd-6fbe-4de1-9b51-8cb1f437973a [6/29/12] 12 – epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/ [7/2/12] 13 – www.reuters.com/article/2012/07/02/us-german-manufacturing-shrinks-at-faste-idUSBRE8610BL20120702 [7/2/12] 14 – in.reuters.com/article/2012/07/02/global-economy-idINL3E8I25G520120702 [7/2/12] 15 – news.morningstar.com/index/indexReturn.html [6/29/12] 16 – mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [6/29/12] 17 – www.freddiemac.com/pmms/ [7/2/12] 18 – www.inman.com/news/2012/06/21/home-sales-prices-continue-gains-in-may [6/21/12] 19 – www.mercurynews.com/business/ci_20963751/look-at-us-housing-market-at-glance [6/28/12] 20 – montoyaregistry.com/Financial-Market.aspx?financial-market=an-introduction-to-the-stock-market&category=29 [7/2/12] 21 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F29%2F11&x=0&y=0 [6/29/12] 21 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F29%2F11&x=0&y=0 [6/29/12] 21 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F29%2F11&x=0&y=0 [6/29/12] 21 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F28%2F02&x=0&y=0 [6/29/12] 21 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F28%2F02&x=0&y=0 [6/29/12] 21 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F28%2F02&x=0&y=0 [6/29/12] 22 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [6/29/12] 22 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [6/29/12] 23 – treasurydirect.gov/instit/annceresult/press/preanre/2002/ofm10902.pdf [1/9/02]
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