Weekly Advisor Analysis
August 5, 2013
S&P 500 Breaches 1,700
The massive stock market rally of 2013 swelled larger last week, as demonstrated by the S&P
500 notching a weekly gain of 1.1 percent, adding to what has already been a rewarding year for
equity investors. According to CNN, by finishing last week at 1,709.67, the S&P 500 closed out
its first week ever trading above 1,700 and has now advanced 19.88 percent just this year, not
including dividends. If the year ended today, 2013 would mark the third highest calendar year
return for the S&P 500 since the start of the new millennium, trailing only 2003’s 28.68 percent
gain and 2009’s 26.46 percent advance, based on historical S&P 500 data.
Source: Yahoo! Finance
U.S. Manufacturing Booms Higher
According to the Institute of Supply Management’s (ISM) Report on Business® released last
Thursday, economic activity in the U.S. manufacturing sector expanded at the fastest pace in
more than two years. The ISM Report is based on data compiled from purchasing and supply
executives nationwide, according to the ISM website. This positive report was considerably
higher than the average estimate, according to a survey of economists conducted by Bloomberg.
Considering that manufacturing represents about 12 percent of the U.S. economy, according to
Bloomberg, this positive report likely contributed to part of last week’s stock market rally. When
a significant portion of the economy, such as manufacturing, is increasing at a faster rate than
most economic experts anticipate, it signifies that corporations are confidently ramping up
production of their respective goods either in response to strong demand and/or in anticipation of
increased demand in the near future. The PMI, or Purchasing Managers’ Index, is based on
survey responses to the ISM Report and essentially aims to illustrate the change of the overall
condition of the nation’s manufacturing in a single numerical index. A PMI reading above 50
indicates the manufacturing economy is growing larger, while anything below that same number
represents contraction of overall activity from the previous month. Considering the PMI
registered at 55.4, this would suggest that conditions clearly improved in July when compared to
June.
Source: www.ism.ws/index.cfm
U.S. Job Market Remains Soft
Last Friday the U.S. Labor Department released their monthly report on the status of the U.S. job
market, and the statistics were underwhelming. According to Bloomberg, the report showed that
only 162,000 new jobs were created in the month of July, less than the 185,000 expected based
on a Bloomberg survey of 93 economists. Furthermore, the report highlighted that the average
hourly earnings of Americans fell for the first time since October 2012. Considering that
employment is one of two mandates governing the Federal Reserve, this mediocre report fueled
more speculation on whether or not Ben Bernanke and his colleagues will begin to lower the
amount of assets they are currently purchasing on a monthly basis in an effort to boost overall
economic activity. According to Bloomberg, the Federal Reserve is currently expected, by a
majority of surveyed financial experts, to begin tapering their asset purchase program beginning
this September.
Source: www.ism.ws/index.cfm
Big Ticket Items Strong in July
According to figures released last week by Ward’s Automotive Group, a seasonally adjusted
annualized rate (SAAR) of 15.6 million cars and light trucks were sold in July on top of June’s
15.9 million annualized rate. This particular two month stretch of seasonally adjusted auto sales
is the highest consecutive total since 2007, according to Bloomberg. Also, the real estate market
had another positive report last week as The S&P/Case Shiller index of home prices indicated
that the average value of a home in 20 major U.S. cities advanced 12.2 percent in May when
compared to the same time last year. This advance marks the largest one year gain since March
2006 for this particular index. Typically when U.S. consumers are feeling confident enough to
purchase more expensive, big ticket items, such as cars and homes, it suggests the overall health
of the economy is strong. However, the Commerce Department’s reading of the U.S. economy
showed that the overall economy expanded at only 1.7 percent in the second quarter of 2013,
while also revising the first quarter’s growth rate lower to 1.1 percent. In his last congressional
testimony, Federal Reserve Chief Ben Bernanke predicted a weak level of economic growth in
the first half of 2013 because of the reduction in federal government spending earlier this year
and a return of the payroll tax. As these two weights on the U.S. economy are put further behind
us, the overall economy will accelerate in the second half of the year and finish with overall
growth of 2.3 percent to 2.6 percent, according to the last Federal Reserve report. According to
Bloomberg, this means the U.S. economy would have to accelerate up to 3.2 percent in the
second half of the year to even reach the lower end of the Federal Reserve’s estimate.
Best regards,
UDB Financial
Securities offered through LPL Financial, Member FINRA/SIPC.
* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the
named broker/dealer.
* 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 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.
* Gold represents the London afternoon gold price fix as reported by the London Bullion Market
Association.
* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the
commodity futures market. The Index is composed of futures contracts on 19 physical commodities and
was launched on July 14, 1998.
* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of
the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! 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.
Sources:
http://money.cnn.com/data/markets/sandp/
http://financeandinvestments.blogspot.com/2012/06/historical-annual-returns-for-s-500.html
http://finance.yahoo.com/q/bc?s=%5EGSPC+Basic+Chart&t=5d
http://www.bloomberg.com/news/2013-08-01/asian-stock-futures-gain-on-output-as-gold-extendsslide.html
http://www.bloomberg.com/news/2013-07-31/u-s-stock-index-futures-fluctuate-before-fedstatement.html
http://www.bloomberg.com/news/2013-08-02/payrolls-rose-162-000-in-july-u-s-jobless-rate-falls-to-7-4.html
http://www.bloomberg.com/news/2013-08-01/u-s-ism-manufacturing-index-increased-to-55-4-in-julyfrom-50-9.html
http://www.ism.ws/ismreport/mfgrob.cfm
https://www.ism.ws/index.cfm
https://www.ism.ws/files/2012/PageLayoutImages/ROBMfgPMI080113Carousel.jpg
http://www.bloomberg.com/news/2013-07-31/fed-keeps-85-billion-bond-buying-pace-sees-disinflationrisk.html
http://money.cnn.com/news/specials/jobs/
http://i2.cdn.turner.com/money/dam/assets/130802071639-jobs-report-080213-620xa.png
http://www.bloomberg.com/news/2013-07-31/economy-in-u-s-expands-more-than-forecast-asinventories-grow.html
http://www.bloomberg.com/news/2013-08-01/chrysler-u-s-july-sales-rise-11-streak-now-40-months.html
http://wardsauto.com/datasheet/us-light-vehicle-sales-summary-july-2013
http://wardsauto.com/site-files/wardsauto.com/files/datasheets/thumbnails/USSales1307.png?1375385008