Recap of the Five Trading Days ended Thursday September 2, 2010
- Stocks: broad rebound from oversold lows; S&P 500: +4.1% (week) / -2.2% (YTD)
- Treasuries: sharp losses in longer maturities; 10 year yield at 2.63%, +13 bps
- High Yield Bonds: broad gains
- Crude Oil: $75.02, +1.66 per barrel (October)
- Natural Gas: $3.75, -0.07 per mcf (October)
- Q2 GDP grew 1.6% (Second estimate)
Charts: Stocks & P/E’s / S&P 500 / Dow 30 / NASDAQ / Interest Rates / GDP / PPI / CPI / Housing / New Jobs
Economic Indicators / Economic Calendar
Average Annual Return |
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1 wk |
4 wks |
3 mos |
YTD |
1 Yr |
3 Yrs |
5 Yrs |
10 Yrs |
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| Historical % Returns | __% |
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__% |
__% |
__% |
__% |
__% |
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| Short-Term Treasury Fd (Vanguard - VFISX) | -0.1 | 0.2 | 1.2 | 2.8 | 2.9 | 4.9 | 4.5 | 4.8 |
| Intermediate Treasury Fd (Vanguard - VFITX) | -0.5 | 1.6 | 4.8 | 9.3 | 8.6 | 8.6 | 6.6 | 7.0 |
| Intermediate Inv Grade Bond Fd (Vanguard - VFICX) | -0.4 | 1.6 | 5.8 | 10.8 | 13.6 | 8.1 | 6.1 | 7.0 |
| High-Yield Bond Fd (Vanguard - VWEHX) | 0.3 | 0.5 | 5.9 | 7.7 | 18.0 | 6.3 | 5.6 | 5.5 |
| S&P 500 Stock Index Fd (Vanguard - VFINX) | 4.2 | -2.9 | -0.3 | -1.0 | 11.7 | -7.5 | -0.2 | -1.9 |
| Small Cap Stock Index Fd (Vanguard - NAESX) | 5.4 | -3.7 | -2.6 | 3.6 | 18.4 | -4.4 | 1.5 | 3.5 |
| Data includes reinvested income (10 Yr thru prior month-end) | ||||||||
Stocks finished higher after three straight weeks of declines. The large cap S&P 500 rose 4.1%, following a 2.6% loss in the prior week. Returns on other benchmark indices ranged from +3.4% (Dow Jones 30 Industrials) to +5.4% (Russell 2000 Small Cap). Small and mid cap stocks outperformed large cap issues. Airlines and HMOs were among the best performers as nearly all segments finished higher. Most global markets also advanced, with Australia and Spain among the week's leaders.
Investors bought stocks aggressively this week, which, after declining for most of August, appeared to have reached attractive valuation levels. The market moved sharply higher last Friday on a better than expected revision to second quarter GDP. Traders took profits on Monday, giving back most of Friday's gains. Chinese and US manufacturing data along with strong GDP reports from Australia and India provided stocks with a big lift Wednesday, pushing the S&P 500 3.0% higher. Gains continued Thursday following an increase in pending home sales and solid August retail sales.
Today (Friday 9/3), futures indicate a sharply higher open, as investors react positively to a better than expected August employment report.
Treasuries posted sharp losses in longer maturity bonds. Corporate bonds and mortgage-backed securities prices also ended lower, as investors moved into higher risk assets. Treasury yields have fallen sharply since the beginning of April, resulting in a widening of credit spreads. Consequently, corporate bonds continue to offer historically high yields compared to Treasuries and, we believe, offer attractive potential returns.
High Yield Bonds (HYB) posted broad gains, as both mutual and closed end funds rose. Investors rotated out of Treasuries, seeking the higher coupons offered by this asset class. Returns have been solidly positive for nine of the past twelve weeks. Price declines in April and May pushed yields higher, offering investors additional compensation for the risk inherent in this asset class.
Future default expectations remain low. GPM continues to believe that, at current prices, HYBs are attractively valued.
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S&P 500 with 20 & 50 day moving average |
Prior Weeks:
8/26
Worries over the sustainability of the global economic recovery took center stage, pressuring stocks throughout the week. Economic reports were generally uninspiring. Weak home sales, both existing and new, disappointed markets Tuesday and Wednesday. Durable goods orders also came in lighter than expected, suggesting slowing of business investment. Thursday's weekly initial jobless claims were better than expected, providing markets with an early lift, but stocks slid in the afternoon following a weak regional economic survey from the Kansas City Federal Reserve.
8/19
Uninspiring U.S. economic data left stocks mixed last Friday and Monday. Markets rose sharply Tuesday as industrial production indicated improvement. During the week, Wal-Mart and Home Depot reported higher earnings on modest sales gains. Both companies benefited from tight expense control. Other retailers reported mixed results. Earnings season is coming to an end and overall results have been encouraging. According to Bloomberg, of the 441 companies in the S&P 500 Index that have reported results, 75% have exceeded analyst's EPS estimates. Stocks erased three days of gains Thursday, after the Labor Department reported a rise in initial weekly jobless claims and the Philadelphia Fed survey indicated that manufacturing in that region unexpectedly contracted into mid-August. Germany and Malaysia posted strong GDP growth in Q2, while Japan's economy continued to struggle. An increase to Germany's growth forecast by the Bundesbank was unable to offset disappointing domestic economic data.
8/12
After a disappointing employment report, markets declined last Friday. Strong global sales from McDonald's and anticipation ahead of the FOMC rate meeting pushed stocks higher on Monday. Markets sold off the rest of the week in reaction to several developments: US productivity came in less than expected and the FOMC lowered their near-term GDP growth expectations, in effect acknowledging what markets seemed to be pricing-in. Investors reacted negatively to Federal Reserve plans to buy back Treasuries with proceeds from mortgage payments and maintain the size of their balance sheet. Data from China showed an expected moderation in industrial output and retail sales Wednesday, adding fuel to worries about a hard landing in that country, a leading driver of global growth. Back in the U.S., initial jobless claims disappointed Thursday. Other global data released during the week was mixed.
8/5
Disappointing second quarter GDP growth pushed stocks lower early Friday, before better than expected Chicago purchasing manager and consumer sentiment readings brought the market back to finish unchanged. Stocks rallied Monday on the strength of European bank earnings and solid economic data from China. Market sentiment was further bolstered after the Institute of Supply Management's manufacturing and services surveys for July showed more robust economic activity than expected. Earnings season continued to be supportive of stocks, with most companies reporting results above analyst forecasts. Thursday, stocks finished lower as traders took gains following initial jobless claims that were higher than expected.
7/29
Stocks began the week higher after the European bank stress tests produced no surprises, and investor focus returned to the tug of war between economic data and corporate reports. Economic releases, including Tuesday's consumer confidence survey and Wednesday's durable goods report, have indicated that the recovery, while continuing, is slowing. In contrast, quarterly earnings have generally exceeded analyst expectations, and guidance for the rest of the year has been reassuring. The steady stream of solid earnings reports has boosted investor sentiment, helping the benchmark S&P 500 to finish the week 9% above the low reached at the beginning of July.
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