Monthly Economic Update September 2012

 

 

MONTHLY ECONOMIC UPDATE

 

 

MONTHLY QUOTE

“Happy people always look for opportunities where others are seeing crisis.”
      

– Deepak Chopra

 

 

MONTHLY TIP

Tax preparation software is extremely useful, but remember that it won’t teach you tax law or defend you if the IRS decides to audit or question your return.

 

  

MONTHLY RIDDLE

Take a left-handed glove and turn it inside out. Which of your hands will it now fit – the left, or the right?

Last month’s riddle:
You enter a college classroom where there are 13 22-year-olds, 10 21-year-olds and 14 20-year-olds. How many people are in the room?

Last month’s answer:

38 people (you and the 37 people who are already in the room).

 

September 2012

THE MONTH IN BRIEF
Hazards remained on the horizon last month, but that didn’t stop stocks from advancing – the S&P 500 rose 1.98% in August. Anticipation of central bank action helped, and so did more good news from the housing sector. Headlines from Europe brought anxieties, but not alarms. Gold touched a five-month high and retail gas prices flirted with the $4 mark. Stock indices around the world logged monthly gains as bullish sentiment prevailed. Quite simply, August defied expectations – ending up as a pleasant surprise for an uneasy Wall Street.1,2

DOMESTIC ECONOMIC HEALTH
It is widely noted that consumer spending accounts for about two-thirds of GDP. So the 0.4% rise in the category for July – the biggest leap in five months – was welcome after a flat June. Personal incomes also rose 0.3% for the second consecutive month. With the economy expanding 1.7% from April-June by the government’s revised estimate, analysts hoped that the July increase signaled a pickup in growth. Another hint that it might: retail sales had soared 0.8% in July after falling 0.7% for June. They hadn’t advanced since March.3,4

Did growth return to the manufacturing sector in August? According to the Institute for Supply Management’s manufacturing PMI, no. Last month’s PMI was 49.6, down from July’s 49.8 mark. ISM’s service sector PMI continued to stay above contraction territory, having come in at 52.6 in July after a 52.1 June reading. July’s durable goods report was only mildly positive: orders were up 4.2% in the big picture, but down 0.4% with transportation orders subtracted.5,6,7

Consumer inflation (as measured by the Consumer Price Index) was flat in July, as it had been in June. Core CPI did rise 0.1%. Annualized inflation was running at 1.4%, the smallest yearly gain recorded since November 2010. Producer prices, however, advanced by 0.3% in July, more than in any month since February.8,9

The jobless rate had ticked up to 8.3% in July and gas prices had taken their toll on household budgets, so consumer confidence fell – the Conference Board’s August poll showed it at the lowest level since November (60.6). Consumer sentiment (a slightly different animal) improved, however – at least according to the University of Michigan’s August survey, which hit a 3-month peak of 74.3.3,10

Wall Street watched and waited for some sort of clue from the Federal Reserve. Could QE3 be ahead? Did the Fed think the economy would be okay without it? A strong signal flashed on August 31, when Fed Chairman Ben Bernanke noted at the central bank’s annual Wyoming symposium that the state of the economy was “far from satisfactory” and that the Fed “should not rule out” easing. That comment led some investors to believe further action was coming in fall.11

     

GLOBAL ECONOMIC HEALTH
The good news out of Europe in August? Yields on 10-year notes from Spain and Italy respectively fell below 7% and 6%, and Spain agreed to set up a “bad bank” to clean up toxic assets as a condition of its rescue loan. The bad news? It appeared Spain might need even more than €100 billion in rescue funds from the European Union, actual bond buying by the European Central Bank appeared no better than a fall prospect, and Greece asked the EU for more time to manage its austerity cuts with France and Germany firmly against an extension. The European Financial Stability Facility (the EU’s bailout fund) would presently expand into the permanent European Stability Mechanism – provided that Germany’s high court didn’t declare the ESM illegal. Some analysts felt that the ECB would lower its benchmark interest rate 25 basis points to 0.50% in early September. Euro area statistics showed inflation at 2.6% and unemployment at 11.3% in July.12,13,14,15,16,17

A global manufacturing slump continued in August. China’s official PMI dropped below 50 for the first time in nine months; the nation’s Markit HSBC PMI was already under that figure. (China did not cut interest rates in August, as it had in June and July.) Taiwan’s PMI hit its lowest level since November, and South Korea’s manufacturing index was below 50 for a third straight month. On the other hand, the U.S., the EU and Great Britain saw PMIs rise – although while the Markit PMI for the eurozone rose 1.3% off a 3-year low of 44.0, it was still well into contraction territory. Manufacturing PMIs in Indonesia and India showed expansion (India’s benchmark PMI has been above 50 for more than three years).18

 

WORLD MARKETS
Spain’s IBEX 35 staged a 10.13% rebound in August, and the FTSE Italia All Share rose 8.03%. While the major European indices didn’t match those gains, they were also higher for the month – FTSE 100, +1.35%; CAC 40, +3.69%; DAX, +2.93%. In the Americas, Brazil’s Bovespa (+1.72%), Argentina’s MERVAL (+0.99%) and Canada’s TSX Composite (+2.44%) rallied. In the Asia Pacific region, the Hang Seng (-1.59%) and Shanghai Composite (-2.67%) were August losers, but other benchmarks were winners: Australia’s All Ordinaries (+1.16%) and Japan’s Nikkei 225 (+1.67%). While the MSCI World Index rose 2.29% in August, the MSCI Emerging Markets Index slipped 0.54%.19,20

COMMODITIES MARKETS

Aside from two notable retreats (coffee at -5.53% and natural gas at -12.78%), most key commodities did well in August. NYMEX crude rose 9.55%, ending the month at $96.47 a barrel. RBOB gasoline climbed 7.15%. At the pump, August also brought a 9.40% jump in the price of regular unleaded ($3.83 on August 31). Heating oil rose 11.66%. Silver had a great month (+12.64%). Gold (+4.79%) and copper (+1.16%) also posted gains, gold rising to a 5-month peak on August 31 and settling at $1,687.60 an ounce. Cotton rose 8.30% while corn (+0.06%) and wheat (+0.79%) managed small advances. The U.S. Dollar Index pulled back 1.81% last month.2

REAL ESTATE
Existing home sales were up 2.3% last month, with the pace 10.4% better than a year ago; the National Association of Realtors also reported a 2.4% rise in pending home sales in August (they were 12.4% above year-ago levels). June’s S&P/Case-Shiller Home Price index showed an overall annual gain (+0.5%) for the first time in 20 months. New home sales rose 3.6% in August and were up 25.3% annually.21,22,23

Mortgage rates finished August higher. Freddie Mac noted the following movements in interest rate averages between its July 26 and August 30 surveys: 30-year FRMs, 3.49% to 3.59%; 15-year FRMs, 2.80% to 2.86%; 5/1-year ARMs, 2.74% to 2.78%. The exception: average rates on 1-year ARMs decreased from 2.71% to 2.63%.24

LOOKING BACK…LOOKING FORWARD
When was the last time that the Dow, S&P and NASDAQ all gained in August? 2009. Speaking of gains and positivity, stocks advanced for the seventh month out of the past eight.1,2,25

% CHANGE Y-T-D 1-MO CHG 1-YR CHG 10-YR AVG
DJIA +7.15 +0.63 +12.72 +5.11
NASDAQ +17.73 +4.34 +18.90 +13.33
S&P 500 +11.85 +1.98 +15.40 +5.35
REAL YIELD 8/31 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS -0.68% 0.18% 2.34% 3.10%

 
Sources: cnbc.com, bigcharts.com, treasury.gov – 8/31/121,26,27,28

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

As September starts, there are analysts wondering if a correction might soon occur. At any indication of possible Fed or ECB bond buying (overt or subtle), stocks have moved north. The thinking is that the market may be heading for a disappointment: if signals of decisive action from the ECB or the Fed seem to wane and Spain’s debt crisis worsens, appetite for risk might swiftly decline. Throw in any complications with Greece and another round of indicators that might further confirm economic deceleration in China (its latest set of leading indicators was its weakest in 43 months) and you could see a hasty retreat for stocks. Historically, September has been the S&P 500’s poorest month, with an average 0.65% loss for the index since 1945. An exception occurred in 2010 when Ben Bernanke used the Jackson Hole Fed symposium to talk about what would become known as QE2 – that led to the best September for stocks in the post-WWII era. September could surprise us as long as our economy continues to make progress and headlines from China and Europe don’t startle us.15

UPCOMING ECONOMIC RELEASES: Across the rest of September, here is the data stream and schedule of notable events: a critical ECB policy meeting and the ISM service sector index for August (9/6), the August employment report (9/7), a German constitutional court ruling on the legality of the European Stability Mechanism and July wholesale inventories (9/12), a Fed policy announcement and the August PPI (9/13), August retail sales figures and industrial output, July business inventories, the University of Michigan’s preliminary September consumer sentiment survey and the August CPI (9/14), September’s NAHB housing market index (9/18), August existing home sales, housing starts and building permits (9/19), the August edition of the Conference Board Leading Economic Indicators index (9/20), the Conference Board’s September reading of consumer confidence, the July Case-Shiller home price index and July’s FHFA housing price index (9/25), August new home sales (9/26), August pending home sales and durable goods orders and the government’s final estimate of Q2 GDP (9/27), and then August personal spending and the University of Michigan’s final consumer sentiment survey for the month (9/28).

 

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«RepresentativeDisclosure»

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. The IBEX 35 is the benchmark stock market index of the Bolsa de Madrid, Spain’s principal stock exchange. The FTSE Italia All-Share Index is a free float capitalization weighted index that comprises all of the constituents in the FTSE MIB, FTSE Italia Mid Cap and FTSE Italia Small Cap indices. The FTSE 100 Index is a share index of the 100 most highly capitalized companies listed on the London Stock Exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The MERVAL Index (MERcado de VALores, literally Stock Exchange) is the most important index of the Buenos Aires Stock Exchange. The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The S&P/ASX All Ordinaries Index represents the 500 largest companies in the Australian equities market. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. BSE Sensex or Bombay Stock Exchange Sensitivity Index is a value-weighted index composed of 30 stocks that started January 1, 1986. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

Citations.

1 – www.cnbc.com/id/48858445 [8/31/12]

2 – money.msn.com/market-news/post.aspx?post=461e046e-bbfc-4426-8cdf-e3ae3e518d70 [8/31/12]

3 – www.reuters.com/article/2012/08/30/us-economy-idUSBRE87S0ID20120830 [8/30/12]

4 – articles.marketwatch.com/2012-08-14/economy/33191357_1_sales-at-gasoline-stations-furniture-store-sales-retail-sales [8/17/12]

5 – www.ism.ws/ISMReport/MfgROB.cfm [9/4/12]

6 – www.ism.ws/ISMReport/NonMfgROB.cfm [8/3/12]

7 – www.mysanantonio.com/news/article/Drop-in-key-US-durable-goods-orders-shows-weakness-3812413.php [8/24/12]

8 – www.reuters.com/article/2012/08/15/usa-economy-idINL2E8JF2C720120815 [8/15/12]

9 – www.fxstreet.com/news/forex-news/article.aspx?storyid=0f19ea54-c96b-44db-9fa7-eebeb7368190 [8/14/12]

10 – www.marketwatch.com/story/consumer-sentiment-rises-slightly-in-august-2012-08-31 [8/31/12]

11 – www.cbsnews.com/8301-505123_162-57504249/bernanke-from-jackson-hole-no-qe3…yet/ [8/31/12]

12 – www.nytimes.com/2012/09/03/business/global/03iht-ecb03.html [9/3/12]

13 – www.cnbc.com/id/48825430 [8/29/12]

14 – www.cnbc.com/id/48882795 [9/3/12]

15 – www.cnbc.com/id/48844733 [8/31/12]

16 – epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home [9/4/12]

17 – topics.nytimes.com/top/reference/timestopics/organizations/e/european_financial_stability_facility/index.html [7/20/12]

18 – www.independent.ie/business/european/worldwide-manufacturing-businesses-contract-in-august-3217618.html [9/3/12]

19 – markets.on.nytimes.com/research/markets/worldmarkets/worldmarkets.asp [8/31/12]

20 – mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [8/31/12]

21 – www.realtor.org/news-releases/2012/08/existing-home-sales-improve-in-july-prices-continue-to-rise [8/22/12]

22 – money.cnn.com/2012/08/23/real_estate/new-home-sales/index.html/ [8/23/12]

23 – blogs.wsj.com/economics/2012/08/29/u-s-pending-home-sales-highest-since-april-2010/ [8/29/12]

24 – www.freddiemac.com/pmms/ [8/31/12]

25 – montoyaregistry.com/Financial-Market.aspx?financial-market=an-introduction-to-the-stock-market&category=29 [6/4/12]

26 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=8%2F31%2F11&x=0&y=0 [8/31/12]

26 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=8%2F31%2F11&x=0&y=0 [8/31/12]

26 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=8%2F31%2F11&x=0&y=0 [8/31/12]

26 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=8%2F30%2F02&x=0&y=0 [8/31/12]

26 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=8%2F30%2F02&x=0&y=0 [8/31/12]

26 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=8%2F30%2F02&x=0&y=0 [8/31/12]

27 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [8/31/12]

27 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [8/31/12]

28 – treasurydirect.gov/instit/annceresult/press/preanre/2002/ofm71002.pdf [7/10/02]