Jun 10, 201207:53 PMBlog: Alaska's Eye on Wall Street
Week in Review: June 8
Stocks rose dramatically last week with the S&P 500 up +3.8% on a total return basis. The strong rally made up for the dreadful performance of the prior week, when the disappointing jobs number set off the worst day for stocks in 2012. During the last two weeks the S&P 500 has moved up a net amount of just under 8 points. However, as the wise proverb reminds us, "it's not the destination, but the journey." YTD the S&P is up +6.4%.
Bond prices fell and yields rose for the week as stocks soared. Shorter Treasuries were mostly unchanged, but 10 to 30 year maturities increased roughly 20 basis points. The 10 year now yields 1.64%. Mortgage rates hit another all-time low, with banks willing to lend to home buyers for 30 years at 3.67%.
It was a sea of green for both U.S. and European equities last week. At home, the Dow rose +3.6%, while the tech heavy NASDAQ faired best of all, up +4.1%. In Europe stocks got an added boost by an appreciating euro, with the broad based Stoxx 600 rising +3.9% when priced in dollars. The best performers in Europe (perhaps ironically) were Spain and Italy, rising +8.0% and +5.5% respectively for the week. However, keep in mind that YTD Spain and Italy are down -24% and -11%, respectively.
Despite Fitch downgrading Spanish sovereign debt to BBB on Thursday and S&P placing at least a 1/3 chance that Greece will leave the euro within months, investors do seem to think things are improving in Europe. On Monday, the German finance minister hinted that if the right reforms were put in place then the possibility of centrally issued "euro bonds" may exist in the future. Some of the reforms Germany would like to see include placing large banks under central EU supervision and the development of stricter controls to keep countries from overspending. Also this week, Spain was able to successfully complete a bond auction for a combination of 2, 4, and 10 year debt. The Spanish 10 year closed the week yielding 6.17%.
Economic data in the U.S. was decidedly neutral. Factory orders were down a bit, the ISM services index was flat for the month, and while productivity numbers fell more than expected, unit labor costs were below estimates. The Fed's Beige Book was released on Wednesday and continued to suggest modest expansion is taking place.
Ben Bernanke testified on Capitol Hill, and noted that while risks to the recovery are present the Fed stands ready to help the economy if need be. However he did not specify in what form that help would be. All eyes will be on the upcoming FOMC meeting later this month, as "operation twist" is set to end on June 30.
Two local publically traded Alaska companies made headlines on Wall Street this week with the announcement that GCI and Alaska Communications intend to combine their wireless assets into a single entity. The new company, the Alaska Wireless Network, would be a joint venture of the two firms, but its owners would continue to market products and services individually to consumers. The deal requires regulatory approval and could take over a year to close.
Economic numbers next week include inflation readings in the form of the PPI and CPI. Headline inflation is expected to be down -0.2% MoM, with the core number up +0.2% MoM. Retail sales are expected to decline slightly (-0.2%) and industrial production could see a modest uptick (+0.1%). The Treasury will also be auctioning 3, 10 and 30 year bonds Tuesday through Thursday.
Babe Ruth's Yankee jersey sold for a world record $4.4 million. And the boys of summer will soon be here for the Alaska Baseball League. The league welcomes a new team to Eagle River - the Chinook. Opening day at Mulcahey is Sunday June 10 when the Bucs play the Pilots.