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June 2010
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The Economy
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US Real Gross Domestic Product for 2009: -2.4%
US Real Gross Domestic Product for 1Q’10: +2.7%
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Consumer Price Index Y/Y: +2.0%
Consumer Price Index May 2010: -0.2%
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Although the economy continues to grow, economic indicators released in June showed signs that growth is beginning to moderate. U.S. consumers pulled back on their spending, with total retail sales for May falling 1.2% from the previous month. Housing was weak again in May after the tax credit expiration, with new home sales plunging 32.7% in the month to an annual rate of 300,000, the lowest since records began in 1963. Nonfarm payrolls dropped by 125,000 in June, skewed down by a decline in government Census workers. The 83,000 increase in private sector jobs however was softer than expected. Final 1Q real GDP growth was revised down to 2.7% from 3.2% in the initial release. Many economists are starting to revise down expectations for 2Q real GDP growth. U.S. consumer confidence dropped 10 points in June to 52.9, reflecting concerns over employment, housing, and the ongoing European debt crisis. The U.S. personal savings rate has started to increase again, moving to 4.0% in May, its highest level since September 2009. J. P. Morgan’s global Purchasing Manager’s Index (PMI) fell 1.6 points in June to 55.4. This second straight monthly drop may suggest that global industrial growth peaked in 2Q and could moderate going forward. A PMI reading above 50 indicates expanding activity. The Group of 20 countries held a two-day summit meeting in Toronto at the end of June where leaders discussed the global economy. The general consensus coming out of the meeting seemed to be a balancing act between the European countries advocating increased austerity measures aimed at reducing public debt and the Obama administration emphasizing its viewpoint that reducing spending too quickly might undermine a fragile global recovery.
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The Stock Market
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Dow Jones Industrial Average YTD Total Return: -5.0%
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Standard & Poor’s 500 Index YTD Total Return: -6.6%
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The stock market extended its May decline into June, with the S&P 500 slumping 5.2% for the month. Ongoing issues such as BP’s oil spill in the Gulf of Mexico and the sovereign debt crisis in Europe continued to dampen investors’ enthusiasm. BP agreed to set aside the $20 billion President Barack Obama demanded to cover costs of the oil spill. Additionally, European government leaders agreed to develop some form of stress-test for banks in the coming weeks in an attempt to bolster confidence. While U.S. corporations have experienced a strong rebound in earnings, managements remain cautious in their outlooks and spending plans. Corporate profit margins reached a record 36.4% in 1Q of this year, the highest level since the U.S. Commerce Department started tracking profitability in 1947. However, the Federal Reserve reported that nonfinancial companies held $1.84 trillion of cash and other liquid assets at the end of 1Q, representing 7% of all company assets and the highest level since 1963. The strongest performing sectors of the market in June were again the defensive groups such as utilities, consumer staples, and health care. More economically sensitive sectors including consumer discretionary, materials
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The Bond Market
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Federal Funds Rate: Target 0% - ¼%
10-Yr US Treasury Yield: 2.9%
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Barclays Intermediate-Term US Gov’t Bond Index: YTD +4.5%
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The yield on the benchmark 10-year U.S. Treasury note sank to 2.93% by the end of June while the 2-year U.S. Treasury fell to a multi-decade low at 0.60%. This move in yields reflects both an ongoing flight to safety by investors as well as concerns over the sustainability of the economic recovery. The Federal Reserve is considering moving back toward taking a stronger role to boost the economy, including actions such as buying more mortgage securities and cutting the interest rate earned on bank reserves held with the Fed in an effort to boost bank lending, and industrial stocks underperformed.
June 2010
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The Economy
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US Real Gross Domestic Product for 2009: -2.4%
US Real Gross Domestic Product for 1Q’10: +2.7%
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|
|
Consumer Price Index Y/Y: +2.0%
Consumer Price Index May 2010: -0.2%
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Although the economy continues to grow, economic indicators released in June showed signs that growth is beginning to moderate. U.S. consumers pulled back on their spending, with total retail sales for May falling 1.2% from the previous month. Housing was weak again in May after the tax credit expiration, with new home sales plunging 32.7% in the month to an annual rate of 300,000, the lowest since records began in 1963. Nonfarm payrolls dropped by 125,000 in June, skewed down by a decline in government Census workers. The 83,000 increase in private sector jobs however was softer than expected. Final 1Q real GDP growth was revised down to 2.7% from 3.2% in the initial release. Many economists are starting to revise down expectations for 2Q real GDP growth. U.S. consumer confidence dropped 10 points in June to 52.9, reflecting concerns over employment, housing, and the ongoing European debt crisis. The U.S. personal savings rate has started to increase again, moving to 4.0% in May, its highest level since September 2009. J. P. Morgan’s global Purchasing Manager’s Index (PMI) fell 1.6 points in June to 55.4. This second straight monthly drop may suggest that global industrial growth peaked in 2Q and could moderate going forward. A PMI reading above 50 indicates expanding activity. The Group of 20 countries held a two-day summit meeting in Toronto at the end of June where leaders discussed the global economy. The general consensus coming out of the meeting seemed to be a balancing act between the European countries advocating increased austerity measures aimed at reducing public debt and the Obama administration emphasizing its viewpoint that reducing spending too quickly might undermine a fragile global recovery.
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The Stock Market
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Dow Jones Industrial Average YTD Total Return: -5.0%
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|
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Standard & Poor’s 500 Index YTD Total Return: -6.6%
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The stock market extended its May decline into June, with the S&P 500 slumping 5.2% for the month. Ongoing issues such as BP’s oil spill in the Gulf of Mexico and the sovereign debt crisis in Europe continued to dampen investors’ enthusiasm. BP agreed to set aside the $20 billion President Barack Obama demanded to cover costs of the oil spill. Additionally, European government leaders agreed to develop some form of stress-test for banks in the coming weeks in an attempt to bolster confidence. While U.S. corporations have experienced a strong rebound in earnings, managements remain cautious in their outlooks and spending plans. Corporate profit margins reached a record 36.4% in 1Q of this year, the highest level since the U.S. Commerce Department started tracking profitability in 1947. However, the Federal Reserve reported that nonfinancial companies held $1.84 trillion of cash and other liquid assets at the end of 1Q, representing 7% of all company assets and the highest level since 1963. The strongest performing sectors of the market in June were again the defensive groups such as utilities, consumer staples, and health care. More economically sensitive sectors including consumer discretionary, materials
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The Bond Market
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Federal Funds Rate: Target 0% - ¼%
10-Yr US Treasury Yield: 2.9%
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|
|
Barclays Intermediate-Term US Gov’t Bond Index: YTD +4.5%
|
The yield on the benchmark 10-year U.S. Treasury note sank to 2.93% by the end of June while the 2-year U.S. Treasury fell to a multi-decade low at 0.60%. This move in yields reflects both an ongoing flight to safety by investors as well as concerns over the sustainability of the economic recovery. The Federal Reserve is considering moving back toward taking a stronger role to boost the economy, including actions such as buying more mortgage securities and cutting the interest rate earned on bank reserves held with the Fed in an effort to boost bank lending, and industrial stocks underperformed.
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