Weekly Stock Market Update—November 29, 2013
By Steve Scranton, SVP, CFA
Chief Investment Officer

Stock Market Update

Thanksgiving? Yes, the stock market has MUCH to give-thanks for this year. The Dow Jones Industrial Average (Dow) has gained 25.6% year to date, while the S&P 500 has risen by 29.1%. Both indices have also achieved new historic highs– the Dow cresting 16,000 and the S&P 500 breaking through 1,800. That said, contribution to performance gains were modest during the latest week, owing to a light flow of economic data releases to analyze, a generally quiet week of news from corporate America, and a holiday-shortened week. The most notable information or events which equity market participants pondered this week included:

  • Iran and six world powers completed a deal to curb the country’s nuclear program. This not only eased Middle East geopolitical concerns, but it also bolstered sentiment. Crude futures moved lower in reaction to this news, which was viewed positively by the equity market as a type of “tax break” for consumers going into the holiday shopping season (i.e.; they are likely to see lower gasoline prices at the pumps over the coming weeks).
  • Retailers were in focus during the week. With Black Friday kicking off the official holiday shopping season at the end of the week, there was speculation swirling regarding consumer spending patterns during this important shopping season. Although only one weekend in the holiday shopping season, an official from the National Retail Federation commented that over the last three years, between 51% and 54% of retailers’ holiday revenues are logged during this coming weekend.
  • The housing market was also on the radar screen as a number of data points were released: 1) October pending home sales fell by 0.6%, far below expectations for a 1.0% increase; 2) September building permits rose by a much better than expected 5.2% and October building permits increased by a strong 6.2% (the September data had been delayed because of the government shutdown); and 3) the S&P/CaseShiller home price index rose by a better than expected 1.0% in September.
  • Initial jobless claims declined by 10,000 in the prior week–to 316,000–and better than the expectation for claims of 330,000.

Also during the week, the Nasdaq Composite index made the news. On Tuesday, the Nasdaq joined the Dow and S&P 500 in achieving a historic milestone when it closed above 4,000. Although not the index’s all-time closing high (which was 5,048.62 on March 10, 2000), this is the first time the index has crested the 4,000 level since September 7, 2000. This is up significantly from index’s low of 1,114.11 on October 9, 2002, when the tech sector was struggling with the bursting of the dot-com/internet bubble.

For the month of November, stocks delivered strong results: the Dow gained 3.8% and the S&P 500 rose by 3.0%. It will be interesting to see if this relentless rally can continue through the last month of the year. Important issues loom in the early part of 2014 but right now the equity market is in a positive mood.

Current Week Month of November YTD
Dow Jones (INDU) 0.20% 3.82% 25.64%
S&P 500 (SPX) 0.10% 3.05% 29.12%
Nasdaq (CCMP) 1.73% 3.80% 36.13%
MSCI EAFE (EAFE) 0.81% 0.78% 21.70%
Russell Mid Cap (RMC) -0.07% 1.66% 30.92%
Rusell 2000 (RTY) 1.64% 4.01% 36.14%

There are no updates to the Equities Buy List this week.

Fixed Income Update

Interest rates traded in a narrow band as holidays and a winter storm shortened the trading week.

A winter storm that hit the east coast encouraged traders to get out of town and start their Thanksgiving / Hanukkah festivities early.

Anticipating an illiquid market, the U.S. Treasury accelerated their auction of $96 billion of securities into the first three days of the week and even moved up their $29 billion of 7 year securities on Wednesday to 11:30 am EST. Despite the condensed week, the 2-year and 5-year auctions were generally well received while the 7-year auction was weak. For the week, yields ranged from increasing 3 basis points to decreasing 1 basis point.

Generally, as the calendar hits December, holidays and vacations start to affect market liquidity. Activity is compressed into the first two weeks of December and then tapers off for the last two. We expect this year to be no different and encourage clients to prepare for this by addressing any investing decisions as early as possible in December.

Despite a high profile bankruptcy (Detroit) and big losses on Puerto Rico debt, municipal issuers are defaulting at the slowest pace in at least four years. As of November 20th there have been 45 first time defaults this year. Even though there have been less defaults, the dollar amount is higher due to Detroit’s $18 billion chapter 9 filing in July. Unfortunately, retail investors are influenced by the media and thus Detroit gets much more press than the declining number of issuers filing bankruptcy. According to the Federal Reserve Bank of New York, the most default prone bonds are not from state and local governments but from industrial development agencies, housing authorities, nursing homes and health care facilities. We continue to be selective in the municipal bonds we invest in, limiting our exposure to high quality general obligation and essential service bonds.

Company Spotlight

GOLDMAN SACHS GROUP INC (GS)
Baa1/A-/A
Sold $1 billion of 10 year floating rate debt Hold / Hold
WAL-MART STORES INC (WMT)
Aa2/AA/AA
Announced that Doug McMillon will replace Mike Duke as CEO effective February 1, 2014 Buy / Buy

November 29, 2013

Current Last Week Week Change Last Year Year Change
Tax-exempt MMF 0.02 0.02 0.00 0.20 -0.18
Taxable MMF 0.01 0.02 -0.01 0.12 -0.11
2-Year Treasury 0.28 0.28 0.00 0.26 0.02
5-Year Treasury 1.37 1.35 0.03 0.63 0.75
10-Year Treasury 2.75 2.74 0.00 1.62 1.13
30-Year Treasury 3.82 3.83 -0.01 2.80 1.02
5-Year Exp. Inflation 1.75 1.82 -0.07 2.00 -0.25
2-Year Agency 0.37 0.36 0.01 0.30 0.06
5-Year Agency 1.68 1.67 0.01 0.86 0.81
10-Year Agency 3.40 3.39 0.01 2.09 1.31
2-Year Corporate* 0.74 0.74 0.00 0.68 0.06
5-Year Corporate* 2.23 2.24 -0.01 1.53 0.70
10-Year Corporate* 4.00 4.00 0.00 2.80 1.20
30-Year Corporate* 4.99 4.99 -0.01 4.05 0.94
2-Year Municipal** 0.48 0.48 0.00 0.47 0.01
5-Year Municipal** 1.41 1.41 0.00 0.90 0.51
10-Year Municipal** 2.91 2.91 0.00 1.95 0.96
30-Year Municipal** 5.01 5.01 0.00 3.90 1.11
Fed Funds 0.25 0.25 0.00 0.25 0.00
Prime Rate 3.25 3.25 0.00 3.25 0.00
Dollar*** $80.66 $80.71 -$0.05 $80.20 $0.46
CRB $274.98 $275.21 -$0.23 $299.35 -$24.37
Gold $1,251.50 $1,244.10 $7.40 $1,727.20 -$475.70
Crude Oil $92.91 $94.84 -$1.93 $88.07 $4.84
Unleaded Gasoline**** $2.68 $2.73 -$0.05 $2.55 $0.12

Note: Agency and Municipal yields are as of the previous business day.
* Composite A
** General Obligation AA+
*** Int'l value of the U.S. dollar (Avg. exchange rate between the dollar and 6 major world currencies).
**** Futures price per gallon