ETF/No Load Fund Tracker Newsletter For Friday, August 16, 2013
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Friday, August 16, 2013
Treasury Yields Surge While Stocks Continue To Head South
U.S. equity markets extended their recent decline into the final hour of trading, in which stocks attempted to erase most of their losses before ultimately closing the session to the downside, as Fed tapering concerns continue to leave investors cautious.
Meanwhile, ten-year treasury yields surge to two-year highs. The DJIA posted its biggest weekly loss this year as rising bond yields hurt shares paying rich dividends. The Dow closed 30 points lower (0.2%) at 15,082, the S&P 500 Index dropped 5 points (0.3%) to 1,656, and the Nasdaq Composite lost 3 points to 3,603.
There was evidence in today’s session of pressing the buy-the-dip trade that was seen early on in the outperformance of the homebuilding stocks, which have been hit hard of late. Ultimately, the strength in homebuilding stocks faded as the yield on the 10-yr note, and concerns about rising mortgage rates, increased. The on again-off again showing of the homebuilders was representative of the overall action. There just wasn’t a lot of conviction on either the buy side or the sell side.
Gains in individual stocks like Boeing, Apple, American Express, and United Continental offered a measure of support, but clear-cut sector strength was lacking for the most part today. Retailers were once again on the soft side after couple big names like Nordstrom and Jos. A. Bank joined the roster of retail companies providing earnings warnings.
The continued rise in long-term rates continued to take a toll on the high-dividend yielding utilities (-1.1%) and telecom services (-1.0%) sectors, which were the only sectors to lose at least 1.0% today. For the week, the utilities sector dropped 4.4% while the telecom services sector fell 2.3%.
In economics news, housing starts for July came in slightly below expectations, rising 5.9% month-over-month to an annual pace of 896,000 units. Economists called for starts to come in at 900,000 units. Preliminary 2Q nonfarm productivity rose 0.9% on an annualized basis, from the 0.5% increase seen in the 1Q, and compared to the 0.6% gain that was expected. Rounding out a busy week on the economic front, the preliminary University of Michigan Consumer Sentiment Index surprisingly deteriorated, declining to 80.0 in August, from 85.1 in July, compared to economists’ expected increase to 85.5.
It was a second week of losses for the major indexes. The Dow fell 2.2 percent for the week, its biggest decline since June 2012, while the S&P 500 and Nasdaq registered their biggest weekly losses since June, 2013. For the week, the S&P 500 was down 2.1 percent and the Nasdaq was down 1.6 percent. Investors and traders are betting on the Federal Reserve to start reducing its bond purchases next month, which are ultimately hurting U.S. stocks and bonds alike.
Our Trend Tracking Indexes (TTIs) followed the weakness in the markets and closed this volatile week as follows:
Domestic TTI: +1.67% (last week +3.30%)
International TTI: +5.86% (last week +6.85%)
Have a great week.
READER Q & A FOR THE WEEK
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A note from reader Mo:
Q: Ulli: Thanks as always for your work. Hey, did you watch “60 Minutes” on CBS last night, articles about China and its building boom. It was like a sci-fi movie seeing all those brand new high-rise cities, new highways, new malls (with fake brand name signs), etc., all vacant. They talked strongly about a “realty bubble”. If you missed the show, definitely, see it. When the China bubble does break, do you suspect a time to invest in special areas, or a time to go to “cash?”
A: Mo: Investing in special areas is always a possibility, however, the first move after a bubble bursts and/or a sell signal has been generated, is to cash/money market.
Then you can then calmly evaluate whether there are other opportunities. In the past, bonds have been the safe play once equities head into bear market territory, but with interest rates coming off all-time lows, this may not be the case next time. We have to wait and see what other opportunities will present themselves when the time comes.
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