Archives For Todd Burkhalter


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Steadily Inching Forward
Weekly Update – August 20, 2012

Investors experienced another quiet week as slow trading and modestly encouraging economic data failed to rouse much excitement. U.S. trading volume has declined in recent weeks as traders take vacations and investors wait for clues from the Fed summit at the end of the month and the ECB meeting in September. All the major indices closed up for the week, with the S&P picking up 0.87%, the Dow gaining 0.51%, and the Nasdaq inching 1.84%.

Markets got a mild boost from domestic economic data on Thursday, but the rally lacked conviction. Equities continued their slow upward grind on Friday, boosted by a solid consumer sentiment reading. The Michigan Consumer Sentiment survey exceeded the consensus estimate, indicating that consumers are feeling more optimistic about their prospects in this economy.[i] Rising consumer confidence raises the odds that American households can sustain the spending that led to July’s pickup in retail sales, setting the stage for stronger growth in this quarter.

On another positive note, U.S homebuilder confidence hit a five-year high this month. Homebuilders are upbeat about their economic prospects as home sales approach levels not seen since the housing bubble burst. Low mortgage rates and a decline in unsold homes have fueled improved sales, and banks have aided the housing recovery by holding back foreclosed homes to avoid flooding the market.[ii]

Over in the technology sector, Groupon (GRPN) and Facebook (FB), two social media darlings, are feeling the pain of poor market sentiment. Shares of both companies finished the week at all-time lows; Facebook has lost nearly half its market value since its IPO in May and Groupon is now a sub-$5 stock. Groupon was hammered this week by a poor earnings report and concern about its cash position, while Facebook lost 4% on Friday as the first investor lock-up period expired and allowed insiders to sell their holdings. Both companies have struggled in the market since their respective IPOs and can be held up as cautionary tales of the dangers of jumping into fad stocks.[iii] [iv]

Next week will see the release of earnings reports from technology heavyweights Dell (DELL), and Hewlett-Packard (HPQ), providing insight into how they’re coping with soft personal computer sales and changing industry trends. We’ll also see the release of meeting minutes from the Fed’s FOMC meeting, which may give investors the clues they’re waiting for about the Fed’s plans for quantitative easing.


Wednesday: Existing Home Sales, EIA Petroleum Status Report, FOMC Minutes

Thursday: Jobless Claims, New Home Sales

Friday: Durable Goods Orders




Data as of   8/17/2012


Since   1/1/2012




Standard & Poor’s 500
























10-year Treasury Note (Yield Only)






Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not available.


Industrial production rises for fourth straight month. American factories produced more cars, airplanes, and other durable goods last month in a hopeful sign that the manufacturing sector is improving. Factory output had slowed this spring on reduced demand from Europe but appears to be poised for additional growth this quarter.[v]

Housing starts dipped in July, but permit applications are up. U.S. homebuilders slowed their rate of new construction in July; but, in a sign of optimism about future construction, applications for permits reached the highest level since August 2008.[vi]

Unemployment claims edge upward, but data shows modest hiring. The number of workers applying for unemployment ticked slightly higher last week but remained below 375,000, which is the magic number for the jobs recovery – unemployment applications above 375k indicate a worsening jobs market. Applications have trended lower for the past two months, indicating that employers are laying off fewer workers and hiring new ones.[vii]

Europe is getting back to business. In a signal that August vacations are ending and it is time for European leaders to start grappling with the sovereign debt crisis again, Angela Merkel, the German chancellor, has expressed cautious support for measures to support Spain and Italy, while a Finnish official has suggested that euro zone leaders are preparing for the worst, including a possible breakup of the currency bloc.[viii]





“Don’t judge each day by the harvest you reap but by the seeds that you plant.” – Robert Louis Stevenson





Weekly Update for August 13, 2012

After a very quiet summer week on Wall Street (half the traders must have been on vacation), markets closed up, consolidating the gains made since the June 4th low. Last week the S&P gained 1.07%, the Dow picked up 0.85%, and the Nasdaq gained 1.78%. Before getting into what transpired last week, let’s take a moment to reflect on how far we’ve come this year. The S&P has been positive eight weeks out of the last ten, has gained 11.79% for the year, and is up 25.44% since this time in 2011.[i] Despite a rocky second quarter and concerns about a double-dip recession, the markets are actually performing well. We know it can be hard to maintain composure when markets hit turbulence, but overall equity performance is getting better.[ii]


Federal Reserve Chairman Ben Bernanke started off Monday with reassurances that broad market measures are still pointing towards a recovery.[iii] While he didn’t discuss monetary policy, we can be sure he recognizes that the economy isn’t out of the woods yet and is still prepared to take action if needed. Though the week was light on economic news, jobless claims turned up lower than expected and our trade deficit narrowed, indicating that the economy is doing better, overall.[iv] Markets ticked up after his remarks, continuing their quiet rally.


Analysts have been surprised by the stealthy summer rally, as corporate revenues are down and economic fundamentals are still lukewarm. One explanation for why stocks are moving higher despite weak market internals is that traders expect Fed action next month. The downside to this is that if the Fed disappoints, equities could tumble. As we get closer to the end of the year, we can also expect additional media focus on the impending fiscal cliff, the expiration of tax cuts, and deep government spending cutbacks due to kick in January 1st; if the federal government doesn’t develop a plan, it could definitely rein in any market gains for the year.


In short, let’s remain cautious about our summer ‘sugar high’ rally, and understand that there will likely be additional turbulence ahead as election season heats up, the Fed announces its policy plans, and investors turn to our leaders for decisive action.





Tuesday: Producer Price Index, Retail Sales, Business Inventories

Wednesday: Consumer Price Index, Empire State Mfg. Survey, Treasury International Capital, Industrial Production, Housing Market Index, EIA Petroleum Status Report

Thursday: Housing Starts, Jobless Claims, Philadelphia Fed Survey

Friday: Consumer Sentiment










USDA revises crop estimates lower because of historic drought. The USDA reduced its forecasts for corn and soybean crops due to the impact of the drought on the Corn Belt. Analysts were shocked at the dramatic reduction, which is down 13% since 2011 and will strongly affect food and commodities prices later this year. Some analysts believe that overall food prices could go up by as much as 5% next year.[v]

Mortgage rates remain above 3.5% for second week. Interest rates on fixed rate mortgages rose to 3.59% after dropping to an historic low of 3.49% two weeks ago. Interest rates tend to follow Treasury yields, and the increase in rates has followed positive economic announcements, which have reduced demand for Treasury securities. [vi]

U.S. trade deficit falls to lowest level in 18 months. The trade deficit fell in June, helped by a steep drop in oil imports and a modest increase in exports. Despite Europe’s troubles, exports to the Eurozone increased by 1.7%.[vii]

Unemployment claims fell to 361,000 last week, consistent with modest gains in hiring. Despite July numbers skewed by seasonal factors, the distortions seem to have stopped and the job market may have pulled out of its midyear slump. Although the job market is not healthy, the economy added 163,000 new jobs in July, the biggest increase since February.[viii]