Financial Market Update for the Week of July 13th

“EVERY DARK CLOUD HAS A SILVER LINING…BUT LIGHTNING KILLS HUNDREDS OF PEOPLE EACH YEAR WHO ARE TRYING TO FIND IT.” Larry Kersten. Now that’s pessimism! Interestingly enough, in recent weeks – Traders have been searching to find a silver lining or at least a glimmer of light in the dark economic reports – trying to find something to be optimistic about. Last week – the economic report calendar was lean but volatile, as Traders sought for morsels of good news amidst the gloom. All in all – home loan rates improved slightly in the early part of the week, but then worsened towards the end of the week.Remember first that when Stocks move lower, some of that money can move over into the Bond market, helping Bond prices move higher and home loan rates move lower. Last week, Bonds benefitted early on from Stocks trading sluggishly, partially due to other world equity markets being pressured lower under concerns for the overall global economic recovery – but the economic news calendar was thin. However, things really heated up mid-week, as earnings season kicked into gear, big Treasury auctions hit the stage, and an interesting look at the job market arrived via the Initial Jobless Claims numbers.According to that report, the number of initial unemployment claims last week dropped off by 52,000 to come in at 565,000 new claims, better than expected and the lowest level since January. Initially, Stocks reacted with some euphoria – but then reversed lower. Why? Think about it for a minute. Is the fact that 565,000 people applying for unemployment benefits for the first time, over the course of a holiday shortened week, really such terrific news? It’s like when someone is starving, and manages to find a crust of bread in the trashcan it seems great at first, until the overall reality sets back in. And so seems to go the Trader mindset lately. Starving for any morsel of good news and looking hard for a silver lining amongst the clouds, sometimes news that is really pretty bad – like 565,000 people applying for first time unemployment benefits – is initially overblown with euphoria…that then quickly wears off. The real story is that continuing unemployment claims – which measures the number of people who still receive jobless aid after their initial week – rose by 12,000. When you add it all up, the number of Americans receiving unemployment benefits total 6.88 million, which is a new record high and more than double what it was this same time last year. The underlying problem is that companies still aren’t hiring, which means the jobless rate will continue to rise. In turn, unemployment will continue to curb consumer spending and, in the big picture, will slow economic recovery.-Vice President Joe Biden commented over the weekend that “the administration miscalculated how bad the jobless problem would be”, prompting speculation that more stimulus might be in the works during 2009.  Additional stimulus would translate into more inflation and also would mean more Treasury auctions to pay for it, creating even more supply to be sopped up. Many members of Congress admittedly voted to pass the first stimulus package without even reading through it, only to now look back and discover that most of the almost $800B was not earmarked to actually stimulate the economy, but more towards social programs. This will be an important story to watch as it certainly could create a negative impact on Bonds and home loan rates down the road. On that note, Treasury auctions caused a bit of a roller coaster last week, as Wednesday’s auction was well received, helping Bonds and home loan rates improve nicely…but Thursday’s auction did poorly, causing a sharp worsening reversal for Bonds and home loan rates.Earnings season for Stocks kicked off with mostly soft reports as expected, depicting the continued difficult economic climate. Next week, earnings season continues and will bring news from the financial sector – which is sure to be interesting and potentially market moving.As mentioned – Bonds and home loan rates improved during the early part of the week, but started to worsen towards the end of the week – and look as if they may be ripe for some continued worsening. As always, I will continue to watch carefully – but let’s talk soon if you need to make a decision regarding a home purchase or refinance, so that we can ensure you are positioned properly.After last week’s relatively slim but volatile release of stormy economic reports, things could heat up even more this week. The Producer Price Index (PPI) is due out Tuesday and will give us an idea of price changes on a wholesale level, which will set the stage for the more important Consumer Price Index (CPI) and Core CPI reports due out Wednesday. The CPI is an important measurement of inflation (and deflation) because it measures the average prices paid by consumers for goods and services. Last month’s Core CPI – which excludes the volatile prices for food and energy – was reported in line with expectations, and the year-over-year number was right within the Fed’s comfort zone.Also due out this Tuesday is the Retail Sales report, which is the most-timely indicator of broad consumer spending patterns. Although Retail sales came in as expected last month with a moderate increase of 0.5%, the number will probably remain relatively weak for a while. With the negative unemployment and economic news recently, the Retail Sales numbers and Producer and Consumer Price Indexes will be important indications of the economy’s direction. The Fed Meeting Minutes will be released on Wednesday afternoon – giving an inside look at the Fed members discussion and commentary during the most recent meeting. As usual – it will be dissected carefully, as Traders look for any further clues as to the Fed’s opinions on inflation, deflation, and the economy overall.The Philadelphia Fed Index and Empire State Manufacturing survey also come out this week. Last month’s reports showed manufacturing conditions continued to contract in June, but at a slower pace. Reports on Building Permits and Housing Starts cap off this week with a glimpse into the housing industries recovery.  Mixed in with this plethora of economic reports will be more earnings reports for Stocks. Although Stocks took a hit at the end of last week as Traders braced for these reports to be ugly, they still have the potential to make some noise and move the markets.

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