June 2011 Archives

The major indexes rallied for the fourth-straight day as the quarter came to a close and the Fed’s program of “quantitative easing,” or “QE2,” came to an end. The Dow gained 152 points, the Nasdaq rose by 33, and the S&P 500 advanced 13. Twenty-six of the Dow’s 30 components gained ground, led by Intel (INTC), which rose 3%. Volume was heavy on the NYSE and light on the Nasdaq. Advancing issues outnumbered decliners by almost three to one. The prices of Treasuries weakened as the Fed’s bond-buying program, QE2, came to an end. The price of gold futures lost 0.5% to $1,502.80 an ounce. The price of crude oil on the New York Mercantile Exchange gained 0.6% to $95.42 a barrel. For the quarter, the Dow gained 0.5%, the S&P 500 declined by 0.5%, and the Nasdaq was down fractionally.

In Earnings News:

Our team of capital markets strategists just released their mid-year review for 2011, and what a year it's been so far: dramatic unrest throughout the Middle East; a massive earthquake in Japan that put the entire world on the alert for a potential nuclear catastrophe; continuing sovereign debt struggles in Greece and street protests in Spain and the United Kingdom over budget cuts; and interest rates that remained at historic lows the entire period. Even the Federal Open Market Committee got into the history-making act with Ben Bernanke giving the first-ever press conference from a chairman of the Federal Reserve.

In their extensive review, our strategists examine these developments and their effects on the broader economy, the fixed income markets, and equities, and give their outlook on where we go from here. With the economy mired in a slow patch, higher prices looming on the horizon, unemployment remaining stubbornly high, and economic growth expected to be lackluster, investors should be prepared for an interesting second half of the year, to say the least, with continued volatility and clearer differentiation between investments.

June 30th marks the end of the second quarter and, more importantly (perhaps), the end of the Fed’s second round of quantitative easing (QE2). While there will be no ceremony (such as a wake) to mark the occasion, financial historians and amateur monetary policy wonks might someday regard this as an important event.  There is virtually no agreement as to what QE2 accomplished. Perhaps we need to see what happens after the program ends before we have a sense of what it did or did not do for the markets and the economy.

QE2 involved Fed purchases of Treasury notes and bonds of $100 billion per month for the past ten months. Starting July 1st, those purchases will drop back to around $40 billion per month, which is the cash flow from the Fed’s massive portfolio of Treasury and mortgage-backed securities. On balance, therefore, the Fed will be reducing purchases of Treasuries by approximately $60 billion per month.

The stated objectives of QE2 were to stave off deflation and encourage stronger growth in the U.S. economy. By purchasing a large volume of Treasuries, the Fed would cause those securities to become more expensive, provide lower yields and become relatively unattractive to private investors, thereby “forcing” those investors into riskier investments such as corporate bonds and equities. Higher equity prices and lower corporate bond yields would, in theory, encourage more spending and hiring by businesses.

A successful vote on the austerity package in Greece, unexpectedly strong pending home sales in the U.S., and a new debit card swipe fee proposal from the Fed propelled the markets to a third-straight day of solid gains. The Dow gained 72 points, with 24 of its 30 components higher; the S&P 500 rose 10; and the Nasdaq was up 11. Advancers led decliners by seven to three on the NYSE and six to five on the Nasdaq. The prices of Treasuries weakened. Gold futures increased $10.20 to close at $1,510.40 an ounce, and the price of crude oil jumped after a report showed a larger-than-expected decline in inventories, rising 2% to settle at $94.77 a barrel.

In Other Business News:

Mint.com chart on the double-dip in the housing market.

Felix Salmon on structural unemployment in the U.S.

Used car prices expected to continue rising this year.

When launching a corporate charity campaign, always be aware of ironic consequences.

New York to Tokyo in a few hours? Dreams from last week’s Paris Air Show.

The Economist squeezes 2,000 years of history into one brilliant chart.

Investors were optimistic about tomorrow’s parliamentary vote in Greece on the austerity plan, although protestors took to Greece’s streets against the measures, which included tax hikes, major cuts to spending, lower government salaries, and asset sales. In the U.S., the housing market showed a glimmer of hope, with home prices rising in April for the first time in eight months, according to the Case-Shiller 20-city home price index. Retailers had a good day, led by Nike, while financials struggled.  

On relatively light volume, the major indexes had their second-straight day of solid gains. The Dow jumped 145 points, with 26 of its 30 components higher; the S&P 500 was up 16; and the Nasdaq rose 41. Advancers led decliners by four to one on the NYSE and just under three to one on the Nasdaq. The prices of Treasuries weakened. Gold futures rose $3.80 to regain the $1,500 mark, closing at $1,500.20 an ounce, while the price of crude oil jumped $2.28 to settle at $92.89 a barrel. 

In Earnings News:

On June 23rd, the 28 member countries of the International Energy Agency (IEA) agreed to release 60 million barrels of oil into the marketplace. Subsequently, crude oil prices plunged over 4%. This action by the IEA marks only the third occasion since its founding in 1974 that it tapped into its storage—twice during the 1990/1991 invasion of Kuwait by Iraq and once in 2005 after Hurricane Katrina. The IEA explained that the release was primarily driven by supply concerns and that this action was “in response to the ongoing disruption of oil supplies from Libya,” a disruption estimated at about 1.5 million barrels per day. Furthermore, the organization acknowledged that, with seasonal demand expected to increase over summer vacation season, “Greater tightness in the oil market threatens to undermine the fragile global economic recovery.”

This action comes on the heels of the Organization of the Petroleum Exporting Countries’(OPEC) semi-annual meeting held in Vienna on June 8. At this now infamous meeting, the OPEC cartel failed to reach consensus about its output for the first time in 20 years. Officially, this meant that OPEC member countries were to keep their output of oil unchanged. Considering the unrest in the Middle East and North Africa earlier this year, including Libya, some expected OPEC would raise its production levels in anticipation of higher demand for oil entering the summer months. As we noted in that day’s Wells Fargo Daily Advantage, Saudi Arabian oil minister Ali al-Naimi characterized the meeting as ”one of the worst meetings we’ve ever had.”

After three days of losses, the major indexes advanced today ahead of this week’s parliamentary vote in Greece on new austerity measures. Also moving markets was the announcement of new capital guidelines for banks—called Basel III—by the Bank for International Settlements. The new guidelines, which call for banks to hold Tier 1 capital of 7% of risk-weighted assets, weren’t as onerous as thought, and many U.S. banks already meet the proposed guidelines. The S&P 500 Bank Index gained 1.29%, compared with a gain of 0.92% for the broader S&P 500.

The Dow jumped 108 points to close above 12,000, with 26 of its 30 components higher; the S&P 500 was up 11; and the Nasdaq gained 35. Advancers led decliners by 11 to 5 on the NYSE and just under 2 to 1 on the Nasdaq. The prices of Treasuries weakened. Gold futures fell $4.50 to close at $1,496.40 an ounce, a five-week low, and the price of crude oil lost 55 cents to settle at $90.61, a four-month low.

In Other Business News:

Summary:

• New capital requirements could give regulators more power to distort what types of assets banks hold, effectively creating captive buyers of that government’s debt.
• Under the new regime, U.S. banks may be better positioned than their European competitors to meet the new requirements.
• By making it more attractive for banks to hold government debt rather than issue loans, the new guidelines may have the unfortunate side effect of slowing economic growth.

The sovereign debt crisis in Europe again dominated the news. Greece’s Prime Minister survived a no-confidence vote, which quelled any immediate concern that the country would default on its debt. On Thursday, Greece announced that it came to an agreement with the European Union and the International Monetary Fund on a five-year austerity plan, with Greece’s parliament scheduled to vote on the plan next week. But no sooner did concerns ease over Greece than investors turned their spotlight of worry on Italy. Trading in several Italian banks was halted on Friday on worries about their capital standing and whether they would survive a round of stress tests.

In the U.S., the Federal Reserve kept its target interest rate unchanged at a range of 0 to 0.25%, while it downgraded the rate of economic growth in the U.S. the rest of this year to a range of 2.7 to 2.9% from the previous estimate of 3.1 to 3.3%. As expected, the Fed will let Quantitative Easing 2 (QE2) expire on schedule next week, with no word on whether QE3 should be expected. On Wednesday, our own Dr. Brian Jacobsen wrote that the Fed’s sitting on its hands, for now.

The major indexes retreated for the third straight session. The Dow lost 115 points, the Nasdaq fell by 33, and the S&P 500 fell by 15. Twenty-eight of the Dow’s 30 components lost ground, led by Cisco Systems (CSCO), which fell 3%. Volume was heavy on the NYSE and light on the Nasdaq. Declining issues outnumbered advancers by almost two to one on the NYSE and by three to two on the Nasdaq. The prices of Treasuries were mixed, while the price of gold futures lost 1.2% to $1,500.90 an ounce. The price of crude oil on the New York Mercantile Exchange gained 0.1% to $91.16 a barrel.

For the week, the Dow and the S&P 500 were down fractionally and the Nasdaq gained 1.3%.

In Other Business News:

After a strong start to the year, much of the air has gone out of the market in the last few weeks. With sails slack, finding direction on where growth opportunities lie is a challenge. Here with a few ideas is Thomas J. Pence, CFA, managing director and senior portfolio manager with Wells Capital Management's Fundamental Growth Equity team.

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The major indexes retreated sharply in the early trading on a disappointing jobs report, but they bounced back on the prospect of lower oil prices and on news that the International Monetary Fund and the European Union approved an austerity plan for Greece. The Dow, which was down by 200 points in the morning, lost 59 points, and the S&P 500 declined by 3. The Nasdaq gained 17 points. Twenty-one of the Dow’s 30 components lost ground, led by Coca-Cola Co. (KO), which lost 2%. Volume was heavy on the NYSE and moderate on the Nasdaq. Declining issues outnumbered advancers by five to three on the NYSE, while on the Nasdaq advancers narrowly outnumbered decliners. The prices of Treasuries strengthened, while the price of gold futures gained 2.1% to $1,520.50 an ounce. The price of crude oil on the New York Mercantile Exchange dropped 4.6% to $91.02 a barrel after the International Energy Agency announced that 28 nations agreed to release 60 million barrels of crude reserves into the market.

In Earnings News:

With a successful vote of confidence in Greece putting the issue of default temporarily on the back burner, a cautious market awaited the Fed’s announcement this afternoon. The announcement contained no surprises, but the indexes drifted lower after the release, accelerating near the close to end the day solidly in the red. In a press conference after the release, Fed Chairman Ben Bernanke continued the cautious tone of the Fed announcement, saying the Fed has not yet determined when it will begin to draw down the high level of assets on its balance sheet and is still reinvesting proceeds from its investments into Treasuries. For more on the statement and the press conference, see our own Dr. Brian Jacobsen’s take.  

The Dow lost 80 points, with 28 of its 30 components losing ground; the S&P 500 fell 8; and the Nasdaq was down 18. Decliners led advancers by four to three on the NYSE and two to one on the Nasdaq. The prices of Treasuries were mixed. Gold futures gained $7.00 to close at $1,553.40 an ounce, and crude oil benefited from a report showing lower U.S. inventories. Light sweet crude oil gained $1.24 to settle at $95.41 a barrel.

In Earnings News:

The Federal Open Market Committee (FOMC) announced it will wrap up its large scale asset purchase program—dubbed, QE2 (quantitative easing, part 2)—by the end of June.  The Committee said that the economic recovery is proceeding at a slower pace than originally expected, but it attributes most of the sluggishness to “transitory” factors.  Considering the forecasts released as part of the Chairman’s press conference, “transitory” could mean all the way into 2012.

According to the Fed’s statement, the balance of risks are such that inflation may be too low and that growth may be too slow.  The Fed will continue to keep its balance sheet the size it is by reinvesting proceeds in Treasury securities.  Based on the language of the policy statement, the FOMC is trying to keep its options open to further monetary easing.  Further easing could take the form of allowing its balance sheet to expand or contract, depending on whether mortgage rates or Treasury yields move higher than desired.

When asked about the budget deficit debates going on in the legislative and executive branches of government, the Chairman indicated that it is imperative to fix things, though now might not be the time to start making budget cuts or raising taxes.  Now is not the time for monetary tightening, nor is now the time for fiscal tightening.  For now, the Fed will be sitting on its hands.

The Prime Minister of Greece won an important vote of confidence.
Short term, the Greek government should get the funding it needs.
Long term, more austerity and political conflict is likely.

Last night, Greek Prime Minister George Papandreou received a vote of confidence from the Hellenic Parliament. This paves the way for the adoption of additional austerity measures, which should secure the next round of financing Greece needs to survive its debt debacle.

The basics of Greek politics
Greece is a “parliamentary republic,” which can be somewhat confusing to follow from a U.S. perspective. In the U.S., we’re more familiar with the whole “how a bill becomes a law” procedure that most of us learned in civics class (does anyone else remember Schoolhouse Rock?). Greece and the U.S. have different forms of democracy; while both have a judiciary, legislative, and executive branch of government, the roles of the executive and legislative branches are not the same in these two countries.

A vote of confidence in Greece’s Prime Minister George Papandreou was set for after U.S. market close, but that didn’t stop optimism about the vote’s outcome from giving a substantial boost to the major indexes. The euro stabilized ahead of the vote, which weakened the dollar and helped stocks. If the vote should fail—not giving Papandreou the backing he needs to continue pushing through austerity measures—then tomorrow’s market could be an entirely different affair, as a Greek default in the near term would become more likely.

The Dow gained 109 points, with 26 of its 30 components higher; the S&P 500 rose 17; and the Nasdaq was the big percentage gainer on the day, rising 57 points, or more than 2%. Advancers led decliners by five to one on the NYSE and four to one on the Nasdaq. The prices of Treasuries weakened. Gold futures gained $4.40 to close at $1,546.40 an ounce, while the price of crude oil advanced 54 cents to settle at $94.17 a barrel.

In Earnings News:

Weak demand for credit in the private sector of the economy remains one of the key fundamentals of this recovery cycle. Such extreme softness in the pace of borrowing is unprecedented in the postwar period. It is, however, not unusual following a severe financial crisis. All segments of the private sector try to repair balance sheets after a crisis such as 2008-09. Even state and local governments are now borrowing less than in the pre-crisis years. Since, historically, strength or weakness in private sector borrowing has been the primary driver of market yields, it is not surprising that those yields have remained low even as the Treasury is borrowing at a record pace.

The deleveraging cycle continued last quarter
Deleveraging of the U.S. economy continued through the first quarter of 2011, according to Federal Reserve flow of funds data released recently. Total net borrowing in the U.S. capital markets grew at only a 2.2% annual rate last quarter, and almost all of that growth was federal government borrowing. In contrast, during the five years 2003-2007, that growth rate averaged 8.8% and virtually all of the growth was private sector borrowing—by households and businesses. Private sector borrowing peaked at an annual rate of $2.3 trillion early in 2006 and remained around a $2 trillion annual rate through 2007. By 2009, private sector borrowing had plunged to an annual rate of -$530 billion. In other words, in just two years, the private sector went from borrowing over $2 trillion per year to extinguishing debt at a $530 billion annual rate, a swing of an astounding $2.5 trillion.

The major indexes scored solid advances ahead of this Wednesday’s Federal Open Market Committee meeting, the last one before the scheduled end of QE2. Also helping stocks today were pledges by European Union officials not to let Greece default, while at the same time taking a firm stand on required austerity measures. Greece’s Prime Minister George Papandreou faces a confidence vote tomorrow, an occasion that is expected to face public protest.

The Dow gained 76 points, with 25 of its 30 components advancing; the S&P 500 rose 6; and the Nasdaq was higher by 13. Advancers led decliners by two to one on the NYSE and seven to six on the Nasdaq. The prices of Treasuries weakened. Gold futures rose $2.90 to close at $1,542.00 an ounce, and the August contract for crude oil gained 23 cents to settle at $93.63 a barrel.

In Other Business News:

The Dow eked out its first weekly gain since April, despite the worsening Greek debt situation, which threatened to drag other European countries and financial institutions into its orbit. On Wednesday, the situation in Greece threatened to devolve further into chaos, as protestors took to the streets in a bid to stop more austerity measures from being implemented. The protests frequently turned violent. Market tensions subsided later in the week after it appeared that Germany was willing to be more flexible about potential aid packages to Greece.

Manufacturing in the U.S. continued to show signs that, at the very least, it’s taking a breather. Two regional surveys—the Empire State Manufacturing survey and the Philadelphia Fed survey—both indicated that manufacturing in their respective regions contracted in May. Manufacturing has been particularly strong throughout the economic recovery, so it’s possible that the recent weakness is a normal part of the cycle as businesses retrench in the face of what could be slowing growth. However, without a strong manufacturing sector, there’s not much for the U.S. economy to fall back on, with the housing market, high unemployment, and higher consumer prices affecting the consumers’ ability to contribute to the recovery.

The major indexes closed mixed as optimism increased that a solution will be found for the Greek debt crisis. The Dow and the S&P 500 narrowly avoided their seventh consecutive down week, with the Dow rising 42 points today and the S&P 500 gaining 3. The Nasdaq, however, lost seven points and declined for the fifth week in a row. Twenty-three of the Dow’s 30 components gained ground, led by AT&T (T), which rose more than 1%. Volume was heavy as a “quadruple witching hour,” in which four types of futures contracts are settled, boosted trading. Advancing issues outnumbered decliners by five to three on the NYSE and by a narrow margin on the Nasdaq. The prices of Treasuries weakened, while the price of gold futures gained 0.6% to $1,539.10 an ounce. The price of crude oil on the New York Mercantile Exchange lost 2% to $93.01 a barrel.

In Earnings News:

• The price of Research In Motion shares (RIMM) fell 21% today after the company, which makes the Blackberry smart mobile device, warned on Thursday evening that earnings would be below expectations.

To most people, the equity markets are—in the words of Winston Churchill—a riddle wrapped in a mystery inside an enigma (in fairness, Churchill was referring to Russia, not the financial markets). The riddle is whether or not temporary factors—such as geopolitical and geological unrest—are indeed short-term. The mystery is whether or not the current economic renovation—with slow job creation, falling private-sector debt burdens, and the shifting locus of global growth from the developed world to the developing world—is going to continue, and at what pace. The enigma is how long corporate profits can continue to grow while the unemployment rate remains high.

Read the full report.

If you joined us last week, you learned: 1. that the first recorded debt default was in the fourth century, B.C., in Greece; 2. that some debt can be a good thing; and 3. what triggers a crisis of debt. What makes the crisis in the eurozone unique? Can crises be identified early? And what investment opportunity, if any, might arise out of a crisis situation? Here again this week is Dr. Brian Jacobsen, CFA, CFP, and chief portfolio strategist with Wells Fargo Funds Management, LLC.

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The major indexes closed mixed in choppy trading as fears of the Greek debt crisis continued to cloud markets. The Dow gained 64 points and the S&P 500 rose by 2. The Nasdaq lost 7 points. Twenty-four of the Dow’s 30 components gained ground, led by American Express (AXP) and Hewlett-Packard (HPQ), each of which gained 2%. Pandora Media (P), which priced its IPO offering on Thursday at $16, fell 23% after a Wall Street analyst issued a price target of $5 for the stock. IBM’s shares (IBM) rose 0.2% today, the company’s 100th birthday. (Happy Birthday, Big Blue.) Volume was light and declining issues narrowly outnumbered advancers. The prices of Treasuries strengthened, while the price of gold futures gained 0.2% to $1,529.90 an ounce. The price of crude oil on the New York Mercantile Exchange edged higher by 0.1% to $94.95 a barrel.

In Earnings News:

First Sony, now the IMF, and even possibly the U.S. Senate: major breaches of data on the rise.

Barry Ritholtz: “Checklist: How to spot a bubble in real time.”

A great look at U.S. debt as a percentage of GDP from 1797 to the present.

The Abnormal Returns blog lists the best investment books of the past five years.

Does pre-school have long-term economic (and other) benefits? A long-term study says it does.

State employment rolls at their lowest since the 1970s as a percentage of the general population.

New York City goes the Scarlet Letter route with restaurants; restaurants balk.

Greece once again grabbed worldwide attention after protests over government austerity measures turned violent. The potential for a default rose, although with worries that the contagion could spread to eurozone financial institutions with exposure to Greek debt. Domestically, the picture wasn’t bright either. Consumer prices rose more than expected in May, and the Empire State Manufacturing Survey turned negative.

The Dow fell 178 points, with all 30 of its components losing ground; the S&P 500 lost 22; and the Nasdaq was off 47. Decliners led advancers by about four to one on the NYSE and the Nasdaq. The prices of Treasuries strengthened. Gold futures rose $1.80 to close at $1,526.20 an ounce, and the price of crude oil dropped 4% to settle at $94.81 a barrel. The troubles in the eurozone strengthened the dollar, which weakened oil prices.

In Other Business News:

Sometimes commercials that use customer testimonials or hidden cameras to show their product's superiority are a bit too perfect, like the ones that switch out regular for decaf coffee for unsuspecting diners. Saturday Night Live thought so, too, and ran a skit showing what happens before those perfect results were obtained. The skit shows one of the 264 hidden-camera outtakes that didn't make it to a coffee company's commercial. Chris Farley is the restaurant patron who's unknowingly sipping decaf coffee at a fancy restaurant, and when he's informed that he's not drinking the regular coffee that he ordered, he flips out. And I don't mean he sternly demands regular coffee or slightly raises his voice. No, he screams, physically assaults the waiter and most of the wait staff, throws pies at patrons all while shouting, "You lied to me!!" and gets multiple wine bottles broken over his head. His rampage only stops when the chef smashes him over the head 5 times (yes, I counted) with an oversized frying pan.

The markets rallied from their recent slump after a better-than-expected U.S. retail sales report and strong economic readings out of China. Federal Chairman Ben Bernanke, meanwhile, waded into the debate over raising the debt ceiling, saying that he respected the intentions of opponents but focusing on the debt ceiling was the wrong tool for the job.

The Dow gained 123 points after being up more than 150 earlier in the day, with 24 of its 30 components higher; the S&P 500 advanced 16; and the Nasdaq was up 39. Advancers led decliners by 4 to 1 on the NYSE and by 10 to 3 on the Nasdaq. The prices of Treasuries weakened. Gold futures gained $8.80 to close at $1,524.40 an ounce, and the price of crude oil partially recovered from yesterday’s slide, rising 2% to settle at $99.37 a barrel.

In Earnings News:

Retail sales fell 0.2% in May, which was slightly better than the consensus from Bloomberg. Excluding motor vehicles, retail sales rose 0.3%. Year-on-year, the headline number was up 7.7%. Gasoline prices retreated a bit in May, but, interestingly, the high gasoline prices in April didn't cannibalize other retail sales. Going from February to March, retail sales excluding gasoline station sales were up 0.46%. To fund that increase in spending, even in the face of higher gasoline prices, consumers dipped into their savings. This is typical of consumer behavior when price increases in one good are viewed as being temporary (or "transitory" in the Federal Reserve Chairman's words).

Producer prices for finished goods increased 0.2% in May. The prices received for finished goods have increased for 11 straight months. Year-on-year, finished goods prices rose 7.3%. If you look at the various stages of production, going from crude goods, to intermediate goods, to finished goods, the crude goods number is the most volatile. In April it was up 4% while in May it was down 4.1%. During those same months, intermediate goods were up 1.3% and 0.9% respectively. These swings can affect the profit margins of various businesses. I've been in favor of investing in the companies in the middle, who are not vulnerable to wild swings in input prices and aren't susceptible to having to give price concessions to end consumers. Though retail sales have held up, with incomes relatively flat, there is the risk of penny-pinching by households.

A series of acquisitions initially bolstered stocks, but falling energy prices brought down the prices of energy and materials stocks, which moderated the rally and left the indexes mixed at the close.

The Dow gained 1 point, with 19 of its 30 components closing higher; the S&P 500 added nearly 1; and the Nasdaq lost 4. Decliners and advancers were nearly in line on the NYSE, and decliners led advancers by about three to two on the Nasdaq. The prices of Treasuries were mixed. Gold futures fell $13.60 to close at $1,515.60 an ounce, while crude oil prices dropped $1.99 to settle at $97.30 a barrel after a report that Saudi Arabia planned to increase oil production by 13%.

In Other Business News:

Last week was not one to write home about, or to write about at all, for that matter. The major indexes fell four out of five days, leading to the sixth-straight weekly loss. The dismal employment situation report from the Friday of the preceding week set the tone.

Federal Reserve Chairman Ben Bernanke said Tuesday that the economy remains soft, with housing and unemployment weighing on the recovery. The good news, however, is that inflation didn’t appear to be a long-term threat, which gives the Fed some leeway to continue maintaining an accommodative policy stance.

On Wednesday, a much-anticipated meeting of the Organization of Petroleum Exporting Countries (OPEC) failed to come to a conclusion about the amount of global supply of oil. The Wall Street Journal quoted Saudi Arabian oil minister Ali Naimi as saying it was "one of the worst meetings we've ever had." Deep divisions were exposed in the group, and the price of oil rose partially as a result of uncertainty about future levels of production.

Following Thursday’s rally, the major indexes retreated in a broad selloff on Friday, making this the sixth consecutive week of losses. Today the Dow lost 172 points, the Nasdaq fell 41 points, and the S&P 500 lost 18. Twenty-seven of the Dow’s 30 components lost ground. Volume was light to moderate, and declining issues outnumbered advancers by about four to one on the NYSE and by about three to one on the Nasdaq. The prices of Treasuries strengthened, while the price of gold futures lost 0.8% to $1,529.20 an ounce. The U.S. dollar strengthened, and the price of crude oil on the New York Mercantile Exchange lost 2% to $99.29 a barrel. For the week, the Dow lost 1%, the S&P 500 fell 2%, and the Nasdaq lost 3%.

In Earnings News:

The debt crisis in the eurozone isn't the first of its kind, and it probably won't be the last financial crisis in the world. But our question is: When a government's ability to service its debt is in question, what impact will it have on the rest of the world and on an investor's portfolio? Here with a historical analysis of sovereign debt is Dr. Brian Jacobsen, CFA, CFP, and chief portfolio strategist with Wells Fargo Funds Management, LLC.

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After six straight sessions of decline, the major indexes rallied today on news that the nation's trade deficit narrowed. The Dow gained 75 points, the Nasdaq rose by 9, and the S&P 500 advanced 9. Twenty-six of the Dow's 30 components gained ground, led by JPMorgan Chase (JPM) and Du Pont (DD), each of which rose by more than 1%. Volume was light, and advancing issues outnumbered decliners by about five to three. The prices of Treasuries weakened, while the price of gold futures gained 0.2% to $1,542.70 an ounce. The price of crude oil on the New York Mercantile Exchange gained 1% to $101.93 a barrel.

In Earnings News:

Groupon’s announced their IPO last week, but are the economics of the daily deal business model really sustainable?

In a digital age, the U.S. Postal Service is looking for ways to modernize and avoid bankruptcy.

Could the iCloud save the music industry?

A victory for nationalists last month may mean an independent Scotland.

We’re not eating as much cereal for breakfast (or dinner) anymore – and it’s actually hurting milk sales.

Does higher worker productivity equal higher unemployment and a lower standard of living?

A volatile session ended lower following a rise in energy prices and the Fed’s most recent assessment of the economy. The major indexes had a weak open as many investors were likely disappointed that Fed Chairman Ben Bernanke made no mention of a new round of stimulus in his remarks late Tuesday. The Dow closed lower by 21, the Nasdaq lost 26, and the S&P 500 slipped 5. Eighteen of the Dow’s 30 components declined, but losses were pared by 0.5% and 1% gains in Chevron (CVX) and Exxon-Mobil (XOM), respectively. Technology stocks led decliners, with the networking index off 3% and the semiconductor index down nearly 2%. Volume was moderate, with declining issues outpacing advancers by about three to one. Treasury prices rose, and gold futures shed 0.3% to $1,538.70 per ounce. Crude oil futures added 1.6% to $100.74 per barrel.

Crude oil prices spiked after the 12 members of the Organization of Petroleum Exporting Countries announced they couldn’t come to a consensus to raise output quotas. Saudi Arabian oil minister Ali al-Naimi said, “It was one of the worst meetings we’ve ever had,” as OPEC failed for the first time in more than 20 years to agree on production quotas. Saudi Arabia, along with Kuwait, Qatar, and the United Arab Emirates, proposed to raise daily production by 1.5 million barrels, while Algeria, Angola, Ecuador, Iran, Libya, and Venezuela were opposed to the move. The 12 countries supply about 40% of the world’s oil.

In April and May, the municipal bond market recorded the best total returns of any of the domestic fixed income markets—even outperforming the high-yield corporate market. With that rebound, the municipal market has reversed much of the losses it suffered in the November-January period. That three-month selloff began when new-issue calendars ballooned as borrowers rushed to complete offerings by year end. Budget problems had prevented many issuers, especially the State of California, from selling bonds earlier in 2010, so there was an unusual bunching of sales into the final two months of the year.

The second and most harmful blow to the market was the widely publicized prediction from a well-known Wall Street equity analyst that hundreds of billions of dollars worth of municipal bonds would be defaulting in the months and years ahead. That frightened individual investors at a time when the net asset values (NAVs) of tax-exempt mutual funds were already declining. The result was record outflows from those funds and consequent selling by the fund managers. Yields on municipal bonds rose more than a full percentage point, reaching peaks in mid-January. By then, municipal bonds were yielding more than many corporate bonds with the same credit ratings.

After spending most of the day in the black, the major indexes traded lower during the last 15 minutes of the session to finish in the red for the fifth consecutive day. Trading cautiously ahead of Ben Bernanke’s late afternoon address to the International Monetary Conference in Atlanta, volume sharply increased as Chairman Bernanke spoke. During his prepared remarks, the chairman described U.S. economic conditions as still being soft, indicating that accommodative monetary policy may still be needed. While the chairman reiterated that housing market and job growth remains concerning, he did acknowledge that inflation did not present much of a threat long term. In addition, he noted that with profits and credit conditions improving, the business sector appears to be on firmer ground.

Characterized by relatively light volume until the end of the day, the Dow lost 19 points, with 15 of its 30 components moving higher; the S&P 500 slipped by 1; and the Nasdaq dropped 1. Advancers led decliners by about five to four. The prices of Treasuries rose, and gold futures fell $3.20 to close at $1,544.00 per ounce. Crude oil rose 8 cents to settle at $99.09.

As an avid follower of the technology sector, I am increasingly being asked if we are in the midst of another 2000-style bubble in the sector. Given the better than 100% advance of LinkedIn from the initial IPO offer price on May 19th, I can certainly appreciate the concern.  I think to effectively evaluate the comparison between now and early-2000, you have to take a step back to reflect on the late 1990s leading up to the tech bubble burst in March of 2000.

In the late 1990’s, companies with business models leveraged to the internet were seeing their valuations expand well beyond what was justifiable by their earnings fundamentals. At the time, the internet and its uses for consumers and businesses were still untested and uncertain. Much of the run-up in valuations stemmed from what at the time were fascinating advances in technology without a clear understanding of applicability to the consumer or business. As a result, many of these companies struggled to generate any levels of positive free cash flow or earnings.  Free-flowing money from venture capitalists and other investors helped fuel the IPO fire despite the questionable business plans and unclear direction to profitability.  Some of the high fliers in the tech bubble, such as Yahoo, dramatically advanced in 1999 only to lose nearly all their value in the subsequent crash. Some of these firms—like Yahoo—are still in business, while others—like now-bankrupt Pets.com—are simply cautionary tales of irrational exuberance.

Stocks fell for a fourth straight session as investors continue to fear that the economy is slowing, especially after Friday’s disappointing jobs report. Volume was light as there were no major earnings announcements or economic releases. The Dow fell 61 points, with 7 of its 30 components higher; the S&P 500 fell 13; and the Nasdaq fell 30. Declining issues outnumbered advancers by four to one on the NYSE and by about three to one on the Nasdaq. The prices of Treasuries weakened. Gold futures rose $9.70 to close at $1,542.40 an ounce, while the price of crude oil futures declined $1.21 to settle at $99.01 a barrel.

In Other Business News:

I was thinking this post should be called “Weak Behind,” since the last week was host to some disappointing data.  Housing prices continued to fall, manufacturing growth continued to slow, and payroll growth stayed paltry.  On the bright side, the service sector showed a bit of life with more jobs and a pickup in an activity index.

On Monday the equity markets were closed for the Memorial Day holiday and it was pretty much downhill from there.  According to the S&P/Case-Shiller Home Price Index  released on Tuesday, home prices nationwide are where they were in 2002.  Thankfully, the pace of decline in prices has slowed.  Also, it is important to note that approximately 50% of home sales were “distressed,” meaning that the properties sold were either in foreclosure or owned by lenders.  Distressed sales typically take place at a discount to non-distressed sales, so if the composition of sales changes, we could actually see home prices begin to climb—or, at least to stop falling.

A disappointing May jobs report sent the major indexes down for the second straight session, although they attempted to rally on news that Greece and the euro nations have agreed on a new financial bailout plan. The Dow lost 97 points, the Nasdaq fell by 40, and the S&P 500 declined by 12. Twenty-nine of the Dow’s 30 components lost ground. Volume was light, and declining issues outnumbered advancers by more than two to one on the NYSE and by about four to one on the Nasdaq. The prices of Treasuries strengthened, while the price of gold futures gained 0.6% to $1,542.40 an ounce. The price of crude oil on the New York Mercantile Exchange lost 0.1% to $100.22 a barrel.

For the week, the Dow, Nasdaq, and S&P 500 each lost more than 2%, and it was the fifth consecutive week in which the Dow and the S&P declined.

In Earnings News:

Some believe the sell-off in municipal bonds in late 2010 was the result of negative headlines about the health of municipalities and risks of default. At the time, Lyle Fitterer, CFA, CPA, managing director and head of tax-exempt fixed-income with Wells Capital Management, explained that the sell-off was more cyclical in nature and was heightened by fear. Well, since then, the muni markets have become calmer and have rebounded nicely. So, when municipal bonds rally, if we can call it that, what's really going on? Lyle is here today to explain.

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Summary

• A disappointing payroll number caps the week, showing that the economy is slowing.
• The high unemployment rate may push policymakers to continue and expand payroll tax cuts.
• The Fed is likely to keep monetary policy loose, even after quantitative easing (QE2) ends.

The major indexes struggled in an up and down session, buffeted by disappointing economic data and hopes that OPEC might raise oil production next week and thereby reduce energy prices. The Dow lost 41 points, and the S&P 500 declined by 1 point. The Nasdaq rose four points. Twenty-three of the Dow’s 30 components lost ground, led by Wal-Mart (WMT), which fell 1.4%. Volume was light to moderate, and declining issues narrowly outnumbered advancers. The prices of Treasuries weakened, while the price of gold futures fell 0.6% to $1,532.70 an ounce. The price of crude oil on the New York Mercantile Exchange gained 0.1% to $100.40 a barrel.

In Other Business News:

In a positive sign, insiders began buying more shares of their own companies during the recent stock market swoon.

CNBC slideshow of the first jobs of CEOs. Wal-Mart’s CEO’s first job was at Wal-Mart.

The Freakonomics blog on skyrocketing college costs.

Felix Salmon on the disconnect between the housing and stock markets.

Get ready to hear more about Airbnb.com, the latest superstar start-up. Coming soon to a living room couch near you.

Harvard and Yale’s endowments fall behind their new competitor: Smith College.

James Surowiecki on the Billion Prices Project, a new alternative to the Consumer Price Index.

The most recent Market Roundup from Brian Jacobsen and Jim Kochan is now available.

April showers are supposed to bring May flowers, but it seems as though April showers just brought a lot of May mud. This isn't only true of the weather but also of the markets and the economy. May was the first down month for the S&P 500 Index since August 2010, although those intervening up months saw plenty of bumps along the way.

Commodities—from oil to coffee—declined, but Treasury prices rose as yields fell close to their lowest levels year to date. We believe these market movements reflect skepticism about the path of the global recovery. At the beginning of the year, expectations for robust corporate profit growth and job creation were high. Since then, corporate profits have surged, but job creation hasn't really taken off. Going into the second anniversary of the official end of the Great Recession, the economy seems to be running through sludge: a lot of effort but with little progress.

It appears that there is great potential in the economy. If policymakers would stop dithering on the European debt crisis, and if credible commitments were made to improve U.S. municipal, state, and federal finances, the markets could realize significant gains. Otherwise, the remainder of 2011 could look much like the muddy and bumpy month of May.

Read the full report.

Much weaker-than-expected reports on jobs and manufacturing provided the catalyst to send the major indexes lower. June opened with the Dow down 279 points, the Nasdaq off by 66, and the S&P 500 lower by 30—all lower by 2% and more than the declines for all of May. Last month the Dow, Nasdaq, and S&P 500 declined 1.9%, 1.3%, and 1.4%, respectively. All 30 Dow components were lower today, with Alcoa (AA), Bank of America (BAC), and Caterpillar (CAT) leading with 4% declines. Volume was heavy with decliners outpacing advancers by four to one on the NYSE and by five to one on the Nasdaq. Treasury prices rose, with the yield on the 10-year falling below 3% for the first time since December. Gold futures advanced by 0.4% to $1,543.20 per ounce, while crude oil futures declined 2% to settle at $100.29 per barrel.

In Earnings News:

One of the oddities about the recession and recovery is that companies for the most part have done very well despite the challenging conditions. Nowhere has that been more in evidence than in the massive amounts of cash and cash equivalents that have built up on corporate balance sheets over the past few years. The question has been when companies would deploy that cash into the broader economy. Tom Ognar, CFA, Joseph Eberhardy, CFA, and Bruce Olson, CFA, Portfolio Managers with Wells Capital Management's Heritage Growth Team, take a look at the data on capital spending and are encouraged by what they find. Read their thoughts and feel free to post your comments here.