September 2011 Archives

The major indexes closed the third quarter in retreat. The Dow lost 240 points, the Nasdaq fell by 65, and the S&P 500 declined by 28. Twenty-nine of the Dow’s 30 components lost ground, led by Hewlett-Packard (HPQ), which lost 5%. The price of Morgan Stanley shares (MS) fell 10% on fears that the bank is heavily invested in European banks, and shares of Kodak (EK) lost 53% on rumors that the company may face restructuring in a bankruptcy proceeding. Volume was moderate and declining issues outnumbered advancers by about four to one. The prices of Treasuries strengthened, while the price of gold futures gained 0.3% to $1,622.30 an ounce. The price of crude oil on the New York Mercantile Exchange lost 3.5% to $79.20 a barrel.

For the week, the Dow gained 1.3%, the Nasdaq lost 2.7%, and the S&P 500 closed fractionally lower. Today was also the final day in a very volatile quarter of trading: For the third quarter, the Dow and the Nasdaq lost 12%, and the S&P 500 declined by 14%.

In Earnings News:

There's no shortage of distractions for international bond investors: The downgrade in the U.S. credit rating, the eurozone struggling for footing, and major economies revising growth expectations are just a few. How does an international fixed-income investor cut through the noise to find opportunity? Here with his insight is Tony Norris, managing director, chief investment officer, and senior portfolio manager with First International Advisors. Listen to the podcast.

Personal income decreased 0.1% while consumption expenditures increased 0.2% in August, according to the Bureau of Economic Analysis.  Adjusted for price changes, real disposable income decreased 0.3% in August, while real personal consumption expenditures decreased 0.1%.  In August, 17.6% of personal income came from various government social benefit programs (for example, Social Security, Medicare, Medicaid, and Unemployment Insurance).

It shouldn’t be too shocking to see personal income and spending under pressure as the unemployment rate stays above 9%.  Real average hourly earnings contracted 1.9% over the 12 months ended in August.  Real disposable personal income is up a mere 0.3% from a year ago.

The major indexes rose sharply in the morning following better-than-expected jobs data and news that Germany increased support for the European bailout efforts. But the morning rally faded in the afternoon before rallying into the bell. The Dow gained 143 points, and the S&P 500 rose by 9 points. The Nasdaq, however, closed lower by 10 points. Twenty-eight of the Dow’s 30 components gained ground, led by Travelers (TRV), which rose 3%. Volume was moderate, and advancing issues outnumbered decliners by almost two to one on the NYSE and five to three on the Nasdaq. The prices of Treasuries strengthened, while the price of gold futures gained 0.04% to $1,617.30 an ounce. The price of crude oil on the New York Mercantile Exchange gained 1% to $82.14 a barrel.

In Other Business News:

A college student’s ability to pay may now be one of the factors in whether or not he or she is accepted.

What  choices would you need to make to live for a month on $9 an hour? Try this tool from Urban Ministries of Durham, N.C. to find out.

Felix Salmon looks at why Groupon’s valuation may be justified and what hurdles they may face.

There’s oil in dem dar Black Hills, and these new findings may reshape the global energy supply.

Integrating toy race cars with the iPad seems cool, but I’m not so sure I’m going to let my three-year-old run wild with this. (iPad glass doesn’t shatter, right?)

We’re all looking for ways to avoid filling up our gas tank.  How about this jetpack powered by wind turbines?

A big rally in the morning quickly dissipated, with the market drifting into negative territory for most of the day before the fall accelerated in the last hour of trading. In what’s becoming a common refrain, investors worried about Europe and whether the debt situation would become contagious and contribute to a further global economic slowdown. Materials stocks reacted poorly to the worries about economic growth, with a mainstay like Alcoa Inc. (AA) falling 4.91% and weighing down the Dow. Metals futures were also hit hard, with gold down 2%, silver losing 4.5%, and copper falling 5.6%.

The Dow lost 179 points, with all 30 of its components losing ground; the S&P 500 was off 24; and the Nasdaq fell 55. Decliners led advancers by about four to one on the NYSE and by about five to one on the Nasdaq. The prices of Treasuries strengthened. Gold futures fell $34.40 to close at $1,618.10 an ounce, while the price of crude oil dropped $3.24 to settle at $81.21 a barrel.

In Earnings News:

Lyle Fitterer, CFA, head of the Tax-Exempt Fixed-Income team at Wells Capital Management, has a new piece out today on how the low issuance of municipal bonds recently could provide price support. From the piece:

Historically, the third quarter (specifically July and August) is a strong period for investor demand of municipal bonds because the increase in reinvestment activity of semi-annual coupon payments and principal creates more technical demand for new securities. Concurrently, new municipal bond issuance during this period is also typically low, which creates a relative scarcity of investment options. This combination of higher demand and lower supply creates an upward technical force on municipal bond prices, which may continue to support prices in the near term.

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The major indexes surged higher for most of the day on hopes that a solution has been found to the European sovereign debt quagmire, particularly Greece’s, as the country pledged to keep up with its budget cuts and avoid a default. Late in the session, however, the gains were roughly cut in half on news that there was dissension in the ranks of eurozone members over how large of a write-down of Greek debt private creditors should be required to make. Even with the late-day fade, gains were sizable.

The Dow jumped 146 points, with 25 of its 30 components higher; the S&P 500 was up 12; and the Nasdaq gained 30. Advancers led decliners by four to one on the NYSE and three to one on the Nasdaq. The prices of Treasuries weakened. Gold futures broke their recent slide, rising $57.70 to close at $1,652.50 an ounce, while the price of crude oil gained 5% to settle at $84.45 a barrel.

In Earnings News:

Anticipation that a fix was in the works for the eurozone mess lifted stock markets in Europe and the U.S., although no details were officially released about any possible deal. The Dow advanced 272 points to regain the 11,000 mark, with all 30 of its components higher; the S&P 500 rose 26; and the Nasdaq rose 33, the lowest in percentage terms because of weakness from stocks like Apple. Advancers led decliners by eight to three on the NYSE and by seven to four on the Nasdaq. The prices of Treasuries weakened. Gold futures dropped $45 to close at $1,594.80 an ounce, partially in response to higher margin requirements instituted by the CME Group, and the price of crude oil gained 39 cents to settle at $80.24 a barrel.

In Other Business News:

Following a week with five-straight days of stock market gains, the major indexes took a tumble last week on disappointment about the Federal Open Market Committee’s “Operation Twist” and concerns about deteriorating global economies, particularly Europe’s sovereign debt situation. All told, the Dow and the S&P 500 fell 6%, and the Nasdaq lost 5%. In a break from gold’s recent trend of running up as stocks tumbled, the metal was among the biggest losers last week, dropping 9% to close at $1,639.80 an ounce.

The week was big on announcements. On Monday, President Obama unveiled his $3.2 trillion deficit reduction plan that relied on a mix of spending cuts and $1.5 trillion in additional taxes on the nation’s wealthiest. Our own Dr. Brian Jacobsen examined the fine print. On Wednesday, the Federal Open Market Committee announced it was unleashing “Operation Twist” on the markets. The Fed will sell $400 billion of shorter-term Treasuries and buy longer-dated ones, with the intention of lowering long-term interest rates. James Kochan looked at the details, and thought there’d be more flattening than twisting. If there were any twists after the FOMC meeting, it was the Fed’s decision to reinvest maturing mortgage-related agency debt in mortgage-related agencies, showing the Fed’s heightened concern about the moribund housing market. The Fed also downgraded its assessment of the U.S. economy, which, combined with Operation Twist’s relatively small expected effects, sent the markets tumbling.

The major stock indexes stabilized after a two-day selloff, but the prices of commodities like gold and silver plummeted. The Dow gained 37 points, the Nasdaq gained 27 points, and the S&P 500 rose by 6 points. Eighteen of the Dow’s 30 components gained ground, led by Bank of America (BAC), which rose 4%. Volume was moderate, and advancing issues outnumbered decliners by about five to three on the NYSE and by about two to one on the Nasdaq. The prices of Treasuries weakened, while the price of gold futures dropped 5.8% to $1,639.80 an ounce. The price of silver lost almost 18%, and the price of crude oil on the New York Mercantile Exchange fell 0.8% to $79.85 a barrel.

For the week, the Dow lost 6%, the Nasdaq lost 5%, and the S&P 500 declined by 6%. In its worst week since the early 1980s, the price of gold declined 9%. The price of crude oil fell 8%.

In Earnings News:

Volatility has the potential to create opportunity. What kind of opportunity does it present for total return bond investors and how is it found? Here with his thoughts is Thomas O'Connor, CFA, senior portfolio manager and co-head of the Montgomery Fixed-Income team. Listen to the podcast.

Summary:

• While the Federal Open Market Committee (FOMC) will sell some of its shorter maturities to buy the longer duration issues, the real objective is actually to flatten the curve by pushing yields lower on the longer maturities.
• Investors apparently do not expect the Fed’s initiatives to boost economic growth.
• For the first time in more than three years, we might now see a sizable improvement in mortgage refinancings and home sales.

The major indexes plunged today as the markets appeared to be reacting to fears that the economy will worsen. The Dow lost 391 points after being down more than 500 points in volatile trading. The Nasdaq fell by 82 points, and the S&P 500 declined by 37 points. All of the Dow’s 30 components lost ground, with United Technologies Corp. (UTX) losing 8% and Caterpillar (CAT) and Alcoa (AA) each losing 6%. After Hewlett-Packard’s shares (HPQ) lost 4% in today’s session, the price began to rise in afterhours trading on news that Meg Whitman would become the company’s new chairperson. Volume was heavy, and declining issues outnumbered advancers by about six to one. The prices of Treasuries strengthened sharply while the price of gold futures dropped 3.6% to $1,741.70 an ounce. The price of crude oil on the New York Mercantile Exchange lost 6.2% to $80.51 a barrel.

In Earnings News:

The markets took a dive today.  The usual suspects for the plunge are European banks, recession fears, and the failure of the U.S. House of Representatives to pass a continuing resolution to fund the government past September 30.  This is the same mix of problems that has plagued the markets for the past few months.  It’s like the classic Bill Murray comedy, Groundhog Day, though this situation isn’t funny.

Despite the political dithering in Europe and the U.S., I think the probability of the U.S. going into a recession within the next six months is 10 to 15%.  My bigger concern is that there will be a new recession at the end of 2012.  The reason I am not afraid of an imminent recession, but that there may be one at the end of 2012, is that we have a fiscal policy pit that has been dug by recent stimulus programs:  the 2001-2003 Bush tax cuts are set to expire at the end of 2012, the payroll tax cuts for employees is set to expire at the end of 2011, and the President has only proposed a temporary extension and expansion of the payroll tax cuts to take us past the next presidential election.  Retail sales, industrial output, and incomes aren’t growing rapidly (if at all), but they’re not in recessionary territory.

Facebook is giving people more reasons to never leave their site. Now you can build your own personalized edition of The Wall Street Journal with WSJ Social.

This probably isn’t news to many of you, but for anyone who isn’t sniffling and sneezing right now, have a little sympathy.

Less beer drinking = European debt crisis?

Netflix and Qwikster - a roundup of opinions from Wired on the new Netflix.

Lipstick sales should pick up during a recession, but they’re not.  Does that mean the theory is wrong?

When my son is grounded, he spends a lot of time with his Legos.  This may be a good project for him to start this week.

“Operation Twist” made its official entrance today, with the Federal Open Market Committee deciding to switch the shorter-dated Treasuries on its balance sheet for longer-dated ones in an effort to bring down long-term interest rates. Also today, existing home sales in August came in much better than expected, and a possible shakeup at Hewlett-Packard sent shares of the computer manufacturer up more than 10% at one point.

Selling intensified in the last hour of trading, likely as a reaction to the relatively small size of Operation Twist. The Dow fell 283 points, with 29 of its 30 components losing ground; the S&P 500 was down 35; and the Nasdaq lost 52. Decliners led advancers by about five to one on the NYSE and on the Nasdaq. The prices of Treasuries strengthened. Gold futures fell $1 to close at $1,808.10 an ounce, while the price of crude oil also lost $1 to settle at $85.92 a barrel.

In Other Business News:

Summary:

• The Federal Open Market Committee (FOMC) announced that it will sell $400 billion in Treasury securities with maturities of three years or less and invest the proceeds in Treasury securities with maturities between six and 30 years by June 2012.
• The FOMC announcement in August to keep rates low until the middle of 2013 has allowed private investors to keep short-term rates near zero.
• I don’t believe the Fed’s monetary policy is undermining confidence as much as the incessant campaigning for office by politicians.

Before a late-session dive, the major indexes rallied most of the day on optimism about Greece coming to a deal with eurozone finance officials, as well as speculation that the Federal Reserve will introduce measures to stimulate U.S. economic growth in its statement tomorrow, possibly including what’s being called “Operation Twist,” the attempt to lower long-term interest rates by swapping the Fed’s shorter-maturity notes for longer maturities. However, late in the day it was announced that European finance officials and the International Monetary Fund would revisit Greece in October to continue their review of whether Greece would get the next round of aid. Many market participants had hoped for a more definitive announcement.

The Dow gained 7 points, well off its session highs, with 16 of its 30 components higher; the S&P 500 fell 2; and the Nasdaq was off 22. Decliners led advancers by about three to two on the NYSE and by about five to two on the Nasdaq. The prices of Treasuries weakened. Gold futures regained the $1,800 mark, rising $30.20 to close at $1,809.10 an ounce, while the price of crude oil gained $1.11 to settle at $86.92 a barrel.

In Other Business News:

By announcing that the fed funds rate will stay near zero beyond mid-2013, the Federal Reserve has fostered major changes in the complexion of and the outlook for the fixed income markets. Those, in turn, have reinforced what has been our strategic recommendations for the past eighteen months—that investors may have far too many of their assets in cash and cash equivalents. That has been an extremely costly strategy for two years and it now appears that it will likely remain equally costly for another 12 to 24 months if, as the Fed expects, the fed funds rate stays near zero that long. Within the fixed income markets, however, valuations have changed significantly, so it is appropriate to reconsider which strategies may prove successful in this changed landscape.

Treasuries
One stated objective of the Fed’s announcement was to flatten the yield curve, with yields on longer-maturity notes and bonds declining enough to reduce mortgage rates and other borrowing costs. Thus far, that strategy appears to have been successful. Yields on 10-year and longer maturities declined 50-60 basis points in August while the yield on the 2-year notes declined only about 20 basis points. Mortgage rates have dropped along with Treasury yields, as have yields on most investment grade corporate bonds.

Fears of a Greek default heightened over the weekend after a meeting of eurozone leaders and finance officials said the troubled country was in danger of missing deficit targets that are a condition of receiving the next round of aid. Major indexes in France, the United Kingdom, and Germany closed lower by more than 2%. Late in the trading session came news that a tentative deal was reached between Greece, the European Union, the European Central Bank, and the International Monetary Fund, after which stocks partially recovered from their earlier losses. In the U.S., investors focused on the European drama as well as the Obama administration’s release of its budget deficit proposal, which prefigured another round of tough political infighting as the bipartisan “super committee” begins its task of finding $1.5 trillion in further budget cuts.

The Dow lost 108 points, with 26 of its 30 components lower; the S&P 500 fell 11; and the Nasdaq was lower by 9. Decliners led advancers by just over 10 to 3 on the NYSE and 18 to 5 on the Nasdaq. The prices of Treasuries strengthened. Gold futures fell $35.80 to close at $1,778.90 an ounce, while the price of crude oil dropped $2.37 to settle at $85.81 a barrel.

In Other Business News:

Summary:

• President Obama presented a conceptual framework to reduce the budget deficit by $3.2 trillion over the next 10 years.
• The Joint Select Committee on Deficit Reduction’s proposal will likely look very different from that of the president.
• The Congressional Budget Office has shown how the tax code is quite progressive, meaning that those with higher incomes typically pay a higher percentage of their incomes in all taxes.

The major indexes notched solid returns after a five-day winning streak that belied the relatively lackluster economic data released during the week. As has been the case for the past few weeks, all eyes were on the simmering sovereign debt situation in Europe, with European finance ministers and heads of State meeting in various forms throughout the week and through the weekend. No positive outcome was assured or even much hinted at, but the markets seemed to respond positively to the urgency with which officials were reacting to the problem. The biggest move during the week was the provision of U.S. dollars to European banks to stave off a liquidity crisis, with the central banks of the United States, European Union, Japan, Switzerland, and England all joining in a coordinated effort. And in the U.S., investors paid close attention to the release of the Obama Administration’s American Jobs Act of 2011. Our own Dr. Brian Jacobsen analyzed the details, among other topics, in his Market Update. For the week, the Dow gained 4%, the S&P 500 was up 5%, and the tech-heavy Nasdaq jumped 6% on solid performance by technology stocks. 

Price levels increased in August, particularly for consumers, according to the Producer Price Index and the Consumer Price Index. The latter rose 0.4% month over month and now stands 3.8% higher year over year. The Core CPI, which excludes food and energy, showed consumer prices rose 0.2% month over month and 2% year over year. Producer prices were flat for the month, with the headline number stable and the Core PPI rising 0.1%.

The major indexes moved higher for the fifth consecutive session. The Dow gained 75 points, the Nasdaq rose by 15, and the S&P 500 advanced 6. Twenty-one of the Dow’s 30 components gained ground, led by Procter & Gamble (PG), which rose 2%. Volume was moderate, and advancing issues narrowly outpaced decliners. The prices of Treasuries strengthened modestly, while the price of gold futures gained 1.8% to $1,814.70 an ounce. The price of crude oil on the New York Mercantile Exchange lost 1.6% to $87.96 a barrel.

For the week, the Dow gained 4%, the S&P 500 advanced by 5%, and the Nasdaq rose by 6%.

In Earnings News:

• The price of Research In Motion shares (RIMM) fell 18% in today’s session after the maker of BlackBerry handheld devices reported earnings fell from $1.46 a share one year ago to 63 cents a share in the latest quarter.

On Monday, President Obama submitted to Congress a legislative proposal called the “American Jobs Act of 2011,” with the goal of putting unemployed Americans back to work.

Among the many ideas floated in the American Jobs Act (and its nearly 200 pages contains far too many to cover here) is a proposal to limit the value of all itemized deductions to 28 percent for all taxpayers in the highest tax brackets (i.e., those taxpayers with an adjusted gross income of $250,000 or more for married couples filing jointly, or $200,000 for single taxpayers). Included in this limitation is the deductibility of income from municipal bonds.

China has more than 1.3 billion people. That's a lot of consumers—or at least potential consumers. Will just any company grab a share of its wallet, or will quality pay off in the end? Here with his thoughts is Derrick Irwin, senior analyst for Wells Capital Management's International Emerging Markets Equity team. Listen to the podcast.

The major indexes moved higher for the fourth consecutive session on news that five central banks, including the Federal Reserve, would pump dollars into ailing European banks. The Dow gained 186 points, the Nasdaq rose by 34, and the S&P 500 advanced by 20. All of the Dow’s 30 components gained ground, led by Bank of America (BAC), which rose 3%. Volume was light, and advancing issues outnumbered decliners by three to one on the NYSE and by two to one on the Nasdaq. The prices of Treasuries weakened, and the price of gold futures fell 2.4% to $1,781.40 an ounce. The price of crude oil on the New York Mercantile Exchange gained 0.5% to $89.40 a barrel.

In Other Business News:

It was fitting that on September 15, the third anniversary of the failure of Lehman Brothers, central banks in the U.S. and Europe intervened to support European banks in an attempt to avert a similar market shock. Over the past few months, banks throughout Europe have been stressed to the point that Moody’s Investors Service downgraded a few French banks, and money markets significantly curtailed lending to European banks. During much of August and the first half of September, it seemed as though when good news came out of Europe, the markets rallied and when there was bad news, the markets plunged. Instead of decisively moving in a bullish or bearish direction, the markets seem to be floundering. I believe the coordinated intervention by central banks to fill in the liquidity void is an important first step toward rebuilding investor confidence.

Summary:

• Concerns about the potential effects of a default by Greece have led to sharp increases in borrowing costs for all the major European banks.
• Statements by European and U.S. officials directed at restoring confidence in the banks appear to have been at least somewhat successful.
• Spreads of yields on bank debt to Treasury yields do not appear to be signaling greater investor concerns about the creditworthiness of U.S. banks.

Despite a long-term credit downgrade of two of France’s largest banks, the major indexes rallied for the third day, buoyed by hopes that the situation in Greece would be helped by the resolve of the largest European countries to keep Greece in the eurozone. In the U.S., economic data showed the U.S. economy was mostly stagnant month over month, with wholesale prices and retail sales flat in August.

The Dow gained 140 points, with 28 of its 30 components higher; the S&P 500 was up 15; and the Nasdaq was higher by 40. Advancers led decliners by five to two on the NYSE and by three to one on the Nasdaq. The prices of Treasuries were mixed, with the 30-year strengthening and the 10-year weakening. Gold futures lost $3.60 to close at $1826.50 an ounce, while the price of crude oil futures fell $1.30 to settle at $88.91 a barrel.

In Other Business News:

The major indexes drifted above and below the neutral line in a calmer day of trading. Concerns about Europe still dominated the news, with investors paying attention to a mediocre Italian bond offering and statements by German Chancellor Angela Merkel about the inadvisability of a disorderly bankruptcy in Greece.

The Dow gained 44 points, with 21 of its 30 components closing higher; the S&P 500 rose 10; and the Nasdaq was up 37, with information technology stocks strong on the day. Advancers led decliners by just over three to one on the NYSE and the Nasdaq. The prices of Treasuries weakened. Gold futures gained $16.80 to close at $1,830.10 an ounce, and the price of crude oil futures rose $2.02 to settle at $90.21 a barrel.

In Earnings News:

On Monday, September 12, President Obama unveiled additional details regarding his proposal to create jobs in a moribund economy. The President said, “We’ve got to decide what our priorities are. Do we keep tax loopholes for oil companies—or do we put teachers back to work? Should we keep tax breaks for millionaires and billionaires—or should we invest in education and technology and infrastructure, all the things that are going to help us out-innovate and out-educate and out-build other countries in the future?”

Without going into whether—or why—there are “tax loopholes for oil companies,” or whether—or why—there are “tax breaks for millionaires and billionaires,” I think the President is mistaken in presenting this as an “either-or” proposition. If current policies on taxing, spending, and regulation were the best they could be, then there would be a trade-off between these various items. However, that assumes the world is a perfect place right now.

The major indexes traded lower for most of the day, dragged down by contagion fears as a result of a statement by Greek officials that they may only have enough money to see the country’s government through mid-October. The reaction to this announcement reverberated across the global financial markets, and political reaction was swift. France strongly insisted on the stability and liquidity of its banks, despite their large exposure to Greece. The German government, one of the key backers of previous efforts to support Greece, indicated that it may not release any additional funds to Greece unless it is able to meet previously agreed-upon fiscal and lending terms. Stocks reversed course, in part on the news of a Financial Times report indicating that Italy was in talks to have China step in as a buyer to provide support for Italian government bonds.

After almost the entire day in the red, the major U.S. indexes bounced back during the final hour. The Dow finished the day with a gain of 69 points, or 0.63%; the S&P 500 rose 8 points, or 0.70%; and the Nasdaq rallied by 27 points, or 1.10%. The prices of Treasuries fell slightly, with 10-year Treasury notes slipping just over 9/32, pushing its yield up to 1.95%, while the 30-year bond fell 3/32, moving its yield higher to 3.25%. Gold futures fell $46.20 to close at $1,813.30 per ounce, while the price of crude oil rose 95 cents to settle at $88.19 a barrel.

Summary:

• Our enormous tax system makes it almost impossible to have an intelligent debate about how the tax burden is currently applied—or how it should be applied.
• If the system wasn’t so complicated, fewer people would stand to benefit from finding ways to avoid paying taxes.
• In my opinion, we should throw out the whole tax code and start over.

With a light week of regularly scheduled economic news, the markets turned instead to irregularly scheduled economic news, particularly from Europe and major economic addresses by President Obama and Federal Reserve Chairman Ben Bernanke. The major indexes finished lower for the week, with the Dow losing 2.2%, the S&P 500 off 1.6%, and the Nasdaq down 0.5%.

European debt woes again sent markets tumbling, and U.S. investors probably breathed a sigh of relief that U.S. markets were closed Monday for the Labor Day holiday, when European stock market indexes fell between 3.6% (in Britain) and 5.3% (in Germany). European markets roiled again on Friday, when European Central Bank (ECB) member Juergen Stark resigned, signaling that there are potentially internal problems and policy disagreements at the ECB. Further worries cropped up surrounding Greece, with the Greece Finance Ministry going so far as to release a statement dismissing rumors that the country was planning to default on its debt this past weekend.

The resignation of a member of the European Central Bank, which may or may not signal a policy split at the ECB, sent shivers through markets worried about the progress of plans to rescue some European powers from financial crisis. The Dow lost 303 points, the Nasdaq fell by 61, and the S&P 500 declined 31. All of the Dow’s 30 components lost ground, led by Hewlett Packard (HPQ), which dropped by 5%. Volume was moderate to heavy, and declining issues outnumbered advancers by five to one. The prices of Treasuries strengthened, while the price of gold futures gained 0.1% to $1,859.50 an ounce. The price of crude oil on the New York Mercantile Exchange lost 2% to $87.24 a barrel. For the week, the Dow lost 2%, the S&P 500 fell 1%, and the Nasdaq edged lower by 0.4%.

In Earnings News:

Information technology—or "IT" as we all call it—as a sector is undergoing dramatic shifts. What was cutting edge five years ago—heck, even five months ago—is no longer cutting edge. So how should we be rethinking the sector from the viewpoint of investment opportunity? Here with ideas is Michael Thomas, CFA, senior investment analyst for the domestic equity group at Wells Fargo Funds Management, LLC. Michael co-authored the white paper, Rethinking technology stocks: Opportunities in today’s IT sector. Listen to the podcast.

Summary:

• President Obama rolled out the American Jobs Act, a plan with a price tag of $447 billion.
• Employees received a two-percentage-point reduction in payroll taxes for 2011, but I don’t believe this created many jobs.
• Only permanent tax cuts will lead to permanent job creation.

The major indexes moved lower in mid-afternoon trading after Fed Chairman Ben Bernanke, speaking in Minnesota, said the central bank has additional tools for stimulating the economy but did not offer to use them. The Dow fell 119 points, the Nasdaq lost 19, and the S&P 500 declined by 12. Twenty-five of the Dow’s 30 components lost ground, led by J.P. Morgan (JPM), Bank of America (BAC), and Boeing (BA), which each lost 3%. Volume was light, and declining issues outnumbered advancers by about three to one. The prices of Treasuries strengthened, while the price of gold futures gained 2.19% to $1,857.50 an ounce. The price of crude oil on the New York Mercantile Exchange lost 0.32% to $89.05 a barrel.

In Earnings News:

• Smithfield Foods, the nation’s largest producer of pork products, announced earnings increased by 7.6% from 46 cents a share a year ago to 49 cents a share in the latest quarter, thanks mainly to demand overseas, especially in Asia. The price of the company’s stock (SFD) lost 8%.

The equity market moved higher on Wednesday, snapping a three-day losing streak amid encouraging headlines out of Europe and high hopes surrounding President Obama’s soon-to-be-announced jobs plan.

The gains came as the Federal Reserve released its latest “Beige Book” report of regional economic activity, based on anecdotal evidence collected from business contacts and economists in the second half of July and most of August . The report showed that the U.S. economic recovery remains fragile, with many of the Fed’s 12 bank regions reporting either weaker economic activity or sluggish expansion amid a slowdown in manufacturing, continued weakness in real estate, and the impact of Hurricane Irene. Overall consumer spending increased slightly in most of the 12 districts, but retail sales failed to gain traction. Meanwhile, the beleaguered labor market was essentially unchanged, despite modest job growth in some areas of the country. The report, which will be used at the Fed’s next policy-setting meeting September 20-21, is likely to add to the pressure already on the central bank to provide additional monetary stimulus to spur economic growth.

The Dow gained 275 points, with all 30 of its component stocks advancing; the S&P 500 rose 33 points; and the Nasdaq added 75 points. Advancers led decliners by a margin of about six to one. The prices of 10-year Treasuries rose. Gold futures fell by $55.70 to close at $1,817.60 an ounce, while crude oil rose by $3.32 to settle at $89.34 per barrel as investors kept a close eye on storms that could affect production in the Gulf region.

In Economic and Business News:

If you watch business news or read investors’ market outlooks, you probably know that among the most widely cited indicators of a stock—or stock market’s—attractiveness is the price-to-earnings ratio, or P/E for short. It’s one of the oldest metrics in the book, and unfortunately it’s been regularly misused for as long as it’s been around. What is rarely talked about is that there are many different ways to calculate P/E ratios, and people often compare one P/E calculation to another as if they were interchangeable. Because we’re at such a crucial inflection point in the economy, the choice of which P/E to use (forward or trailing, for example) can have dramatically different consequences. So bear with me for a minute while I try to show just how not easy it is to calculate and compare P/E ratios.

For example, earnings per share (EPS) can be based on operating earnings (namely, ignoring all the one-time charges) or as-reported earnings (which includes all these ignored items). They can also be calculated on a trailing basis or on analysts’ expectations for future EPS. Additionally, there are “top-down” and “bottom-up” versions of expected EPS. The top-down measure looks at estimates from strategists who try to predict the total earnings for the entire index, while bottom-up estimates aggregate earnings estimates for all the companies in the index. (For example, when most strategists make an estimate for S&P 500 earnings, that’s a top-down estimate since they aren’t guessing the earnings for each individual company, just the index as a group).

While U.S. markets were closed Monday, European markets sold off sharply with Germany’s DAX down 5.3%, France’s CAC-40 off 4.7%, and Britain’s FTSE 100 lower by 3.6%. The major indexes in the U.S. opened sharply lower as Europe’s sovereign debt crisis and global recession fears continued to make headlines but rebounded late in the session to close moderately lower. The Dow lost 100 points, the Nasdaq slipped 6, and the S&P 500 shed 8. Twenty-seven of the Dow’s 30 components were lower, as Bank of America (BAC), JPMorgan Chase (JPM), and General Electric (GE) each gave up more than 3%. Biotechnology and the gold and silver indexes were the only two sectors to buck the downward trend. Volume was moderate, with decliners edging advancers by three to one on the NYSE and by two to one on the Nasdaq. Treasury prices rose, sending the benchmark 10-year Treasury note to a record 1.97% yield during the session. Gold futures hit an all-time high of $1,923.70 an ounce today before falling 0.19% to settle at $1,873.30. Crude oil futures lost 0.49% to $86.02 per barrel.

In Other Business News:

Today we have a guest post by Michael Bradshaw, CFA, portfolio manager with Wells Capital Management, subadvisor to Wells Fargo Advantage Funds. Michael's expertise is investing in gold, other precious metals, and gold-related stocks.

The rapidly appreciating price of gold has brought renewed investor attention to the metal, but many investors might be overlooking a key way to get gold exposure: gold-related stocks, such as gold-mining companies. As of Friday, physical gold prices have appreciated 28.5% year to date. By contrast, gold-related stocks have posted much more modest results in general year to date, despite double-digit appreciation since July 1st.  Given the historical relationship between gold and gold-related stocks, I think the stocks are primed to move higher.

Hurricane Irene brought significant damage to the east coast, but it wasn’t the catastrophe that many forecasters had feared. The markets responded with a sigh of relief, advancing for the first three trading days. And then we got the employment report on Friday, which showed precisely zero jobs were created during August. A lackluster report was expected, but not one this bad. The major indexes fell more than 2% on Friday, which wiped out the gains for the week.

The major indexes were under pressure from the open after the August payrolls report showed that no jobs were added for the month. The Dow lost 253 points, the Nasdaq declined 65, and the S&P 500 fell by 30, all more than 2% losses, but off the worst levels of the session. All 30 Dow components were lower, led by Bank of America’s (BAC) 8% slide and Hewlett-Packard’s (HPQ) 5% loss. Financials retreated after The New York Times reported that a federal agency was preparing to file suit against more than a dozen major banks for misrepresenting mortgage securities sold during the housing boom. The bank, broker/dealer, and networking indexes all fell more than 4%. Volume was light, with decliners edging advancers by about nine to two on both the NYSE and the Nasdaq. Treasury prices rose and gold futures rallied 2.6% to $1,876.90 an ounce. Crude oil futures declined 2.8% to $86.45 a barrel.

For the week, the Dow lost 0.39%, the S&P 500 was off 0.24%, and the Nasdaq added a fraction.

In Earnings News:

The approach taken when constructing a suite of target date funds is what distinguishes these types of funds from one another. In volatile markets, the approach might be the difference between being able to stay on target to fund retirement or missing the target completely. Here to explain is James P. Lauder, CEO of Global Index Advisors, a subadvisor to Wells Fargo Advantage Funds. They manage our suite of target date funds. Listen to the podcast.

Carefully consider a fund's investment objectives, risks, charges, and expenses before investing. For a current prospectus, containing this and other information, visit wellsfargo.com/advantagefunds. Read it carefully before investing.

Nonfarm payrolls were unchanged in August and the unemployment rate was 9.1%, according to the Bureau of Labor Statistics.  The private sector added 17,000 jobs and the government shed 17,000 jobs.  There were some extraordinary items in the report, including over 40,000 workers being dropped from payrolls due to the worker strike at Verizon.

Next week Thursday, President Obama will unveil his latest job-creation plan.  Early reports suggest the plan will consist of at least an extension of the payroll tax cut for employees and some type of an infrastructure bank.  The infrastructure bank may function as a cheap source of financing to fund numerous federal, state, and municipal projects designed to repair roads, bridges, rails, and schools.  Though this program could benefit specific businesses in the construction industry, I don’t think it will materially increase employment.

The construction industry was hit hard in the economic downturn.  From peak to trough, the construction industry lost over 1.95 million jobs.  Though that is a lot, more jobs were lost in the services-sector and the goods-producing sector, with over 2.9 million and 3.89 million jobs lost, respectively.

Within the construction sector, it is a mistake to think that one construction job can be filled by just anyone.  Many of the jobs are quite specialized.  In fact, it is in the specialty trade contractors subsector that most of the construction jobs were lost, having lost 1.288 million jobs.  The specialty trade contractors subsector comprises things like pouring concrete, carpentry, plumbing, painting, electrical work, pipefitting, etc.  A lot of these jobs are licensed and require years of specialized training.  The idea that these specialists can just go and “do construction work” is wrong.  That’s why I’m not too optimistic that an infrastructure bank will create many jobs in the short-term.  What would be better, in my view, would be to encourage job creation in the much-harder hit services and good-producing sectors by lowering payroll taxes paid by employers, or by completely transforming the corporate tax code to encourage job creation.   

We've just posted September's Market Roundup from our Capital Markets Strategists Dr. Brian Jacobsen and Jim Kochan.

August is famous for being a miserable time of year for weather: it ushers in prolonged heat waves and traditionally marks the peak of the hurricane season. This year, it was also a miserable ride in the markets: the S&P 500 Index lost 5.7% during the month; the Dow Jones Industrial Average moved up or down more than 400 points four days in a row; gold hit a record high of $1,891.90; and the 10-year Treasury yield dipped below 2%. Despite this wild ride, we think the low point of the S&P 500 Index may be behind us.

Read more.

The major stock indexes spent the morning bouncing around yesterday’s closing prices but fell in the afternoon and ended the day with losses. The Institute for Supply Management’s manufacturing index fell slightly in August, though the headline number was higher than what economists were predicting and remains in expansion territory. With employment being such a major economic and political concern, the investors that haven’t left for a long weekend by tomorrow will likely be paying attention to the U.S. Bureau of Labor Statistics’ monthly release of its employment report. The report consists of two surveys. The household survey produces the unemployment rate, and the establishment survey produces the nonfarm payrolls number, a measure of how many jobs—on net—were added (or eliminated) during the month.

The Dow fell 119 points, with 28 of its 30 components lower; the S&P 500 dropped 14; and the Nasdaq was lower by 33. Decliners led advancers by about five to two on the NYSE and four to one on the Nasdaq. The prices of Treasuries strengthened. Gold futures fell $2.60 to close at $1829.10 an ounce, and crude oil rose 12 cents to settle at $88.93 a barrel.

In Other Business News:

With profit up, why bother hiring?

More IPOs pulled in August than at any time since the bursting of the dot-com bubble 10 years ago, according to The Wall Street Journal’s Deal Journal.

From the You’re the Boss blog: New start-up aims to help other start-ups with the entire “starting” part of the start-up process.

Economix blog: Starting salaries for college graduates lower than they were 10 years ago.

With gold having a banner month of August, the MarketBeat blog highlights that copper did not follow suit.

Social network use grows to 50% in the U.S., according to the Bits blog.