Stocks Drop, Europe Continues to be Drag

Up to date in less than 2 minutes:
Last week U.S. stocks fell as European leaders struggled to solve the region’s debt crisis and the Federal Reserve refrained from additional stimulus. For the week, the Dow, S&P 500, NASDAQ, and Russell 2000 all dropped -2.6%, -2.8%, -3.5%, and -3.1%, respectively.

 

 

Equity Performance Table
Last Week
Year to Date
Last 52 Weeks
Dow Jones Industrial
-2.6%
+2.5%
+3.3%
S&P 500 (Large Caps)
-2.8%
-3.0%
-1.9%
NASDAQ (Technology)
-3.5%
-3.7%
-3.3%
Russell 2000 (Small Caps)
-3.1%
-7.9%
-7.4%
International Stocks (EAFE)
-4.0%
-17.3%
-15.5%
Dow Jones Total Stock Market (Broad Market)
-2.9%
-4.2%
-3.1%

 

 

Interest Rates
Prime Lending Rate
3.25%
Interest Rate Bias
Short-Term = Neutral; Intermediate Term = Neutral; Long-Term = Neutral
90 T-bill Rate
0.00%
90 Day LIBOR
0.57%
TED Spread
0.57%
30-Year Mortgage Rate
3.92%
15-Year Mortgage Rate
3.27%
5-Year Adjustable Mortgage Rate
2.84%
30-Year Treasury Yield
2.85%
10-Year Treasury Yield
1.85%
5-Year Treasury Yield
0.80%
2-Year Treasury Yield
0.22%

 

 

Notable Dividend Increases – 2011
Lockheed Martin (“LMT”)
33.3%
NextEra Energy (“NEE”)
10.0%
United Technologies (“UTX”)
12.9%
Proctor & Gamble (“PG”)
9.0%
Abbott Labs (“ABT”)
9.1%
Home Depot (“HD”)
16.0%
Clorox (“CLX”)
9.0%
Colgate Palmolive (“CL”)
9.4%
Chevron Corp (“CVX”)
8.3%
Emerson Electric (“EMR”)
15.9%
General Mills (“GIS”)
8.9%
International Business Machines (“IBM”)
15.4%
Union Pacific Corp (“UNP”)
25.0%
Intel Corp (“INTC”)
33.0%
McDonalds Corp (“MCD”)
14.8%
Kimberly Clark (“KMB”)
6.1%

 

 
Now, all the details……………………
Last week, the S&P 500 fell -2.8% to 1,219.66, breaking a two-week streak of gains.  The Dow Jones Industrial Average sank 317.87 points, or -2.6%, to 11,866.39. “The market continues to be driven by headline stories about Europe, although the economic news has been more positive with respect to the U.S.,” John Carey, a Boston-based money manager at Pioneer Investments, said in a Bloomberg telephone interview. The firm oversees about $220 billion.  “On alternate days, people are either paying attention to those improving fundamentals or worrying about what’s going on in Europe.”
Stocks slumped on December 12th as Moody’s Investors Service said a European Union summit failed to produce “decisive policy measures” and Fitch Ratings said a comprehensive solution has not yet been offered.  The S&P 500 rebounded from a three-day slump on December 15th after Labor Department figures showed initial jobless claims fell by 19,000 to 366,000 in the week ended December 10th, the fewest since May 2008, and two reports showed manufacturing in the New York and Philadelphia regions expanded more than forecast in December.
Energy producers posted the biggest declines last week as a group, falling -4.9% as oil posted the biggest weekly loss since September.
Intel (“INTC”) tumbled -7.1% to $23.23 last week, pacing declines with technology companies which had the second-biggest decline as a group in the S&P 500.  The world’s largest maker of semiconductors cut its forecast for fourth-quarter revenue, saying supply shortages for hard drives are prompting computer producers to cut orders for other components.
First Solar Inc. (“FSLR”), the world’s largest maker of thin-film solar panels, had the biggest decline in the S&P 500, falling -30% to $31.91.  The company reduced profit estimates for this year and next and said it will cut about 100 jobs as it closes a California research center.
The MSCI EAFE Index (broad developed international index) dropped -4.0% last week. The Americas dropped -3.2% with Brazil down -3.7%, Mexico down -3.2%, and Canada down -3.3%. Europe dropped -2.8% with Germany down -4.8%.  Asia-Pacific dropped -2.4% with Australia down -1.0%, China down -3.9%, Hong Kong down -1.6%, India down -4.5%, Taiwan down -1.6%, and Japan down -1.6%.
Treasuries rose in price with the 10 year yield dropping to 1.85% from 2.06% in the week earlier.
The Baltic Dry Index, which tracks transport costs on international trade routes and may be a good leading indicator of economic activity, ended the week at 1,888, down from the prior week’s level of 1,922. The index reached a high of 11,793 on May 20, 2008 and a low of 663 on December 5, 2008. The index last peaked at 4,661 set on November 11, 2009.
The TED spread measuring the difference between LIBOR and Treasury bill rates, which rose as high as 464 basis points during the liquidity crisis of 2008, is currently in more of a normal range of 57 basis points, but has increased as of late due to Euro bank concerns. The TED spread is a gauge of the willingness of banks to lend to one another. The lower the TED spread the more willing banks are to lend with each other. The TED spread fluctuates over time but generally has remained within the range of 10 and 50 bps (0.1% and 0.5%) except in times of financial crisis. A rising TED spread often presages a downturn in the U.S. stock market, as it indicates that liquidity is being withdrawn.
Last week, oil was down -5.9% and closed at $93.53 per barrel. Year-to-date oil is up +2.4%. The average price of unleaded gasoline dropped -1.6% last week to end at $3.221 per gallon per December 18th data provided by AAA. Year-to-date, unleaded gasoline is up +4.8%. Natural gas was down -5.7% last week and closed at $3.127/MMBtu. Year-to-date, natural gas is down -29.0%.
Last week, gold dropped -6.8% closing at $1,595.60 per troy ounce. Year-to-date, gold is up +12.3%. The dollar was up +2.1% as measured by the U.S. Dollar Index with that index closing at 80.256. Year-to-date, the U.S. Dollar is up +1.6% as measured by the Dollar Index. The Euro was down -0.6% against the U.S. dollar closing at $1.3035/Euro. Year-to-date, the Euro is down -2.5% against the U.S. Dollar.
In the coming week, look for corporate earnings from companies such as General Mills (“GIS”), Oracle Corp (“ORCL”), CarMax (“KMX”), and Bed Bath & Beyond (“BBBY”). Look for economic reports this week on housing starts, home sales, durable goods orders, 3rd Quarter GDP, personal income, personal spending, and weekly jobless claims data.
Sources: Bloomberg, The Wall Street Journal, Barron’s, The New York Times, ValueLine.

 

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