In the face of some daunting geopolitical uncertainties, U.S. stocks had their best day since early March on Friday, with the Dow and S&P 500 rising 1.1% and 1.2%. Prices were flat to lower at the open, but by the close, Friday’s gains were enough to pull the major indexes modestly into positive territory for the week: Dow, +0.4%; S&P 500, +0.3%; NASDAQ, +0.4%.
Unlike Thursday, when utilities (+1.1%) were the lone sector of the S&P 500 to post any real gain, all 10 market sectors advanced on Friday. Today’s sector moves ranged from +0.5% for telecoms to +2.0% for utilities; yes, utilities outperformed even on a day one might have assumed to have favored higher-growth, higher-beta stocks. The Thursday-Friday gains were enough to put utilities back in the lead in the year-to-date total return derby. Among Dow Jones Indexes, the DJ Utility Average (+2.2%) and the DJ U.S. Select Dividend index (+1.4%) had the best showings on Friday.
With big declines in Asia and Europe evident on Bloomberg screens this morning, the first move many skittish investors made was into safe-haven assets like German bunds and U.S. Treasurys. But as U.S. stocks staged their surprise rally, bond prices fell and yields edged higher. The 10-year Treasury yield dipped as low as 2.37%, a 14-month low, before reversing course and ending at 2.42%, up 2 basis points on the day. For the week, the 10-year T-note dropped 7 bps, following the lead of the German bund, which fell 8 bps on weak economic data out of Germany, where factory orders dropped roughly 3%, and Italy, where GDP declined for a second straight quarter.
Considering the rush to the safe harbor of Treasuries and bunds, on the credit side this past week’s bond market action was far less risk averse. High-yield bond spreads relative to Treasurys retreated by roughly 4-5 bps on the week from August 1st’s six-month high OAS of 409 bps. The Barclays high-yield composite had a total return of 0.48% for the week just ended – about 16 bps better than Treasurys – recouping about one-third of the prior week’s big loss.
Commodities prices were flat on balance this past week, with gold rising roughly 1% while silver lost 2%. Natural gas prices gained 4.5% for the week, while crude oil futures prices, at $97.65 per barrel for WTI grade, were off 0.2% for the week. To date in the third quarter, the CRB commodities index is 5% lower, trimming the year-to-date rise to 4.4%. The U.S. dollar weakened modestly Friday, losing 0.4% against the euro and 0.2% against a trade-weighted basket of currencies. For the week, the dollar gained slightly against the euro and more broadly as well, but lost 0.5% vis-à-vis the Japanese yen.
U.S. labor productivity rebounded from the abysmal (weather-related) first-quarter showing during the second quarter, the Bureau of Labor Statistics reported today. But, at 1.2%, the year-over-year trend in output per hour remains disappointing. On the same, smoothed Y-O-Y basis, unit labor costs were up 1.9%, an improvement on the trend three months ago (+2.6%) and not yet at levels that would jeopardize the Federal Reserve’s 2% target for consumer prices.
Reports/dates/facts/links to watch for over the next week:
- August 12: U.S. Treasury monthly budget report (July).
- August 13: Retail sales (July); 10-year Treasury note auction.
- August 14: Weekly unemployment claims; 30-year Treasury bond auction.
- August 15: Industrial production (July); producer price index (July); University of Michigan consumer sentiment index (August); New York Fed Empire State manufacturing survey (August).
Copyright © 2014 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.