A choppy summer may be ahead
The first half of 2013 packed a memorable rally. After a rough couple of months, we could see another rise, but that will depend on several things going right.
The Dow Jones Industrials ($INDU) gained 13.8% in the first half of the year -- its best first-half performance since 1999, but it fell 1.4% in June, its first monthly decline since November.
What will come next may be a choppy couple of months and -- one hopes -- a decent rally into the end of the year.
It's a forecast that depends on several things going right: Decent performances by the housing and auto industries in this country and, perhaps more important, evidence that China's economy isn't stalling.
Last, investors need to come to grips with the probability that interest rates will move higher -- but not until after 2014.
The volatility of the last six weeks came from investors trying to understand how to put numbers to where the Federal Reserve is headed. Fed Chairman Ben Bernanke freaked investors when he said the central bank will probably start to wind down its big bond purchases over the next year. But markets read: "Oh my gosh, rates are going up!"
Rates did rise until this past week -- when the 10-year Treasury yield ended at 2.478%, down from 2.514% from a week earlier. One cause for the drift was the Fed explaining again and again that rates won't go up until the data -- especially job numbers -- get better. The other was a lessening of unease that China's credit markets might be imploding.
So the result was this:
The Dow ended Friday with a 115-point loss to 14,910, but the blue chips did end a choppy week up 0.7%. The Standard & Poor's 500 Index ($INX) fell 7 points to 1,606 but gained 0.9% for the week. The Nasdaq Composite Index ($COMPX) gained one point on the day, ending the week up 1.4%.
In addition to the Dow's loss for the month, the S&P 500 and Nasdaq were each down 1.5%. For the quarter, the Dow gained 2.3%, with the S&P 500 up 2.4%. The Nasdaq was up 4.2%.
And here are the money points: Not only is the Dow up 13.8% for the year, the S&P 500 is is still sporting a 12.6% gain, its best first half since a 16.8% gain in 1998. The Nasdaq remains 12.7% higher this year, its best first half since 2009. (Note: An earlier version of this post incorrectly stated that the S&P's first-half gain was the best since 2003.)
And then there was gold (-GC). During trading on Thursday and Friday, the price of the metal plunged below $1,200 an ounce for the first time since August 2010. While the price settled at $1,223.80 on Friday, gold was down nearly 12% for the week and month, 23.3% for the second quarter and 27% for the year.
The cause was not lower demand in India and China. The reason was that investors, who had bought into gold when it crossed, say, $1,500 an ounce, found no reason to stay in the metal or in the exchange-traded funds based on gold. So they sold -- or their bankers and brokers forced them to sell.
It is, dare we say it, a lot of like what happened to shares of Apple (AAPL) after they peaked. Once the downtrend became apparent, there wasn't much to stop it. Apple shares have fallen nearly 44% since last September.
Bond investors have had an uncomfortable time as well, as the 10-year Treasury yield moved up from 1.82% at the end of March to 2.478% on Friday. The iShares Barclays 20+ year Treasury bond exchange-traded fund (TLT) fell 11% between May 1 and Friday.
Eighteen of the 30 Dow stocks were down in June. IBM (IBM) was the worst performer, down 8%. IBM was also the worst Dow performer in the first half, down 10.4%. That may reflect global uncertainties as well as how much government business may be available with budget cuts setting in.
Health insurer UnitedHealth (UNH) was the top Dow stock in June, up 4.6%, while Microsoft (MSFT) was the top performer in the second quarter, up 20.8%. (Microsoft owns and publishes Top Stocks, an MSN Money site.) For the year, the leader is still Hewlett-Packard (HPQ), up 74%.
Best Buy (BBY) and Netflix (NFLX) were the top S&P 500 performers for the first half, up 131% and 128% respectively. The laggards were pharmaceutical maker AbbVie (ABBV), iron-ore producer Cliffs Natural Resources (CLF) and coal-producer Peabody Energy (BTU). Gamestop (GME) and Micron Technology (MU) were the top June performers, with Peabody Energy and data-storage company Iron Mountain (IRM) the laggards.
Netflix was the top Nasdaq-100 ($NDX) performer in the first half, followed by Micron. Gold producer Randgold Resources (GOLD) and network developer F5 Networks (FFIV) and Apple were the laggards
For June, the winners were Micron and Monster Beverage (MNST). The laggards were F5 Networks, Sears Holdings (SHLD) and Randgold.
Markets will close on Thursday for the July 4 holiday. There is one earnings report of note: Constellation Brands (STZ) on Tuesday.
But there are several very important economic reports.
The biggest is the jobs report due before the market opens on Friday. The consensus is for 165,000 jobs payroll jobs created with the unemployment rate holding at 7.5%. A big miss to the downside will probably set off a big loss.
Next are auto sales, due Tuesday. Edmunds.com sees June sales coming in at a seasonally adjusted rate of 15.5 million units.
And the Institute for Supply Management will issue its June manufacturing report. It's expected to show a little growth.
|Markets for the week|
|June 21||June 14||% chg.||YTD chg.|
|U.S. Dollar Index||83.38||82.52||1.04%||4.39%|
|10-yr. Treasury yield||2.48%||2.51%||-1.43%||41.12%|
|(per troy ounce)|
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Consumers are very status conscious in Asia, Africa and other emerging-market areas. This is especially true in China.
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