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July 9, 2013 : June Jobs Report Sparks Rally
July 9, 2013
Markets roared back to life last week as investors digested an upbeat June jobs report and decided that things were looking up for the U.S. economy. For the week, the S&P 500 gained 1.59%, the Dow increased 1.52%, and the Nasdaq grew a healthy 2.24%.
The monthly labor market report was the highlight of the shortened holiday week, and investors responded positively to the optimistic data.
In June, the U.S. economy added 195,000 jobs, easily beating the consensus estimate of 165,000. Revised data for April and May also confirms that the labor market has been improving for three straight months. While the unemployment rate remained unchanged at 7.6%, a Moody's Analytics report stated that the current rate of job growth should lower the unemployment rate by a half percentage point per year, meaning the economy might achieve the Fed's target rate of 6.5% by 2015.
The positive labor report also added some volatility into the mix as investors became increasingly convinced that the Fed might start tapering its bond purchases after the September FOMC meeting. In the second quarter, job growth averaged 196,333 per month, well in line with the 200,000 jobs that economists say the Fed would like to see each month. Taken with all the other upbeat reports on housing, manufacturing, and consumer spending, a September trigger on tapering seems more likely.
Looking at the week to come, we can expect investor attention to be riveted to the FOMC minutes from the last meeting and Ben Bernanke's follow-up speech on Wednesday. While the meeting announcement, released on the day of the FOMC meeting in June, showed no policy changes, analysts will be pouring over the minutes for clues about future policy changes and taking the temperature of Fed opinions about the economy. The stock market has been in an odd place in the past weeks as investors responded nervously to news of future Fed policy changes. However, the market rally last week shows that investors are still willing to see the bright side to an improving economy. Although we don't place too much faith in technical indicators, the S&P 500 finished out the week above its 50-day moving average, a signal that has sometimes heralded a rally in the days or weeks to follow. Although we can certainly expect additional bumps in the road ahead, we can hope for a strong third quarter market performance.
Wednesday: EIA Petroleum Status Report, FOMC Minutes, Ben Bernanke Speaks 4:10 PM ET
Thursday: Jobless Claims, Import and Export Prices
Friday: Producer Price Index, Consumer Sentiment
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
Small business hiring edges downward. In sharp contrast to broader hiring trends, a National Federation of Independent Business report said that small business hiring dropped by 0.09 workers per business in June, following a drop of 0.04 in May. The report suggested that small businesses are still struggling with challenging economic conditions.
U.S trade deficit widens. The trade deficit, the difference between aggregate imports and exports, widened sharply in May as the U.S. increased imports from abroad and reduced global demand pushed exports lower. The trade gap grew by more than 12%, the largest month-to-month increase in two years.
Mortgage rates rising. Expectations that the Fed will reduce its economic stimulus activities caused mortgage rates to rise, cutting into housing demand. According to an industry report, interest rates surged to an average of 4.58% on 30-year fixed-rate mortgages, the highest rates since July 2011. Rising rates may reduce home buying and refinancing activity.
Oil prices reach 13-month high. Oil prices surged to $103.22 per barrel, the highest price since May 2012, driven by anxiety over the military coup in Egypt. Though Egypt produces a negligible amount of oil itself, the Suez Canal, a major shipping thoroughfare between the Red Sea and the Mediterranean, passes through the North African nation.
"Imagination is more important than knowledge."
- Albert Einstein
Pasta with Sausage and Red Bell Pepper
Pair with a simple salad for a healthful mid-week meal. Recipe from RealSimple.com.
1 pound dried pasta
1/2 cup plus 1 tablespoon extra-virgin olive oil
1 pound Italian sausage, casings removed
1 large red bell pepper (cut into 1/2-inch pieces)
3 cloves garlic, minced
1/2 teaspoon crushed red pepper flakes
1 1/4 teaspoons kosher salt
1 cup fresh flat-leaf parsley, roughly chopped
1) Cook the pasta according to package directions. Reserve 1/4 cup of the cooking water, drain the pasta, and return it to the pot.
2) Meanwhile, heat 1 tablespoon of the olive oil in a skillet over medium-high heat. Add the sausage and cook, crumbling with the back of a wooden spoon, until it's browned and cooked through, about 10 minutes. Transfer to a plate.
3) Wipe out the skillet and heat the remaining 1/2 cup of oil over medium heat. Add the bell pepper and cook, stirring occasionally, until tender, 3 to 4 minutes. Add the garlic and cooked sausage and cook, stirring, for 30 seconds.
4) Add the pasta water, red pepper, salt, and parsley and bring to a boil. Toss with the cooked pasta.
Deduct Student Loan Interest Paid by Mom & Dad
It used to be that if parents paid back a student loan incurred by a child, no one got a tax break because the IRS required the taxpayer to be both liable for the debt and to pay it himself or herself. However, now there's an exception; if parents pay off a student loan, a child who is not claimed as a dependent can qualify to deduct up to $2,500 of the student loan interest paid by Mom and Dad. Parents of a dependent child may be able to deduct interest payments on loans taken out solely for "qualified higher education expenses." For more information, see "Can You Claim the Deduction?" in the Student Loans chapter of IRS Publication 970: Tax Benefits for Higher Education.
Learn Proper Tempo with the Takeaway Drill
Good tempo in the golf swing is extremely important and the first few feet of your take-away should be the slowest part of your swing. Initially, many new golfers quickly jerk the club back, resulting in poor tempo through the backswing and ultimately back to the ball. To learn the proper pace for a good take-away, set up to a golf ball with a long iron (preferably 6-4 iron). Then place another golf ball directly behind the club head. Take your normal backswing and notice how far back that second ball rolls. It should only roll a few feet. If the ball catches air or catapults back more than a mere few feet, you have started your backswing too quickly. Once you have learned to incorporate a slow, smooth start to your backswing, you will immediately see the benefits throughout the rest of the swing, most importantly at impact. Source: PGA Golf Fundamentals
Know Your Cholesterol Numbers
National health guidelines recommend that everyone over age 20 have a blood test to determine cholesterol levels. Those who are concerned about their cholesterol levels should have a blood test at least annually. The test results should include levels for total cholesterol, LDL, HDL, and triglycerides. A healthy total cholesterol level is 200 mg/dL or lower. For LDL cholesterol, it is 100 mg/dL or lower. For HDL cholesterol, it is 60 mg/dL or higher. For triglycerides, it is 150 mg/dL or lower.
A Simple Toilet Fix
Many modern toilets are now designed to conserve water by reducing the amount used in each flush. However, if you still have old-style toilets in your home (those that use 3.5 gallons or more for each flush), there's a simple way to retrofit them to save water. Fill a one-quart plastic bottle (such as a milk bottle) with water for each toilet and submerge the bottle in the top of the toilet tank. You will save one quart per flush and thousands of gallons per year.
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Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Diversification does not guarantee profit nor is it guaranteed to protect assets.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
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Past performance does not guarantee future results.
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