April 21, 2014
Economic themes: Earnings Season, Housing, Industrial Production, CPI.
- Earnings Season: 70% of the S&P 500 companies that have reported earnings this quarter have beaten profit forecasts, with value companies starting to outpace the rate of return of growth companies, as investors have been taking profits in some of the higher growth stocks, reinvesting in companies with relatively favorable fundamentals. Ukraine continues to contribute to potential volatility, and the U.S. is threatening further economic sanctions. Vladimir Putin does not seem scared.
- Housing: Housing starts increased 2.8% in March to a 946k pace, slightly below a forecast of 965k, with permits falling 2.4% to a 990k pace. The figures were dragged down by the multifamily component, though the single family component came in stronger than expected.
- Industrial Production: The figure increased by 0.7% in March, above expectations of a 0.4% increase, led by utilities, though held back by manufacturing. Industrial production continues to recover from the winter storms, though at a rather modest pace.
- CPI: The Consumer Price Index is beginning to show hints of inflation, as the index increased by 0.2% in March, above expectations of a 0.1% increase, and is up 1.5% over the past year, still notably below the Fed’s preferred level. Increases were seen in shelter, food, medical care, apparel, vehicles, and airfare, with declines seen in energy, and household furnishings.
- Economic highlights for the week ahead:
o Tuesday, 4/22/2014: Existing Home Sales.
o Wednesday, 4/23/2014: New Home Sales.
o Thursday, 4/24/2014: Durable Goods Orders, Jobless Claims.
o Friday, 4/25/2014: Consumer Sentiment.
Municipal market themes: Daughters of Charity, Bell, Cudahy.
- Daughters of Charity: S&P downgraded the Daughters of Charity Health System to ‘B-’ from ‘BBB-’ with a negative outlook, citing growing operating losses, weak reserves, and unsuccessful merger attempts. The negative outlook reflects the potential for further unsuccessful merger efforts.
- Bell: The former City Manager of Bell, CA, Robert Rizzo was sentenced to 12 years in prison, and ordered to pay $8.8 million in restitution for his role in abusing and wasting public funds. Additionally, Rizzo also received a 33-month prison sentence for tax fraud.
- Cudahy: In a recent audit by State Controller Johnny Chiang’s office, it was found that Cudahy officials misused public funds for travel, vacation, and meals, while mismanaging contracts and state grant funds. The Controller ordered the City to return $22.7 million to the successor agency.
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