June 9, 2014
Economic themes: Equities, Employment, International Trade
- Equities: The Dow Jones Industrial Average and the S&P 500 continue to hit new highs and the S&P is only 2.5% away from breaching 2,000. The volatility index closed at 10.73 on Friday, falling 8% on the day, representing a seven year low. U.S. treasuries are trading 72 basis points cheaper relative to a basket of G7 counterparts, the widest in four years. Cheap money via Fed policy, matched with sustained moderate employment growth and modest inflation, has helped fuel the current price levels in equity, fixed income, and housing. The Fed has not increased interest rates since 2006, though Federal Funds futures contracts imply that could happen around June 2015.
- Employment: Nonfarm payrolls increased by 217k in May, above a forecast of a 213k increase and the unemployment rate held at 6.3%. The workforce gained 192k participants, the long term unemployed fell to 34.6%, the lowest since August 2009 and the underemployed fell to 12.2%, the lowest since October 2008. Job growth is continuing at a moderate pace, though not nearly fast enough to accelerate the Fed’s tapering.
- International Trade: The trade deficit expanded 7% to $47.2 billion in April, due to both a decline in exports and an increase in imports. The weak report could be viewed as a negative for both U.S. factory data and GDP growth, as demand for U.S. goods among weak foreign economies could be declining.
- Economic highlights for the week ahead:
o Thursday, 6/12/2014: Jobless Claims, Retail Sales.
o Friday, 6/13/2014: PPI, Consumer Sentiment.
Municipal market themes: Elections, Stockton
- Elections: California voters approved 35 of 44 education related bond measures in the June elections, scheduled to amount to approximately $2.4 billion in new bond measures. Likewise, San Francisco voters approved a $400 million bond authorization to finance improvements to government buildings including police and fire facilities.
- Stockton: U.S. Bankruptcy Judge Christopher Klein scheduled another hearing for July 5th, after the confirmation hearing for the City of Stockton was supposed to be concluded last week. Franklin Advisors, the only creditor the city has failed to reach an agreement with, continues to challenge the city’s offer of $350k on a $35 million loan, under the basis that they are being discriminated against and not treated fairly in relation to other creditors. Pension obligations, which have come under fire in the case, remain unimpaired under the current plan.
This report is prepared for informational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or service. Market prices and other data may be obtained from outside sources and is not warranted as to completeness or accuracy. Any comments, statements and/or recommendations made herein are subject to change without notice, and may not necessarily reflect those of Alamo Capital. Past performance does not guarantee future results. Alamo Capital has no affiliation with any political party. Investing involves risk. Consult with a Financial Professional for additional information to determine the suitability of this or any other financial product or issue as it relates to your particular situation.