Market Recap for Week of 8/3—8/7

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August 7, 2015

It was a disastrous week for Wall Street, as the Dow lost ground every day this week, extending its losing streak to seven days overall! Oil prices, global turmoil and the possibility of an impending interest rate hike all played a role in the Dow shedding almost 2% over the past five days. The benchmark index now stands more than 450 points below its starting point for 2015!

Monday markets plummeted thanks in large part to the first day of trading in Greece since their debt re-structuring. The Athens Stock Exchange fell more than 16%–and took other major world markets down with it. Disappointing manufacturing data, plus a 4% drop in oil to $45 a barrel didn’t help matters, as the Dow dropped 91 points.

Tuesday investors showed concern in a nearly 4% drop in Apple share prices. Factory orders showed a slight increase from June, while the trade deficit increased in July. For the day, the Dow was down 47 points.

Wednesday the market showed a neutral reaction to ADP’s private sector payroll report, but investors were encouraged by comments from Atlanta Fed president Dennis Lockhart, who claimed that a September rate hike was not yet a sure thing. It was a quiet day for the markets, but the losing streak continued as the Dow lost 10 points.

Thursday the slump continued, as major stocks like Viacom and Disney lost upwards of 5%. The slide in oil prices continued, as another 2% drop sent the price down to $44 a barrel. The NASDAQ was especially hard-hit—dropping 2% for the day… but as for the Dow, it dropped 120 points.

Friday the losing streak extended to seven days, after a positive jobs report raised suspicions of a possible rate hike in September. Oil prices continued to tumble, reaching a new low at just under $44 a barrel. It was another day in the red for the Dow, which lost 46 points.

Market Watch: Wall Street’s Losing Streak Continues

By

Phil Cannella

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August 6, 2015

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U.S. stocks were down sharply Thursday, as investors’ worries took control of the market.

Experts believe that the uncertainty over economic growth are pushing the market lower right now. Worse yet, many see little potential for a quick turnaround that would end this losing streak. Tomorrow’s jobs report will be the next important piece of data for Wall Street to digest.

This morning, Viacom dropped almost 10% with Disney sliding nearly 5% to lead the tumble. Tomorrow’s jobs report could go a long way towards determining market direction in both the short- and medium-term. A moderate number, experts reason, could raise doubts about the timing of an interest rate hike. But should the report yield an impressive number, and unemployment falls to 5.2%, a rate hike could be in order for September. Such timing would likely cause greater fear on an already tense Wall Street.

Here are the final numbers from Thursday on Wall Street:

Dow Jones Industrial Average: 17,419.75 (-120.72)

NASDAQ: 5,056.44 (-83.50)

S&P 500: 2,083.56 (-16.28)

Puerto Rico Defaults On Government Debt

By

Phil Cannella

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August 4, 2015

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The financial story of the summer has been trouble overseas—specifically, a debt crisis in Greece and a market crash in China.

But a story developing this week may have the greatest impact on United States markets and citizens.

As of Monday morning, Puerto Rico officially went into default when the island missed a $58 million payment to creditors of its Public Finance Corporation. It’s the latest setback for an economy that continues to struggle amidst high levels of unemployment, causing thousands of Puerto Ricans to leave the island in search of work on the U.S. mainland.

The missed payment itself is not altogether surprising—after all, Puerto Rico’s own governor, Alejandro Garcia Padilla, recently described the territory’s economic crisis as a ‘death spiral.’ But the circumstances and potential fallout could have lasting effects on American investors.

Choosing Whom To Pay

While the missed payment of $58 million made headlines Monday, here’s the rest of the story: in total, Puerto Rico had $483 million in debt payments due Monday to various institutions and corporations. The government was able to pay all but the $58 million due to the Public Finance Corporation (PFC)—a group made up of credit unions and ordinary Puerto Rican citizens.

The Puerto Rican government made a strategic decision to pay all of its debt except for the money owed to the PFC because the entities that own the PFC debt have little legal power to fight back in court.

“The PFC debt is a small amount,” said Cate Long, founder of Puerto Rico Clearinghouse, a research firm focused on Puerto Rican debt. “It has very weak legal protection, and it’s owned by people who are unlikely, necessarily, to sue the government.”

But the debts owed to Wall Street hedge funds—institutions with considerably more financial backing and legal clout—were paid on time.

The government’s strategy is the latest slap in the face to Puerto Rican citizens suffering through an unemployment rate approaching 15%, as well as exorbitantly high taxes and an historically bad drought. Since 2010, an average of 48,000 Puerto Ricans have fled the island for the U.S. mainland—a number that appears far more significant when you consider the island’s total population is only 3.5 million.

The Role of The U. S.

Governor Padilla has pledged to lead a re-structuring of Puerto Rican debt by the fall. In order to accomplish this, his first move was to ask Congress for Chapter 9 bankruptcy rights—a perk enjoyed by all U.S. states, towns and municipalities (but not by territories.)

The reason places like Detroit were allowed to file for bankruptcy is that the state of Michigan, for example, enjoys Chapter 9 bankruptcy protection. Puerto Rico does not enjoy such rights, and it’s unlikely that they will at any point.

All of these details are crucial to U.S. investors because of their potential exposure to Puerto Rican debt. According to Morningstar, more than half of U.S. municipal bond funds hold some degree of exposure to Puerto Rican debt. Analyst Beth Foos of Morningstar added that about $11.4 billion—about 15% of Puerto Rico’s total indebtedness—is housed within such funds.

Meanwhile, Puerto Rico stands where Greece did a month ago—in default. No bailout seems likely. So while Governor Padilla and other officials continue to work towards a solution or restructuring, only one thing appears certain.

“This is the first in what we believe will be broad defaults on commonwealth debt,” summarized Emily Raimes of Moody’s Investors Service.

Market Watch: Wall Street Eyes Oil Prices

By

Phil Cannella

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August 4, 2015

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U.S. stocks were even on Tuesday, as investors kept a wary eye on oil prices that continued their July plummet on the first day of August.

Throughout the month of July, oil prices fell 21%. They added another 4% to that drop before stabilizing this morning. Oil is currently trading around $46 a barrel.

Elsewhere, investors showed concern over a 3% drop in shares of Apple—the single stock most experts believe affects the market more than any other.

June factory orders showed an increase of 1.8%, another piece of data in a busy week for numbers. The highlight will come on Friday, when the July labor report is released.

Here are the final numbers from Tuesday on Wall Street:

Dow Jones Industrial Average: 17,550.69 (-47.51)

NASDAQ: 5,105.55 (-9.84)

S&P 500: 2,093.32 (-4.72)

Market Recap For Week of 7/27—7/31

By

Phil Cannella

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July 31, 2015

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Coming off its worst week in months, the Dow attempted to recover this week… but those efforts were undone by more weak economic data. The Federal Reserve still won’t commit to an interest rate hike, and as we reach the end of July, the Dow is still underwater for 2015!

Monday the market continued its recent losing streak, as the downturn in China worsened. The Shanghai Index fell 8.5 % overnight, bringing its total losses close to 30% in the last six weeks! Fallout was felt around the globe, including here in the United States where the Dow fell 127 points.

Tuesday the markets reversed course early in the day, as fears over China eased temporarily. The bad news came from the domestic side, where the Consumer Confidence index for July badly missed expectations—coming in at a 90 rating rather than the expected 100. Nonetheless, the market broke its’ five-day losing streak as the Dow gained 189 points.

Wednesday was dominated by the conclusion of the Federal Open Market Committee’s two day-meeting—but the event came and went with no news on a rate hike. Positive earnings reports, however, helped push the markets forward for a second straight day. The Dow gained 121 points.

Thursday the market started lower after GDP numbers for the second quarter came in at a disappointing 2.3% growth—experts had expected a number close to 2.6%. Proctor & Gamble’s poor earnings reports weighed on the Dow as well. All in all, however, Thursday was a quiet day as the Dow fell by 5 points.

Friday the market struggled based on disappointing employment data. The employment cost index rose only 0.2 percent, missing expectations of a 0.6 percent rise. Oil lost another $2 per barrel, totaling a loss of 21% over the month of July. All together, it was enough to send the Dow down 56 points.

Understanding the Chinese Stock Market Crash

By

Phil Cannella

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July 31, 2015

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If you tried to describe 2015 on Wall Street to this point, the best word might be ‘volatility.’ We’re not even at the end of July, and the Dow Jones Index has already fluctuated between positive and negative year-to-date numbers 21 times—an all-time record.

But as inconsistent as the American markets have been, their counterparts in China have seen a similar phenomenon, but to a much greater degree. As of this week, investors and government officials are running scared over the world’s 2^nd-largest economy. Here’s why:

Over the past decade or so, despite the country’s rapidly-growing economy, the Chinese stock market was a source of disappointment to market experts around the world. That all changed approximately one year ago, when retail investors—ordinary Chinese citizens, as compared to investment banks—started pumping money into the market to buy up stocks, even though economic reports and corporate profits were weakening.

The effects were immediate. By June of this year, the Shanghai Index—China’s main stock index—rose more than 150% to an all-time high of 5,178 (for the sake of comparison, the index stood at 2,048 exactly one year earlier.) Meanwhile, retail investors continued borrowing cash to purchase more stock. But the economic reports weren’t getting any better.

All of this action created a classic bubble, and on June 12 of this year that bubble burst. In the first week, after the bubble burst, the Shanghai Index fell nearly 700 points (almost 15% of its’ total value.)

That type of crash would set off some panic in any stock market, but in a market populated almost entirely by retail investors, the effects were magnified. Investors began selling off huge portions of their portfolios to pay back the borrowed money and cover their losses. As a result, the market fell even further—losing more than 20% of its total value by the end of June.

That’s when the Chinese government swooped in to try to save the day. They took familiar measures such as cutting interest rates, but also made moves unprecedented in other major global markets, including:

Banning company executives who held more than 5% of a stock from selling shares
Suspending IPOs (initial public offerings) indefinitely
Launching an investigation into short selling (in China, only approved brokers can ‘short’ a stock, or invest in hopes that an equity’s price decreases).

These measures helped stem the tide—until this Monday, when the Shanghai Index fell 8.5%—its worst single day performance yet. The index currently stands at 3,707—28.5% lower than its all-time high attained just weeks ago—and you’d be hard-pressed to find an expert who believes the market has reached bottom.

Now, an increasingly panicked government has turned to their state-operated media outlets in an attempt to reassure the public—and market investors in particular.

What lessons can American investors take from the Chinese crisis? It’s impossible to say when the market will turn south in our country, but the situation in China proves that margin debt can turn a bad situation disastrous almost overnight. And remember, China’s market rise-and-fall unfolded in just one calendar year. In the United States, six years of record highs on the market have led to margin debt in excess of $500 billion. If that bubble bursts, the Chinese crisis will serve only as a starting point for what may follow.

Market Watch: Stocks Waver After GDP Updates

By

Phil Cannella

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July 30, 2015

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U.S. stocks were flat on Thursday, as investors considered the latest GDP figures from the Commerce Department.

First-quarter GDP was revised to a figure of 0.6% growth—up from the previous reading of-0.2%. However, the widely-promised 2^nd-quarter recovery did not come to fruition, as the number came in at 2.3% growth—falling short of expectations of a 2.6% growth figure.

Mixed earnings results from proctor & Gamble as well as Cigna contributed to the lackluster start to the day. Weekly jobless claims came in at 267,000, an increase of 12,000 claims from last week’s figure.

Yesterday, the Federal Reserve left interest rates unchanged in what many hoped would provide the highlight of the week on Wall Street. The consensus among most experts remains September for the first interest rate hike in 10 years.

Here are the final numbers from Thursday on Wall Street:

Dow Jones Industrial Average: 17,745.98 (-5.41)

NASDAQ: 5,128.79 (+17.05)

S&P 500: 2,108.63 (+0.06)

Market Watch: Federal Reserve Wraps Up Two-Day Meeting

By

Phil Cannella

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July 29, 2015

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U.S. stocks were slightly higher on Wednesday, as investors awaited the summary from this week’s meeting of the Federal Open Market Committee.

While Chairperson Janet Yellen is not expected to speak at the meeting’s conclusion, further clues are expected as to the timing of an interest rate hike. Most experts believe a rate hike during 2015 is a foregone conclusion; it’s just a matter of whether it occurs sooner or later.

Data releases revealed a nearly 2% drop in pending home sales during the month of June. Earnings reports will continue after the closing bell today, with Facebook, Samsung, Whole Foods and Marriott scheduled to file reports.

Here are the final numbers from Wednesday on Wall Street:

Dow Jones Industrial Average: 17,751.39 (+121.12)

NASDAQ: 5,111.73 (+22.53)

S&P 500: 2,108.57 (+15.32)

Market Watch: Wall Street Finally Stops Losing Streak

By

Phil Cannella

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July 28, 2015

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U.S. stocks were higher on Tuesday, as Wall Street broke its longest losing streak of 2015.

All three major indices (Dow, NASDAQ, S&P 500) have finished in the red for five consecutive days, shedding anywhere from 2.5%-4% in that time. Investors hoping to stop the bleeding turned their attention to oil prices, which bounced back over $48 per barrel today.

Meanwhile, the Federal Reserve committee kicked off its two-day meeting. Many are hoping for further guidance on the timing of the first interest rate hike in almost 10 years.

The day didn’t pass without discouraging data, however. The Consumer Confidence Index read only 90.9 for July—a drop of 9 points from June, and far below the expected reading of 100.

Here are the final numbers from Tuesday on Wall Street:

Dow Jones Industrial Average: 17,630.27 (+189.68)

NASDAQ: 5,089.21 (+49.43)

S&P 500: 2,093.25 (+25.61)

Market Watch: Chinese Stocks Tumble Again

By

Phil Cannella

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July 27, 2015

0

U.S. stocks were lower in Monday trading, as investors reacted to the news of the latest downturn in the Chinese markets.

It’s been an ugly summer for Asian equities, and that’s been most evident in China. The Shanghai Index—China’s largest—has fallen a total of 28% since reaching its all-time high on June 12. Monday’s fall of 345 points equaled a total of 8.5%, the largest single-day drop during this downturn.

The fallout carried over to Europe, where major indices were down as much as 2% on Monday. Major companies reported earnings while warning of fallout from the Chinese struggles.

Domestically, the main focus of the week will be the two-day Federal Reserve meeting on Tuesday and Wednesday. After the meeting’s conclusion on Wednesday, investors hope to finally get word on whether interest rates will change in September.

Here are the final numbers from Wall Street on Monday:

Dow Jones Industrial Average: 17,440.59 (-127.94)

NASDAQ: 5,039.78 (-48.85)

S&P 500: 2,067.64 (-12.01)

Market Recap for Week of 8/3—8/7

Market Watch: Wall Street’s Losing Streak Continues

Puerto Rico Defaults On Government Debt

Market Watch: Wall Street Eyes Oil Prices

Market Recap For Week of 7/27—7/31

Understanding the Chinese Stock Market Crash

Market Watch: Stocks Waver After GDP Updates

Market Watch: Federal Reserve Wraps Up Two-Day Meeting

Market Watch: Wall Street Finally Stops Losing Streak

Market Watch: Chinese Stocks Tumble Again

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