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WrapManager's Investment Policy Committee

The Wrap - Week of August 2nd

Posted by WrapManager's Investment Policy Committee

August 2, 2013

WrapManager’s Weekly Summary of Top Economic and Market News

United States

The Bureau of Economic Analysis released initial second quarter GDP numbers Wednesday, coming in at +1.7%. Since real GDP increased +1.1% in the first quarter, this marked an overall acceleration in the growth rate. The uptick primarily reflected gains in nonresidential fixed investment, exports, a smaller decrease in federal government spending, and an upturn in state and local government spending^[i].
A day before GDP numbers were released, the Federal Reserve issued a statement labeling US economic activity in the first half of the year as “modest.” They pointed to improving labor market conditions as well as stronger activity within the housing sector, but noted that fiscal policy (reduced government spending) is restraining growth. With inflation still in check and economic conditions as they are, the Fed has indicated they will continue with their current monetary stimulus programs^[ii].

President Obama is floating a proposal to cut corporate taxes from 35% down to 28%, while giving manufacturers a preferred rate of 25%. His plan would also include a minimum tax on foreign earnings, as a method of working to avoid corporate tax evasions and curbing international tax havens. The proposed plan is likely to be met by resistance from both parties in Congress, as Democrats are reluctant to lower taxes and Republicans are wary of the new spending proposals that come with the plan. Republicans have also been fairly vocal that any grand deficit reduction deal would need to include structural changes to programs like Medicare and Social Security, which Obama’s proposal does not include^[iii].

Europe

Last week we reported that European PMI (manufacturing data) came in at 50.1, but those figures were revised higher this week to 50.3. Any reading above 50 signals expansionary activity. PMI rose for every country in the euro zone except for Spain, and the 50.3 reading marks a two year high^[iv].

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Money Manager Research

WrapManager’s Weekly Summary of Top Economic and Market News United States US Bankruptcy Judge Steven Roberts ruled Wednesday that Detroit could continue bankruptcy proceedings, allowing city officials to move forward in restructuring some $18 billion of debt, which includes $5.7 billion in unfunded liabilities for healthcare and other retiree benefits and a $3.5 billion pension liability. This marks the largest municipal Chapter 9 filing in US historyi. Earnings season continues in full force, with notable technology giants Apple and Facebook reporting this week. Both companies exceeded expectations, with Apple reporting earnings of $7.47 per share on revenues of $35.3 billion, while analysts estimated it would make $7.32 per share on $35.02 billionii. Facebook widely exceeded earnings estimates due to better than expected revenue on mobile ads. The company reported earnings of 19 cents per share on revenues of $1.81 billion, which outstripped estimates of 14 cents per share on revenue of $1.62 billioniii. Of the 104 companies that have reported earnings as of July 19, 72% of them have exceeded expectations. So far, this is slightly better than last year’s average of 70%, and in line the four year average of 73%iv. Japan Prime Minister Shinzo Abe’s ruling coalition (known as the Liberal Democratic Party, LDP) scored a major victory Sunday in winning enough seats to secure a majority in the upper house. The LDP now has a majority in both chambers of parliament, giving the party greater control to potentially continue aggressive monetary policies that have characterized Japanese politics this yearv. [+] Read More

Navellier - "Bernanke Bounce" Lifted Market to New Highs

July 17, 2013

Louis Navellier looks at Ben Bernanke's comments and their subsequent affect on the markets. "The S&P rose 40 points (+2.96%) last week, reaching a new closing high above 1680. The biggest gain came Thursday, following a series of positive economic indicators and Ben Bernanke’s dramatic change of heart on U.S. monetary policy. This week, second-quarter earnings announcement season will begin in earnest. Currently, analyst expectations for second quarter sales and earnings are so downbeat that any positive surprises will likely result in a continued rise to yet more new market highs." Download Navellier's Full Commentary Here Get Free Research Reports on Navellier & Associates [+] Read More

Roosevelt Investments - Second Quarter Review

July 12, 2013

Roosevelt Investments' All Cap Core Equity Team reviews the second quarter and gives their outlook for the rest of the year. "Equity markets were volatile in the last half of the second quarter, demonstrating investor sensitivity to statements from the Federal Reserve regarding the future of its quantitative easing program. Concerns about Fed policy dominated capital markets in the second quarter, generating volatility in stock and bond prices. Despite some hair-raising moments, U.S. equities ultimately continued their upward trajectory." Download Roosevelt's Full Commentary Here Get Free Research Reports on Roosevelt Investment Group [+] Read More

Navellier & Associates - Great Rotation from Bonds to Stocks

July 3, 2013

Money manager Louis Navellier gives his thoughts on Bernanke's latest statements regarding quantitative easing and the subsequent reactions of the market and economists. "For the first half of 2013, the Dow rose 13.8%, NASDAQ +12.7%, and the S&P 500 +12.6%, marking the best first half since 1999, the last of five consecutive years of double-digit annual gains. Now, with U.S. Treasury bond yields shooting up so rapidly, it appears we’re finally seeing the start of a rotation from bond funds into equity funds, reminding me of a similar situation in 1994 when bond yields rose by 245 basis points, launching the most explosive phase of the 1990s stock bull market. Could it happen again?" Download Navellier's Full Commentary Here Get Free Research Reports on Navellier & Associates [+] Read More

Nuveen Asset Management - The Fed Unintentionally Lays an Egg

June 25, 2013

Nuveen Asset Management's weekly investment commentary reviews the latest talk of winding down the current quantitative easing program by the Federal Reserve. "U.S. equities declined last week as the S&P 500 ended down 2.09%. The S&P suffered the first back-to-back one-day declines of more than 1% since last November. Global equities and bonds were also hit hard, with large sell-offs in emerging market assets, commodities and commodity currencies. Concerns about the fallout from dampened Fed policy accommodation are driving the weakness." Download Nuveen Asset Management's Full Commentary Here Get Free Research Reports on Nuveen Asset Management [+] Read More

Navellier & Associates - Falling Dollar Good for Stocks?

June 17, 2013

Louis Navellier discusses why he believes that a falling dollar is usually good for stocks. "The S&P 500 fell 1% last week, but many foreign stock markets, especially in Asia, were hit harder than that. Japan’s Nikkei plunged 6.4% on Thursday, entering official bear market territory, falling 20% from its May peak. Foreign investors are also unloading U.S. Treasury bonds in record amounts, so it appears that one of the safest havens in the coming months might very well be the U.S. stock market." Download Navellier's Full Commentary Here Get Free Research Reports on Navellier & Associates [+] Read More

Navellier & Associates - Jobs and the Economy Reflect Modest Growth

June 11, 2013

Louis Navellier looks at the most recent jobs report and the value of the dollar, which has finally fallen after rising too far, too fast. "The S&P 500 fell 2.9% from Tuesday to Thursday morning last week before recovering to post a modest 0.8% gain for the week. The market liked the Friday jobs report, even though it was merely “OK” (with 175,000 new jobs). It was a “Goldilocks” figure, according to analysts – neither too hot nor too cold – but the good news for stock market investors is that this and many other signs of slower economic growth will likely encourage the Fed to continue its policy of quantitative easing for the time being." Download Navellier's Full Commentary Here Get Free Research Reports on Navellier & Associates [+] Read More

Navellier & Associates - Watch What Central Bankers Do, Not Just What They Say

May 29, 2013

Louis Navellier opines this week about how political distractions can be good for stocks and looks at the actions of central bankers. The S&P 500 declined a little (-1.07%) last week as nervous investors misinterpreted central bankers’ words rather than watching their actions – i.e., their continued pump-priming to boost economic growth. I oftentimes view these occasional pullbacks as new buying opportunities, especially for some companies that aggressively buy back their existing shares. And now, after a brief Memorial Day pause, the market will likely continue rising, based mostly on improving second quarter sales and earnings trends. Download Navellier's Full Commentary Here Get Free Research Reports on Navellier & Associates [+] Read More

Nuveen Asset Management - Yawn As Equities Advance Another 2%

May 21, 2013

Nuveen Asset Management's Bob Doll writes about the things that keep investors up at night, including unprecedented monetary reflation and interest rate suppression. "U.S. equities advanced again last week, with the S&P 500 increasing 2.1%.1 Global stocks are reaching new highs in this cycle and the U.S. market is at an all-time high. Bonds were hurt in the move, dragging credit down, while commodities fell slightly on weaker manufacturing data. The unrelenting equity rally and an environment without positive news about earnings and the economy is making many investors uncomfortable." Download Nuveen Asset Management's Full Commentary Here Get Free Research Reports on Nuveen Asset Management [+] Read More