Weekly Market Update: 30 July 2010

The Economy

• Global economic data continued to reflect slower growth than previously anticipated, even though corporate earnings reports were generally better than expected. This environment confirms our view that the global economy will likely experience sluggish growth that will vary in intensity from region to region.
• The Federal Reserve’s Beige Book report confirmed that growth in the U.S. is still progressing but looks weaker than it was earlier in the year.
• U.S. gross domestic product for the second quarter was 2.4%, lower than consensus estimates of 2.6%.
• U.S. durable-goods orders fell in June for the second consecutive month, suggesting a slowdown in manufacturing activity.
• New-home sales in the U.S. grew more than expected during the month of June, and home prices (as measured by the S&P Case-Shiller Index) increased in May.
• U.S. initial jobless claims fell for the week ending July 24, but continuing claims increased.
• The European Central Bank reported that European banks tightened their credit standards for businesses and households during the second quarter.

Economic Calendar

• The Institute for Supply Management’s (ISM’s) Manufacturing Index and construction spending will be released August 2.
• Personal income, personal spending, core personal consumption expenditures, factory orders, pending home sales and vehicle sales will be released August 3.
• ADP’s employment change report and ISM’s Non-Manufacturing Index will be released August 4.
• Initial jobless claims and continuing claims will be released August 5.
• The unemployment rate and the change in nonfarm payrolls will be released August 6.

Stocks 

• Investors lacked confidence after U.S. economic growth was weaker than expected, but global equity markets gained.
• In the U.S., value stocks outperformed their growth counterparts, and small-company stocks outperformed their large-company brethren. Information Technology performed best, while Telecommunications performed worst.
• In the U.K., Financials and Utilities performed best, while Industrials and Consumer Staples lagged.
• In Europe, Financials, Telecommunications and Utilities outperformed the broader market, while Consumer Staples, Information Technology and Materials were the biggest losers.

Bonds

• Global bond markets were slightly positive, with corporate bonds faring best due to second-quarter corporate earnings releases, which have been better than anticipated so far.
• Government bond prices rose as well, buoyed by weaker economic data and worries about a return to a global recession.
• High-yield bonds and emerging-market debt underperformed both investment-grade corporate bonds and government debt, as investors remained cautious.  

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