Recap: Week Ending July 12, 2013
Once again US stocks rose on the week, however, unlike last week stock indexes closed at new highs. Stocks around the globe continue to rebound off a small sell off seen in June. It appears that stocks have come back twice as strong in this shorter duration rally than they did prior to the small sell off. During the week, we heard the minutes from the FOMC – Federal Open Markets Committee. Through the minutes it was understood that the economy is improving as a steady rate, however, slowing down QE, Quantities Easing, is not justifiable at this time. Even though the US may be in a position to slowly end such a program, other global nations are not in such a state. If the US moves to fast in raising rates, the global recovery will definitely be hampered. The current state of US interest rates has also allowed many investors to benefit from low borrowing costs. As the market continues to be pushed with “cheap money”, many are led to wonder is there a possible bubble in play. When interest rates rise the market will drop, the question is how large will the drop be. It is also interesting to note that gold has since recovered from its extreme low which was seen in prior weeks. Such a low was supported by economic news of continued stimulus, which is still attempting to kick start inflation once again. Along with gold, oil continued to push higher due to political uncertainty in Egypt. It appears that the situation has since cooled off; however, anything can spark at a moments notice creating uncertainty in the energy markets. Prices of oil spiked as Egypt’s relation to the Suez Cannel and their control over the inflow and out flow of it, i.e.| oil. Any stoppage in the flow of goods through the cannel will have serious implications for the price of oil.
This past week JP Morgan reported earnings. Earnings from the US bank were up 32% in the second quarter. Even though interest rates have sat at their lowest levels in decades, banks are still able to profit. JP credits the pop in earnings from a reduction in loan losses and expenses. With such an optimistic earnings result, JP is only expected to excel once the economy becomes more stable, and interest rates rise. The most positive news out of the release was the reduction in loan losses; this indicates that many clients receiving loans are in better economic shape. JP also cited that customer deposits were up 10% versus this time last year, and credit card sales were also at a record level of $105.2 billion, which is up 10% also. If other banks report similar results as JP Morgan, the economy may be in better shape than most economists believe it to be.