Here’s the news of the week – and how we see it here at McAlvany Wealth Management:

Markets Take a Price Check from the Retail Sector

At the start of this week, it looked like the speculators in stocks were off to a good start. The People’s Bank of China had pledged ¥1.O trillion (about $161.0 billion) to the China Development Bank for subsidized housing. Portugal’s Banco Espirito Santo was able to postpone an inevitable bankruptcy once again when it accessed a credit line to pay off its debts. China’s development company Hudatong Road & Bridge Group, which we mentioned here last week,did the same, though the lender’s identity was not disclosed. And US corporate earnings from the likes of Intel, Chipotle, Facebook, Baidu, and Verisign had positive surprises. But a fairly large drop in new home sales (-8.1% in June), relatively flat durable goods orders (.7% in June), and disappointing results from Caterpillar, Amazon, LVMH, and Visa overshadowed the good news. Stocks saw some profit taking, Treasuries and the dollar gained, while the precious metals fell – but none of these developments were dramatic.

MWM 14, 7-25 Box ScoresEven though trade was rather listless this week, stock bulls must be second guessing their hope for a second-half recovery. As we’ve mentioned here before, higher rates have been undermining the consumer’s progress for some time now as home refinancing has come to a grinding halt. The lackluster results emanating from the retail environment are testament to that fact. Consequently, it will be interesting to see if the Fed begins to taper its tapering jargon in next week’s FOMC meeting (July 30th) and also how overvalued and leveraged stocks choose to react. Lag has already begun to form in the momentum behind small cap stocks (i.e. Russell, and NASDAQ Composite), which have come off their highs of late, so we’ll soon see if that trend spreads to large caps or if it’s all just noise.

For precious metals bulls, this week was frustrating. The good news is that gold was found moving inversely to stocks and the optimism surrounding them. Once reality sets in for stocks sometime in the near future, gold should respond positively as a hedge. In any case, gold will need to break meaningfully above the $1,301 level to gain any traction to the upside. There is certainly no shortage of reasons for that to happen. Next week’s GDP, inflation, FOMC, and jobs data may be the deciding factors.

Best Regards,

David Burgess
VP Investment Management