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Stock Markets Calmed; Gold Plummets

Market Digest – Week Ending 6/28

Washington was more interesting than Wall Street this week, with meaningful developments in the future of affirmative action, gay rights and immigration. Stock and bond markets were calmed by global central bank leaders’ assurances that tightening conditions and higher short rates are a ways off. Also, China’s central bank signaled it was attempting to end to a cash crunch in the banking system by injecting cash into some institutions. Stocks and bonds finished the week up modestly. Gold continued to plummet.

Weekly Returns:

S&P 500: 1,606 (+0.9%)

MSCI ACWI ex-US: (-0.3%)

US 10 Year Treasury Yield: 2.49% (-0.04%)

Gold: $1,229 (-5.0%)

USD/EUR: $1.301 (-0.9%)

Major Events:

  • Monday – The US Supreme Court avoided a ruling on whether a race-conscious admissions program at the University of Texas at Austin should receive constitutional scrutiny, effectively deferring the issue.
  • Tuesday – The Chinese central bank announced it had injected liquidity into some institutions, eliminating fears the government would be more radical in its attempts to deflate asset bubbles.
  • Tuesday – The S&P/Case-Shiller index of property values increased 12.1 percent from April 2012, the biggest year-over-year gain since March 2006.
  • Tuesday – Bank of England Governor Mervyn King said stimulus will remain in place for the immediate future, attempting to reduce fear about the potential for tighter policies.
  • Wednesday – The Supreme Court dramatically advanced gay rights in rulings that direct the federal government to provide equal treatment to same-sex spouses and allow the resumption of gay marriages in California.
  • Wednesday – US Q1 GDP growth was revised down to 1.8%.
  • Thursday – The Senate approved an immigration bill that would increase border security and provide millions of illegal immigrants a path toward citizenship. The bill is expected to face a difficult test in the House.
  • Friday – Reports indicate that Google is developing a videogame console based on its Android operating system.

Our Take:

Central banks globally made a concerted media effort this week to ease market volatility unleashed by Bernanke’s June 19th announcement that the Fed bond buying program could be reduced in the second half of 2013 and wound down as early as sometime next year.

It seemed to work, as stocks finished the week modestly higher and the bond market stabilized. We believe the bankers are telling the truth and expect stimulus will be removed slowly and cautiously. Whatever the official mandates, central bankers are judged day to day on many things. One of them is capital markets behavior. Another big bear market would not make anyone happy.

The Supreme Court and the Senate were busy this week. As a necessary consequence of the financial crisis in 2008, the government was forced to play a bigger role in all of our lives by inserting itself into our major financial institutions. We generally avoid commenting on political issues, but it was nice to see that there is still desire in various branches of our government to be less heavy handed in general.

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