Weekly Market Recap
July 16, 2012
• The FOMC minutes showed split views on additionalstimulus.• China's 2Q GDP growth fell to 7.6% y-o-y.
• Initial Jobless Claims fell to 350,000.• The trade deficit narrowed to -$48.7bn.• Consumer sentiment fell to 72.0.• Next Week: Retail Sales, CPI, Housing Starts.
Thought of the Week
As the election season approaches, investors’ focus hasshifted to what may happen to tax rates in 2013.Although some believe that higher taxes on dividendswill make dividend-paying stocks less attractive, it isimportant to weigh this against the alternatives. Under areasonable scenario (taxes on dividends go from 15% to20%, top income tax rate on interest rises from 35.0%to 39.6%, Medicare tax rate of 3.8% on both), therelative taxation of stocks and bonds should not changemuch, and as shown in this week’s chart, under thisscenario, the difference between after-tax yields wouldactually narrow. Additionally, although the after-taxdividend yield remains below the after-tax corporatebond yield, the gap is tiny given the possible capitalappreciation that an investment in equities can provide.
Question of the week:
For May, workers began construction on 26% moresingle family homes than a year ago; when was the lasttime yoy increases were this large?
Prior week's question:
The ISM Manufacturing index has begun signalingcontraction, dropping to 49.7 in June; when was the lasttime the index was below 50?
Answer to prior week's question:
The last time the ISM Manufacturing index was signalingcontraction was July 2009.
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12,49212,21812,77212,777Dow Jones 30
3.292.452.242.1510 Year Municipal
2.891.871.551.5010 Year Treasury
0.360.240.270.252 Year Treasury
0.250.250.250.25Fed Funds Target
1.944.73-0.75-0.72MSCI - EAFE
1 week YTD
4.554.073.863.7930 Year Mortgage
0.370.640.490.486 Month CD
79.0376.9479.5379.21¥ per $
1.611.551.551.55$ per £
1.421.301.231.22$ per €
110.291.6318.1614.87Russell 1000 Growth
88.272.6013.9511.41Russell 1000 Value
Wgt AvgMkt Cap(Bill)DividendYieldP/ETrailingP/EForwardIndexCharacteristics
S&P 500 Sector Returns
S & P 5 0 0 T e c h n o l o g y M a t e r i a l s I n d u s t r i a l s C o n s u m e r D i s c r . T e l e c o m E n e r g y C o n s u m e r S t a p l e s H e a l t h C a r e U t i l i t i e s F i n a n c i a l s 1 . 6 1 . 5 1 . 4 1 . 1 0 . 7 0 . 7 - 0 . 4 - 0 . 9 - 1 . 2 - 1 . 7 0 . 2
S & P 5 0 0 E n e r g y M a t e r i a l s I n d u s t r i a l s U t i l i t i e s C o n s u m e r S t a p l e s T e c h n o l o g y H e a l t h C a r e C o n s u m e r D i s c r . F i n a n c i a l s T e l e c o m 1 8 . 3 1 4 . 2 1 2 . 6 1 1 . 3 1 0 . 9 1 0 . 4 5 . 9 4 . 9 4 . 9 - 2 . 0 9 . 1
1 w e e k Y T D
1 w e e k
Y T D
Note: All returns represent total return including dividends.
Chart of the Week
Despite a Possible Change in Taxes, Dividend Payers are Attractive
S&P 500 dividend yield, investment grade corporate bond yield to worst, %
1.8%1.6%2.0%1.8%-0.2%-0.2%-0.5%0.0%0.5%1.0%1.5%2.0%2.5%2012 After-Tax (Top Tax Rates)2013 After-Tax(Potential Top Tax Rates)StocksBondsDifference