AdvisorShares Weekly Market Review
Highlights of the Prior week
For the week of July 8 – July 12
The market increased again last week and both the S&P 500 and the Dow Jones Industrial Average reached record highs by the end of the week. The Nasdaq Composite Index also rose significantly, hitting a 12 year high. Part of the rise was due to the beginning of the second quarter earnings releases but a more substantial factor was dovish comments from Fed Chairman, Ben Bernanke. The comments came as Bernanke spoke to a meeting of economists after the markets were already closed on Wednesday. In his comments, he suggested that the Federal Reserve would have to continue with a “highly accommodative monetary policy for the foreseeable future”. Reasons he gave for supporting a more aggressive policy were low inflation rates, the high unemployment rate and recent fiscal cuts that will dampen economic growth. Markets surged on Thursday, since his comments had assuaged investors’ fear of an imminent tightening in monetary policy. Numbers released during the week also suggest that the economy remained weak enough to justify further stimulus. Initial jobless claims increased to 360,000 and preliminary consumer sentiment fell to 83.9. While the Producer Price Index rose by 0.8% in June, import prices fell 0.2% in the same month.
The comments from the Fed also drove prices high in all areas of the bond market. Treasuries, investment-grade corporate debt, and high yield corporate debt all traded up for the week as more bond investors became convinced that short term interest rates would not spike. A recent rash of redemptions from high yield bond funds came to an end for the time being and demand for municipal bonds rose as their yields became more attractive after the recent pullback. In terms of emerging market debt, Moody’s increased its rating on Columbia’s sovereign debt last week and the Brazilian central bank increased interest rates in attempt to tame uncomfortably high inflation in the country.