Weekly Newsletter July 1st - July 7th

Current Events: With the 4th of July occurring this Wednesday, the U.S. markets will have a shortened week. While the holiday week will reduce volume to a degree, many investors will be actively engaged this week determining if the upward surge experienced Friday across the U.S. indexes is maintainable. Moreover, the unemployment rate announcement on Friday will be sure to draw heavy attention as well.

What to Look for This Week

With the shortened week there will be a scarcity of earnings report announcements. However, the release of reports on U.S. employment Friday will likely peak the interest of investors. While the market has seen a spike in recent days over the improvement of Euro-zone discussions/decisions, poor reports on the status of the U.S. job market can damage recent gains. Since spring hiring has been poor in the U.S. and many are expecting such weakness to carry over into June. Such an outcome could reestablish worries about the health of the economy.

News Affecting the Markets

The positive momentum from announcements that the European Union will establish a single supervisor for the region’s banks and seek to bring down costs in Italy and Spain sparked a monumental boost to the U.S. equity markets on Friday, sending the Dow Jones, Nasdaq, and the S&P 500 all into positive territory for the week. While U.S. economic reports will likely affect the markets towards the later part of the week, buzz over the European Union's decisions last week are certainly expected to spill over into much of the early part of this week as the U.S., as well as the world, has been anxiously awaiting such news for months.

Smart Investing

Trend is Your Friend: While leveraged ETFs are in many ways fairly straightforward products, there are some complexities to these funds that should be understood before investing. Generally, a leveraged ETF will invest in a variety of instruments to amplify the exposure to an underlying index. In addition to equities, leveraged ETFs may use derivatives to gain exposure. Futures allow investors to gain exposure to a benchmark without direct ownership. These products are standardized contracts between two parties that agree to buy or sell an underlying index at a future date. Swaps are customized agreements between two parties to exchange sets of cash flows over a set period of time. In an equity index swap, one party generally agrees to pay cash equal to the total return on an index, while the other agrees to pay a floating interest rate. Leveraged funds are often used to help manage risks in other investments and allow investors to hedge their exposure to sectors they are overweight in. They are also often used to capture returns while eliminating market or sector exposure or to overweight a particular sector by using minimal amounts of cash. Remember, you can never lose more than your initial investment when using leveraged funds. This is in stark contrast to buying on margin or selling stocks short, a process that can cause investors to lose far more than their initial investment.

Earnings for the Week

Monday: Acuity Brands Inc (AYI), Saba Software Inc (SABA)

Tuesday: No major earnings announcements

Wednesday: No major earnings announcements

Thursday: Xyratex Ltd (XRTX) {After the close}

Friday: No major earnings announcements

* Earnings dates and times are subject to change

Economic Data this Week

Monday
ISM Index @ 10:00 AM for June (Est. = 51.5 to 52.2, Prior = 53.5)

Construction Spending @ 10:00 AM for May (Est. = 0.2%, Prior = 0.3%)

Tuesday
Factory Orders @ 10:00 AM for May (Est. = 0.4% to 0.5%, Prior = -0.6%)

Auto Sales @ 2:00 PM for June (Est. = n/a, Prior = 4.7M)

Truck Sales @ 2:00 PM for June (Est. = n/a, Prior = 5.9M)

Wednesday
No announcements scheduled

Thursday
MBA Mortgage Index @ 7:00 AM for 06/30 (Est. = n/a, Prior = -7.1%)

ADP Employment Change @ 8:15 AM for May (Est. = 105K to 110K, Prior = 133K)

Initial Claims @ 8:30 AM for 06/30 (Est. = 385K, Prior = 386K)

Continuing Claims @ 8:30 AM for 06/23 (Est. = 3275K to 3283K, Prior = 3296K)

ISM Services @ 10:00 AM for June (Est. = 53.0, Prior = 53.7)

Crude Oil Inventories @ 11:00 AM for 06/30 (Est. = n/a, Prior = -0.133M)

Friday
Nonfarm Payrolls @ 8:30 AM for June (Est. = 100K, Prior = 69K)

Unemployment Rate @ 8:30 AM for June (Est. = 8.1% to 8.2%, Prior = 8.2%)