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Weekly market recap: Fireworks as the Dow exceeds 17k

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For the week ending July 5, 2014, the Dow closed above 17,000 for the first time on Thursday (a holiday shortened week). Fireworks started a day early as all major indices closed at their highest levels as both the Jobs Report and Unemployment Rate exceeded expectations.

The Dow reached historic levels today, closing at 17,068 after advancing 92.02 points on excellent economic news. With this latest move, the Dow is up over 3 percent for this year, and over 14 percent for the last 12 months. It only took 153 trading days for the Dow to go from 16,000 to 17,000; the seventh fastest 1,000 point gain in the Dow's history. The S&P 500 (1,985), Nasdaq Composite (4,486), and the Russell 2000 (1,208) also posted record high levels.

Better than expected economic news indicates that the economy is improving, albeit slowly. The labor market is gaining momentum as total non-farm jobs grew by 288,000 (211,000 expected) in June (262,000 private sector; 26,000 public sector). And the Unemployment Rate dropped to a surprising 6.1 percent (6.3 percent expected).

A benchmark for economic growth is Motor Vehicle Sales. Mazda (16.5 percent), Chrysler (9 percent), Nissan (5.3 percent), Subaru (5 percent), Hyundai (3.7 percent), and Toyota (3.3 percent) all had nice gains for June. Even with the massive recalls, GM had a small increase of 1 percent. The only major companies with declining sales were Ford (-6 percent) and Volkswagen (-22 percent).

When President Obama spoke at West Point recently, he described his blueprint for fighting terrorism. The plan relies on training troops within those countries where the threats lie, and less on American troops. Considering the results in Iraq, where trained Iraqi troops fled from ISIS militants, the plan has significant limitations. The Pentagon now faces months to rebuild the Iraqi security forces after a decade of spending $25 billion.

Fierce fighting resumed in eastern Ukraine after a 10-day ceasefire that was largely ignored. Heavy losses were suffered on both sides, as the Ukrainian army claims to have recaptured an important border post with Russia. For now, Moscow has ruled out a full-frontal invasion.

This second quarter, the economy has regained strength in the consumer and manufacturing sectors. Construction remains uncertain, but positive employment data points to potential growth in the housing sector. GDP growth in the second quarter is expected to rebound.

The focus next week in the U.S. will be on the consumer. Attention will focus on other consumer sector indicators to confirm the jobs numbers from this past week. Also, focus will be on the FOMC for any scheduled changes on interest rate hikes.

Globally, the focus will be on industrial output and merchandise trade data in Europe. The Bank of England will be holding its monetary policy meeting, and investors will be watching for any rate hikes. China posts its inflation data.

With little economic news, and the geopolitical chaos in Iraq and Ukraine having little impact on the markets, we expect the markets will continue their rally next week with increased volatility. Pundits are now certain the S&P 500 will hit 2,000 in the next two weeks.

Year-to-date the markets are up: Dow 3.0%; S&P500 7.4%; Nasdaq 7.4%.

The Markets for the past week were: DJIA up 1.3%; S&P500 up 1.2%; Nasdaq COMP up 2.0%.

Commodities (ETFs) for the past week were: Gold (GLD) up 0.39%; Silver (SLV) up 0.59%; Oil (OIH) up 0.59%; Dollar (UUP) up 0.23%; 30-yr Bonds (TYX) rose 10 basis points to 3.47%.

The VIX this past week (a measure of market sentiment and volatility) dropped to 10.32% due to the improving economic data, especially the Jobs Report and Unemployment Rate.

To see what's on the calendar for next week, go to the Econoday calendar.

The economic calendar for next week is light: on Monday – nothing; on Tuesday – JOLTS, FedSpeak; on Wednesday –Weekly EIA Petroleum Status Report, FOMC Minutes; on Thursday –Weekly Jobless Claims, FedSpeak; and Friday – Treasury Budget, FedSpeak.

If you're trading options, we suggest Put Credit spreads for next week at 1.5 standard deviations or greater. Expect the price of the SPX to fall within 1925 and 2047 (2 standard deviations).

For more information about options, see the 'Suggested by the author' links below.

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