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Weekly market recap: Markets rally at the close

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For the week ending June 28, 2014, while the markets rallied at the close today, the Dow and S&P ended lower; the Nasdaq higher. Analysts attribute the rally to end-of-quarter window dressing of portfolios and an increase in Consumer Sentiment.

The markets opened lower, but by late morning had gone positive and then rallied in the late afternoon. Despite the rally, the Dow and the S&P ended lower for the week (down -0.6 percent, and -0.2 percent respectively) while the Nasdaq Composite ended higher (up 0.4 percent).

Consumer Sentiment moved higher to 82.5 (vs. 81.9 expected). The Current Conditions component rose to 96.6 from a May reading of 94.5, a 2.1 gain and indicates monthly strength in June for the consumer sector.

Mixed numbers also occurred in housing, where sales were up but prices softened. Existing home sales beat expectations, rising 4.9 percent (best gain since 2011) while new home sales rose 18.6 percent (strongest pace in six years).

The FHFA report showed that housing prices slowed in April after a nice rise in the prior month (unchanged vs. 0.7 percent, respectively). The largest gain was in the East South Central region (up 0.6 percent); the largest decline was in the West South Central region (down -0.8 percent).

The situation in Iraq remains volatile, with the U.S. flying armed drones over the country. Previously, unarmed drones were used; armed drones now represent an escalation. The White House describes the use of armed drones as defensive, for the protection of U.S. personnel and our Embassy in Baghdad.

A new development in Ukraine was the signing of a trade agreement with the European Union (EU). President Petro Pororshenko on Friday signed the long-delayed pact that Moscow strongly opposes. Petro's predecessor, Viktor Yanukovych, buckled under pressure from Moscow and avoided a pact which led to civil unrest. Russia's deputy foreign minister issued a warning that "serious consequences" would occur.

A severe drought in the Southwest threatens to push food prices much higher. Disease and harsh weather have already impacted food prices, now with the drought the U.S. Department of Agriculture's Economic Research Service indicated that food price inflation could rise above the historical average within a few weeks.

This past week manufacturing is improving at a good clip while housing remains uncertain due to potentially rising mortgage rates. The consumer sector is currently less affected by the recent recession and is slowly improving.

The focus next week in the U.S. will be on the Employment Situation reports (Jobs Report and Unemployment Rate). The Fed will be closely looking at the unemployment rate, participation rate, and payroll job growth as it determines the level of labor market improvement and the schedule for raising rates.

Globally, the focus will be on the ECB which is holding monetary policy meetings.

With a moderate amount of economic news during the holiday shortened week, the ending of the second quarter, and the geopolitical chaos in Iraq, we expect the markets to be choppy next week. Pundits are still expecting the S&P to hit 2,000 by the end of this month; we'll see.

Year-to-date the markets are up: Dow 1.7%; S&P500 6.1%; Nasdaq 5.3%.

The Markets for the past week were: DJIA down -0.6%; S&P500 down -0.1%; Nasdaq COMP up 0.7%.

Commodities (ETFs) for the past week were: Gold (GLD) up 0.13%; Silver (SLV) up 0.70%; Oil (OIH) up 1.36%; Dollar (UUP) down -0.47%; 30-yr Bonds (TYX) dropped 8 basis points to 3.37%.

The VIX this past week (a measure of market sentiment and volatility) rose to 11.26% due to the big drop Thursday morning (a mishandling of a large S&P futures order) and the concern that the markets are near a top.

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

The economic calendar for next week is moderate: on Monday – Chicago PMI, Pending Home Sales Index, Dallas Fed Mfg Survey; on Tuesday – Motor Vehicle Sales, ISM Mfg Index, Construction Spending; on Wednesday –Weekly EIA Petroleum Status Report, ADP Employment Report, Factory Orders, Janet Yellen FedSpeak; on Thursday –Weekly Jobless Claims, Employment Situation, International Trade, ISM Non-Mfg Index; and Friday – markets closed for July 4 holiday.

If you're trading options, we suggest Put Credit spreads for next week at 1.5 standard deviations or greater.

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

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