Year: 2014

Stocks finished another solid week thanks to strong economic data and buyout activity. The S&P 500 Index gained 0.75 percent on the week and the Nasdaq rallied 0.92 percent. The Dow advanced 0.57 percent, while the Russell 2000 added 1.19 percent. Even more encouraging was that the S&P 500 had its best month of August since 2000, gaining 3.8 percent. Both the Nasdaq and Russell 2000 performed even better, as each advanced over 4 percent for the month. The Dow trailed slightly, returning 3.2 percent.

The significant news for the week was the surprisingly strong revision of second quarter GDP. Economists expected the number to fall slightly, down from an initial 4.0 percent to 3.9 percent. Instead, GDP came in higher at 4.2 percent, due to increased business investment. These capital infusions are needed to build factories and buy equipment that will provide for higher productivity and a larger economy in the future.

The higher GDP number followed a big surprise in durable goods orders, which jumped to 22.6 percent growth in July, blowing away forecasts that were mostly below 10 percent. The jump came thanks to a large number of orders for Boeing jets. It was the largest one month increase going back more than 20 years.

It was also announced that Intermune (ITMN) will be taken over by Roche (RHHBY). The news pushed up shares of ITMN on Monday and propelled some biotechnology sector funds to new highs for the year.

Bond investors were not frightened by the strong economic data, and yields fell. The 10-year treasury closed at its lowest yield for year. Similarly, gold prices reacted to the strong economic data by climbing higher. One factor behind the move in both assets may be currency markets. The euro remains weak and is now oversold. German bond yields are also negative out to three years as investors weigh the continent’s economic weakness along with the European Central Bank’s refusal, thus far, to do more. Low German bond yields pull U.S. yields lower, while a weaker euro pushes up gold in euros and could cause enough buying to raise the price in dollar terms as well.

Also helping U.S. bonds and precious metals are the geopolitical events in Ukraine. The Ukrainian government on Thursday claimed Russian forces had entered the country. Financial markets didn’t react much to the news, but the strength in bonds and precious metals could also be a result of safe haven buying in light of current risk in Europe.

Stocks pushed higher last week despite the Federal Reserve sounding slightly more hawkish in its minutes, thanks in part to very strong economic data such as the much stronger than expected manufacturing PMI. The rally has continued into mid-day trading today, as the S&P 500 surpassed 2,000. The Dow Jones Industrial Average and the Nasdaq were also up through the early afternoon.

There won’t be as much economic news out this week, with some housing and consumer spending data making up the bulk of reports. Durable goods orders are projected to rise 6.9 percent in July, a significant increase, but looks justified based on the PMI numbers. Attention will also be paid to the second quarter GDP growth revision. The government puts out three estimates of GDP, each one spaced a month apart. The estimate last month was 4.0 percent and economists have lowered their forecasts slightly to 3.9 percent growth.

This week we’ll also get some updates on the situation in the eurozone and in Japan. Europe will report consumer confidence, business climate, industrial sentiment, along with private loans on Thursday. The same day, Japan will announce inflation and retail sales data, the latter of which will be closely watched given the major impact of the recent sale tax hike.

The Nasdaq and S&P 500 Index both hit new 52-week highs and look to add to their gains this week. The Dow Jones Industrial Average could push to a new high over the coming days. The Russell 2000 has kept pace with the S&P 500 Index for the past month, neither meaningfully underperforming nor outperforming. The Dow Transportation Index is also close to its high for the year after recovering from its late July sell-off. Markets are doing well in August, but a new high in both the Industrials and the Transports would signal a very clear bullish signal.

Trading will be light this week and should get lighter as we head into the Labor Day weekend. Volatility could increase slightly, but most likely the markets will be calm due to traders taking vacations.

Earnings: Some retailers are still reporting, among them Abercrombie & Fitch (ANF), Best Buy (BBY), Tiffany (TIF) and Dollar General (DG). Solar panel makers Trina (ISL) and Yingli (YGE), plus gun maker Smith & Wesson (SWHC) will also release earnings this week.