Covestor model: Macro Themes
As June came to a close last week, so came the end of a down quarter for the major U.S. indices. The final push on the last day of trading for the quarter came as a result of European Union leaders surpassing relatively low expectations of the markets while announcing steps to support growth, bank, and bond markets.
The S&P 500 finished up 4% for the month, but down 3.2% for the quarter. Meanwhile, the Dow finished up 3.9% for the month and down 2.5% for the quarter. June was the Dow's best month of the year, and the final day of the quarter was both the S&P and Nasdaq's best individual day of the year. Gold ended the quarter back above the $1600/oz threshold, which is still down 4% from its March highs.
As we look ahead to earnings reports for the second quarter of 2012, things appear to be negative. Companies so far have provided guidance that is the most negative outlook since the third quarter of 2001.
As of the end of the quarter, 94 companies in the S&P 500 have issued negative guidance versus only 26 positives. In the third quarter of 2001, 180 companies had negative guidance versus only 30 positives, resulting from the backlash of the .com era.
In economic news, U.S. job growth hardly rose in June, the latest sign that economic growth has slowed. Nonfarm payrolls grew by 80,000 last month after a 77,000 increase in May, the Labor Department said Friday. The politically important unemployment rate, obtained by a separate survey of U.S. households, was unchanged at 8.2%.
For the first time since July 2009 US manufacturing decreased. However, the economy has grown for the 37th consecutive month according to the nation's supply executives in the latest Manufacturing ISM Report. The Institute for Supply Management reported its index of manufacturing activity fell to 49.7. That's down from 53.5 in May and the lowest reading since July 2009. Readings below 50 indicate contraction.
The BreitBurn Energy (BBEP) partnership has completed two separate acquisitions valued at $220 million of oil and natural gas properties located in the Permian Basin in Texas. This acquisition will further expand the partnership's exposure to oil and liquids-rich gas producing assets. Swaps were also entered to increase the cash flow generation visibility from these newly acquired assets.
Meanwhile, North Atlantic Drilling (NATDF) has received a letter of intent from ExxonMobil (XOM) for assignment of the harsh environment semi-submersible drilling unit West Alpha. The extension is for two years with an estimated revenue value of US$410 million. Seadrill (SDRL) has a 74% ownership in North Atlantic Drilling Ltd.
Finally, Vantage Drilling (VTG) has received two contract awards for the Sapphire Driller adding an additional well to the Sapphire Driller's current drilling program. The contracts will commence in continuity with the current drilling program and have an anticipated duration of approximately 215 days with a revenue estimate of $34.5 million.
Covestor Ltd. is a registered investment advisor. Covestor licenses investment strategies from its Model Managers to establish investment models. The commentary here is provided as general and impersonal information and should not be construed as recommendations or advice. Information from Model Managers and third-party sources deemed to be reliable but not guaranteed. Past performance is no guarantee of future results. Transaction histories for Covestor models available upon request. Additional important disclosures available at http://site.covestor.com/help/disclosures. For information about Covestor and its services, go to http://covestor.com or contact Covestor Client Services at (866) 825-3005, x703.