Over the weekend, the citizens of the country of Greece elected Antonis Samaras as their new head of state, but Samaras received less than 20 percent of the overall vote due to a number of candidates who were on the ballot. The nation was thrown into further uncertainty Tuesday when Samaras announced that he has so far been unable to form a new government; leaving less than 72 hours remaining for the New Democracy Party to form a cabinet and proceed. If it is unable to do so, a fresh round of elections could take place in June. On Tuesday, Greece’s stock market declined more than 3.5 percent.

Greece has been through two federal governments in less than a year as citizen anger over fiscal bailouts, federal budget cuts and job losses has resulted in the ouster of former Prime Minister George Papandreou along with the party represented by the current head of state Lucas Papademos. Samaras’ New Democracy party is opposed to austerity measures that have been imposed on Greece. Investor sentiment that Greece may ultimately drop out of the European Union and cease to utilize the Euro as its official currency has increased in recent days.

Shadow Over Risk Markets

In an article published by CNN Money Tuesday, RIA Capital Markets in Edinburgh Investment Strategist Nick Stamenkovic said, “The political stalemate in Greece is casting a shadow over risk markets in general and equities in particular. Investors are questioning whether Greece will be a part of the single currency at the end of this year.”

Greece is currently on its second federal bailout package that was approved earlier this year by finance ministers from the EU, International Monetary Fund and other central banks. The emergency loan package was extended in exchange for a fresh round of austerity promises after the country, backed by Germany and the IMF, was able to convince private bondholders to take a substantial haircut on the amount owed to them by the government. When the dust had settled, individuals and institutions owed agreed to accept new notes that are less than half their original value due to fears that the country might default otherwise.

Dow Jones Reaction to Greek Uncertainty

As of 2:40pm Eastern Time, the Dow Jones was trading at 12,866 points, which is 1.1 percent lower than Monday’s closing level. For the year, the Dow has enjoyed a 5.3% gain, but that increase could be easily erased entirely if investors begin to fear sovereign debt contagion into U.S. equity markets. Yields for 10-year U.S. Treasury notes declined another 4 basis points Tuesday to 1.84%, signaling a strengthening in United States bonds as domestic and overseas investors seek a safe haven for assets while the Eurozone deals with its latest financial crisis.

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ISM Manufacturing Report

The ISM Manufacturing Report released May 1st by the Institute for Supply Management showed that economic activity related to manufacturing within the United States grew during the month of April; marking the 33rd straight month of growth. Likewise the overall economy experienced growth for the 35th consecutive monthly period according to the report, which can be viewed in its entirety here.

Bradley J. Holcomb, Chairman for the ISM Manufacturing Business Survey Committee was quoted in the statement saying that the “PMI registered 54.8 percent, an increase of 1.4 percentage points from March’s reading of 53.4 percent, indicating expansion in the manufacturing sector for the 33rd consecutive month. Sixteen of the 18 industries reflected overall growth in April, and the New Orders, Production and Employment Indexes all increased, indicating growth at faster rates than in March. The Prices Index for raw materials remained at 61 percent in April, the same rate as reported in March. Comments from the panel generally indicate stable to strong demand, with some concerns cited over increasing oil prices and European stability.”

Performance By Industry

The report went on to state that out of the 18 manufacturing industries included in the index, “16 are reporting growth in April: Furniture & Related Products; Printing & Related Support Activities; Machinery; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Primary Metals; Paper Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Chemical Products; Fabricated Metal Products; Computer & Electronic Products; and Petroleum & Coal Products. The only industry reporting contraction in April is Wood Products.”

Dow Jones Year To Date Gain

For the year, the Dow Jones, which is comprised of 30 component blue chip stocks, has gained 8.69%, or 1,061 points from its December 30, 2011 closing level of 12,217. Tuesday’s Dow boost was led by aluminum maker Alcoa Inc. (NYSE:AA) and Bank of America Corp. (NYSE:BAC).

The 8.69 percent return on investment for those who placed assets in funds that track the Dow is greater than many analysts expected following 2011. However, sovereign debt concerns that were at one time limited to Greece have spread throughout the Eurozone to Spain, Italy, Portugal and others. Those countries are currently struggling with rising borrowing costs, high unemployment rates and citizen outrage over austerity measures.

Yields for ten year debt sold by Portugal are have been hovering close to 12 percent in recent months while Spanish bond yields for ten year notes are around 6 percent while interest rates for U.S. sovereign debt in the form of Treasuries are below 2 percent for 10-year commitments. The perceived safe haven of United States sovereign debt and equities is a stark contrast to events that occurred during the 2008 financial crisis, when the federal government bailed out a number of banks and other firms claiming that some companies were “too big to fail.”

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The maker of the new iPad reported sales of 35.1 million iPhones from January through March of this year, which represents 88% unit growth from the same period in fiscal year 2011. A total of 11.8 million iPads were sold as well, which is more than 150% over 2Q 2011. The company also enjoyed increased Mac sales of 4 million with a 15 percent unit decline in iPods.

Apple Inc. Chief Executive Officer Tim Cook told investors Tuesday, “We’re thrilled with sales of over 35 million iPhones and almost 12 million iPads in the March quarter. The new iPad is off to a great start, and across the year you’re going to see a lot more of the kind of innovation that only Apple can deliver.”

3Q 2012 Guidance

Chief Financial Officer Peter Oppenheimer added, “Our record March quarter results drove $14 billion in cash flow from operations. Looking ahead to the third fiscal quarter, we expect revenue of about $34 billion and diluted earnings per share of about $8.68.

The guidance forecast put forth by Apple’s CFO is more in-line with numbers that analysts expected for the second quarter of this year, which could be a significant reason behind the stock’s market value surge in after hours trading. Apple has been at the forefront of mobile device and tablet computer innovation over the last few years, leading customer demand at first in iPod sales and then morphing into a mobile device and tablet computer behemoth thanks to its iPhone and iPad.

Apple Inc. Stock Performance

Shares were up more than 6 percent in after hours trading Tuesday afternoon following the company’s earnings report. By the stock market closing bell on Monday, Apple was priced just over $560 but quickly jumped beyond $598 per share late Tuesday.

With a Price To Earnings Ratio of 15.96 to go along with its market capitalization of $522.39 billion, many analysts are expecting the stock to surge beyond its $644 all-time record level set earlier this year. Some have gone as far as predicting that the firm’s market value could even eclipse $1,000 per share eventually. Apple stock has traded in a 52-week range of $310.50 to $644.00 and has an annualized Earnings Per Share of $35.11.

New Product Launch: Apple TV

Apple also launched its new television product, dubbed Apple TV, earlier this year. The company’s official website claims that the Apple TV with 1080 HD provides access to the best content including movies, TV shows, sports, music, photos and more; directly onto the customer’s widescreen TV set. Priced at $99, the product enables users to play content from their iOS devices using AirPlay.

Apple TV is expected to directly compete with services such as Netflix, which had enjoyed a stranglehold on the American online video streaming market up until June of last year when it decided to raise basic monthly subscription prices.

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The major market factors both Wednesday and Thursday turned out to be a temporary easing in bond yields for struggling Eurozone nations such as Spain and Italy, which have both had recent difficulties in attracting investment in their sovereign debt. Earlier in the week, Spanish bond yields had reached as high as 5.83 percent on 10-year notes while similar Italian instruments were over 6 percent. However, those interest rates are now down as much as 5%, which represent lower borrowing costs for the sovereign nations.

The Italian parliament late last year passed a round of austerity measures in order to prepare for the reception of potential central bank bailout loans in the future, but many investors believe the nation will be unable to get its spending under control during the long term. Current Prime Minister Mario Monti has stated that his country’s deficit spending much be reigned-in if Italy is serious about reducing its overall debt.

Central Bank Actions

In the past, the European Central Bank seemed more apt to approve bond purchasing programs in order to absorb sovereign debt and extend bailouts to EU nations. However, late last year the ECB authorized a record €489 billion emergency loan package to struggling regional financial institutions instead of extending the gesture toward nations.

The result means that banks hold a significant amount of fiat assets, and consequently hold a substantial amount of purchasing power over Eurozone nations which in many ways must now depend on attracting bank investment in order to continue funding their sovereign debt. The infusion of fiat liquidity into any market generally results in eventual inflation, which makes bond purchasing programs controversial regardless of whether they are provided by central banks or regional financial institutions.

In the United States, the Joint Select Committee on Deficit Reduction failed to reach an agreement last year on how best to implement approximately $1.4 trillion in nationwide deficit reductions, many of which would have affected the Defense budget. Due to the political nature of potential budget cuts to the nation’s Defense expenses, many analysts believe that the U.S. will continue its deficit spending at least in the short term. The U.S. government has benefited greatly from low interest rates on its own sovereign debt, with yields on 10-year Treasury notes remaining close to the 2 percent mark.

Major Market Indices

The Dow 30 index approached the 13,000 points level late Thursday and is up 6.29 percent since the beginning of the year. The NASDAQ and S&P 500 have enjoyed greater Year To Date gains, but will likely be heavily affected by the upcoming Earnings Season in which a number of large cap companies are expected to report their first quarter 2012 profit margins along with future guidance forecasts.

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Earlier this week, the country of Spain held a bond auction for private investors which generated less interest than anticipated. On Wednesday, the country was able to sell €2.6 billion in 10-year sovereign debt notes, which was on the bottom end of the expected range of €2.5 billion to €3.5 billion set by analysts. By Thursday afternoon, yields on those bonds were 5.8 percent due to investor concerns on the federal government’s budget deficit.

Borrowing Costs

Now that the Greek sovereign debt issues have temporarily been covered, attention has now focused to increased borrowing costs for other EU nations such as Spain. When a sovereign country’s expenses escalate in the form of higher interest rates, the nation must pay out a higher rate for money that has been loaned to it in exchange for bond notes.

Although the European Central Bank authorized a record €489 billion emergency loan package to struggling regional financial institutions late last year, the money banks received did not go exclusively to absorb Eurozone sovereign debt nor was it all earmarked for loans. Despite the ECB’s action to extend seemingly limitless funds to banks at 1% interest, the central bank did not offer the same terms to countries, which has placed banks in the driver’s seat when it comes to controlling how and when those funds are dispersed.

Analyst Reactions

In an article published by CNN Money Thursday, Hadrian Partners market strategist Nick Kalivas said, “Credit concerns are flaring given the rise in Spanish bond yields. It feels like the sovereign debt crisis is surfacing again.” Western Union Business Solutions market strategist Karl Schamotta told CNN Money Thursday that “traders may soon be forced to operate without a safety net for the first time since the 2008 collapse. The implications will be profound.”

A separate article published by Bloomberg.com noted that initial unemployment claims in the United States fell to a 4-year low this week at 357,000 as more than 200,000 jobs may have been added in the month of March. “You have, certainly, improvement in the labor market in the U.S. but every once in a while we got reminded there still remain problems in Europe,” said Greg Woodard, a portfolio strategist at Manning & Napier. “The volatility is going to continue. It’s going to be choppy. The trend seems to be improvement in the U.S. and continued difficulties outside the U.S.”

Dow Jones Performance

Despite Thursday’s lackluster performance, the Dow 30 has enjoyed a healthy 6.9 percent Year To Date gain from its 2011 closing level of 12,217 while the NASDAQ 100 and S&P 500 are both up over 10% so far in 2012. The Dow Jones index, which is comprised of 30 large cap component stocks, has traded in a 52-week range of 10,404.49 to 13,297.11 points.

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Best Buy’s Fiscal Fourth Quarter and 2012 Earnings came in well below analyst expectations. Due to 4Q charges of $2.6 billion related to the purchase of Carphone Warehouse Group PLC’s (CPW) share of the Best Buy Mobile profit share agreement, a non-cash impairment charge for Best Buy Europe goodwill, and restructuring charges associated with United Kingdom big box pilot store closures, the company had a 4Q net loss of -$1.7 billion, or -$4.89 per share.

Overall Fiscal Year 2012 (period ending March 3, 2012) net losses tallied -$3.36 per share. Best Buy Chief Executive Brian J. Dunn told investors Thursday, “In order to help make technology work for every one of our customers and transform our business as the consumer electronics industry continues to evolve, we are taking major actions to improve our operating performance. As part of our multi-channel strategy, we intend to strengthen our portfolio of store formats and footprints – closing some big box stores, modifying others to our enhanced Connected Store format, and adding Best Buy Mobile stand-alone locations – all to provide a better shopping environment for our customers across multiple channels while increasing points of presence, and to improve performance and profitability.”

$800 Million Cost Reduction Program

The consumer electronics retailer will implement an $800 million cost reduction program for the 2013 fiscal year which will include domestic reductions of $300 million in retail stores, $300 million in its corporate and support structure along with another $200 million cost of goods sold. Over the next 12 months, 50 big box stores will be closed in the United States.

According to executives, store format improvements will lean toward a new strategy that emphasizes flexibility at the cost of total square footage. Remaining domestic locations will be remodeled to fit in with the Connected Store format which relies more on online solutions and sales.

“These changes will also help lower our overall cost structure. We intend to invest some of these cost savings into offering new and improved customer experiences and competitive prices — which will help drive revenue. And, over time, we expect some of the savings will fall to the bottom line. At the same time, we will continue to accelerate our key initiatives — growing connections and services, expanding our digital capabilities and growing our business in China,” said CEO Dunn.

Best Buy Stock Performance

Best Buy’s stock has gained slightly Year To Date but was down as much as 8 percent during intraday trading Thursday. Just moments before the 4:00pm Eastern Time stock market closing bell, shares for Best Buy Company were priced at $24.73 per share; down 7.1% from Wednesday’s value. Best Buy has a market capitalization of $8.66 billion.

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Unemployment Data

According to the U.S. Department of Labor, initial unemployment claims dropped 5,000 for the week ending March 17th to 353,000. The four week moving average for new jobless filings is 355,000 which is down 1,250 from the previous week.

Jobless claims together with new employment are key to the overall short and long term of the nation. According to a recent report by the Bureau of Labor Statistics, new job creation is up on a monthly basis with growth in Professional Business services, Health Care and Mining.

Crude Oil Prices

The price of crude oil has remained steady over the last few weeks and closed Thursday at $105.58 per barrel; a 0.22 percent jump from Wednesday. Tensions between the United Nations allies and Iran have apparently eased temporarily while diplomatic UN efforts are attempted to reign-in Iran’s uranium enrichment program. As a response to sanctions, Iran has threatened to shut down non-friendly traffic traveling through the Strait of Hormuz, where nearly one sixth of the world’s oil supply passes on a daily basis.

Some analysts are predicting a short-term stability in oil and gasoline prices for the next 5 to 10 business days while at the same time forecasting rising prices beyond early spring and into the summer months.

Precious Metals

Gold closed at a daily increase of $1.70 to $1,645.70 per ounce while silver rose $0.20 to $31.59. Palladium and platinum experienced similar upward moves Thursday but remained relatively stable. Precious metals have dropped consistently over the past month as a new Greek sovereign debt bailout was approved by European Union finance ministers.

U.S. Treasuries

The interest rate on 10-year U.S. Treasury notes has risen substantially over the past two weeks and closed Thursday at 2.28 percent. Treasury yields are generally considered a reliable gauge to measure investor appetite for U.S. sovereign debt. Declining demand could mean that investors have begun transferring assets back to EU nations now that the Greece issue has been temporarily settled.

The country of Greece ultimately reached a deal with its creditors that resulted in private bondholders accepting new notes worth less than half of their original value. Despite the deal and subsequent bailout loan authorization, many believe that the Greek government will ultimately default due to an enormous amount of debt obligations.

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Following the U.S. financial crisis that transpired in late 2008 and extended into 2009, the S&P 500 index had fallen to lows of 683.38 but have rebounded more than 100% since then. Year To Date, the index is up 11.53% from its December 30th closing level of 1,257.60 points.

In an article published Thursday by CNN Money, Ryan Detrick, a senior technical strategist at Schaeffer’s Investment Research, reported that “the economic data has dramatically improved over the last couple of months. The jobs numbers are gradually getting better, and that’s the most important factor for the economy and stock market.”

Domestic Employment

Detrick is referring to figures recently published by the U.S. Bureau of Labor Statistics which show an improving employment situations for Americans in a number of key sectors including Professional and Business Services, Health Care, Leisure and Hospitality and Mining. The monthly unemployment rate is 8.3% and the economy gained over 200,000 during the month of February according to the official report.

Strong jobs numbers have buoyed the market indices and increased optimism to spark another broad based rally which has the Dow Jones Industrial Average index closing above 13,250 points and the NASDAQ Composite at a 10-year high of 3,056 – a level unseen since the Dot.Com bubble at the turn of the century.

Greece Debt Deal

The fact that Greece was able to reach a deal with its creditors to negotiate a reduced rate for previously held bonds has also contributed heavily to the market surge. The country was able – at least for now – to avoid a “hard” default on its sovereign debt by convincing its debt holders to take a significant haircut on the amount of money they were owed. The old bonds were swapped for new coupons which will pay out less than half of their original face value with an average interest payment rate below 4 percent.

S&P 500 Charts

Below are the Year To Date and 5 Year charts for the S&P 500 index.

What’s Next for the U.S. Economy?

Several analysts have taken to the mainstream television and radio airwaves to express their surprise at how well the major U.S. indices have performed so far in 2012. However, it is uncertain if the trend will continue, especially leading up to the November general presidential election between current President Barack Obama and his Republican contender.

Former Massachusetts Governor Mitt Romney and former Pennsylvania Senator Rick Santorum appear to be the front runners in the Republican primary process with former House Speaker Newt Gingrich and Texas Congressman Ron Paul still competing in the race. The winner of the Republican primaries will be formally decided in late August in Tampa, Florida at the Republican National Convention; but the party could already have their candidate informally nominated before then.

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As of 2:00pm Eastern Time Friday, the Dow Jones Industrial Average (DJIA) index had risen 42 points, or 0.32 percent, to 12,950 while the NASDAQ Composite had improved 0.7% to 2,991. The S&P 500 meanwhile had surged 0.56% to 1,373 points.

Household Data

For the month of February, approximately 12.8 million Americans were categorized as unemployed; a number that is relatively unchanged from January. Broken down by the major worker groups: the unemployment rate for adult men was 7.7 percent, adult women 7.7 percent, teenagers 23.8 percent, whites 7.3 percent, blacks 14.1 percent, Asians 6.3 percent and Hispanics 10.7 percent.

Long term unemployed individuals (defined as being out of a job for 27 weeks or longer) remained unchanged at 5.4 million; accounting for roughly 42.6% of all unemployed U.S. citizens. The Civilian Labor Force Participation Rate grew to 63.9% and the Employment Population Ratio increased to 58.6 percent for February.

A total of 8.1 million Americans were listed as involuntary part-time workers last month. This category is reserved for those who are employed on a part-time basis because their hours have been reduced or because they have been unable to find a full-time job. Marginally attached labor force individuals (defined as those who have been unable to secure employment despite having sought a job within the last 12 months) remained relatively the same at 2.6 million. Among those who are classified as marginally attached, 1.0 million were listed as “discouraged” workers; meaning they are not currently seeking work because they believe no job opportunities are available to them.

Establishment Data

Establishment survey data shows that Professional and Business Services added 82,000 jobs in February with 55% of the increase (or 45,000 jobs) being attributed to temporary help services. Approximately 10,000 jobs were gained in computer system design and another 7,000 were added in management and technical consulting services.

Health care and social assistance employment improved by 61,000 in February, employment in leisure and hospitality increased by 44,000 and manufacturing jobs experienced a 31,000 jump from the previous month. Mining added 7,000 jobs, with most of the gain in support activities for mining while construction employment was unchanged from January. A significant amount of jobs (35,000 in all) were lost in the retail sector, which offset gains of 23,000 that were reported in January.

Dow Jones Performance

The Dow Jones Industrial Average index, which is comprised of 30 large cap stocks, has performed admirably so far in 2012; gaining close to 6 percent Year To Date from its 12,217.56 closing level on December 30th, 2011. The index closed above the important psychological barrier of 13,000 points a week ago and could continue to rise depending on a number of global and domestic market factors.

Below is the intraday trading chart for the Dow Jones index which shows a slight improvement for the Dow 30 compared to Thursday’s closing level.

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The Outlook Looks Disappointing

The company forecast earnings per share of 29 to 30 cents which failed to meet analysts’ expectations of 33 cents a share for this next quarter.  The retail home furnishing sector is experiencing positive growth, so it comes as a surprise that Williams-Sonoma is not projecting a bigger number.  Competitors like Bed Bath & Beyond  (NASDAQ:BBY) and Pier 1 Imports  (NYSE:PIR) are both trading near their 52-week highs and appear to have weathered the recession better than other retailers.   The big retailers like Target  (NYSE:TGT) have had a more difficult time as budget-conscious consumers continue to watch their pocketbooks amid a flurry of price promotions and discounting during the recent holiday shopping season that pared margins and profits for many retailers.   The retail space is very well segmented by spending levels and the name brands continue to try to capitalize on their strong appeal to their customer base.  Even the dollar store retailers have gotten into the act in what has become a more crowded discounting environment.

Concerns About Resignation Of CFO

The company also announced that long-time CFO Sharon McCollam, who also served as Chief Operating Officer, had left the company and will vacate her seat on the Board on March 16th.  McCollam was CFO while the company grew from a $1 billion chain to a $4 billion brand machine that is well-respected in the industry for its seven direct-mail catalogs and six online websites.   The company has appointed Julie Whalen their SVP, corporate controller and treasurer as acting CFO until a permanent replacement is hired.  The markets reacted to the less-than-positive outlook and the change of CFO’s with a 5 percent drop in share price following the announcements.  Some analysts are concerned, but Laura Alber, president and chief executive officer stated “We will continue to serve our customer anywhere, anytime by building on the competitive strengths of our multi-channel business.” The company continues to enjoy very strong brand awareness and customer loyalty remains high despite the challenging economic recovery.  Many thought that as the real estate market stalled and has since failed to regain its footing that home furnishing retailers would continue to have a tough time.  Pier 1 has bucked that trend and Williams-Sonoma looks to be holding their ground, albeit somewhat tenuously as the forecast for the next quarter is less than expected.

Getting Laser-Focused On Customers in 2012

CEO Alber said “In 2012 we will be putting customers at the center of everything we do.”  Most retailers are customer-facing and have a good understanding of the needs of their customers.  Williams-Sonoma intends to take advantage of their multi-channel businesses and improve the customer shopping experience with store-remodeling and more direct-to-customer fulfillment of orders.  To that end the company will increase capital spending to $220 million and may utilize their $500 million cash balance at year-end to continue to reward shareholders via stock additional repurchases and a dividend which was recently increased by 47 percent.  Other retailers like Gap stores have continued to press onward with their initiatives during the struggling recovery, only time will tell if Williams-Sonoma is able to remain laser-focused and deliver value to their customers.

How Focused Are You On Your IRA?

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