Archive for October, 2011

On the strength of healthy corporate earnings, positive domestic economic news, and the announcement of a plan by Eurozone leaders to combat the European debt crisis, the Dow finished the week up 422 points, or 3.6%.  After being down 8% for the year on October 3^rd, the Dow is now up 5.7% year-to-date, on pace for its best monthly return in 24 years and its best October ever.

All eyes were on Europe this week and on Wednesday, at a highly-anticipated European summit in Brussels, a plan was formally introduced to combat the debt crisis.  Under the plan, the European bailout fund will be increased to 1 trillion euros ($1.4 billion), banks will write down Greek debt thereby helping the country lower its debt, and stricter capital requirements for Eurozone banks will be implemented.  Aside from the plan, Italy pledged to reform its pension system in an effort to balance its budget deficit, and news that China may contribute to the bailout fund was announced.  Though it remains to be seen whether the plan introduced on Wednesday will be large enough in scope and implemented with enough effect to halt the debt contagion, markets at home and abroad cheered the news, relieved that a compromise had been made.  The Dow, after closing down 207 points on Tuesday in nervous anticipation, bounced back to gain 162 and 340 points on Wednesday and Thursday, respectively, breaking the 12,000 mark for the first time since August.

Domestically, though poor consumer confidence and home property value reports were announced on Tuesday (the consumer confidence reading came in at 39.8, the lowest level in more than two years; the Case-Schiller home price index showed a 3.8% year-over-year decline), GDP data released on Thursday, which showed the US economy grew by 2.5% in the third quarter year-over-year (compared to 1.3% in Q2) overshadowed the negativity and provided evidence that the US is not in a full-fledged recession.

Trust preferred shares and common stock in portfolios reacted very favorably to the week’s news.

Next week, manufacturing data will be released on Monday, but the economic reporting highlight will come on Friday, when the October jobs data is released.  Look for manufacturing to dip slightly, the unemployment rate to remain at 9.1%, and job growth to be less than 100,000.

Have a good weekend,

James Skjong

 

Strong domestic corporate earnings and optimism ahead of Sunday’s European Council meeting drove the Dow 267 points higher on Friday, helping the Dow gain 164 points for the week, or 1.4%.  It was the Dow’s first back-to-back daily gain in over two weeks, and one that helped push the index back into positive territory for the year.

Prior to Friday, the Dow had closed in an opposite direction from the prior day’s trading session for 10 consecutive sessions – the index’s longest such streak since May of 2009, when stocks were coming off their bear market lows.  Not surprisingly, the markets trended up or down mainly in reaction to news coming out of Europe related to the Eurozone debt crisis.  Case-in-point this week.  On Tuesday, a leaked report claiming French President Nicolas Sarkozy and German Chancellor Angela Merkel had agreed to increase the size of the European rescue fund to two trillion Euros ($2.76 million) contributed to a 180 point gain for the Dow.  The very next day, the report was refuted, and nervous investors, fearing the two leaders may not be able to come to an agreement on a plan, pushed the Dow back into negative territory, closing down 72 points for the day.

The nervousness seemed to abate somewhat on Thursday and Friday, ahead of what is an important stretch of meetings by European leaders.  On Saturday night, the French and German heads of state plan to meet, and on Sunday, the EU summit will convene, with the goal of providing a “comprehensive and ambitious response to the current crisis in the Euro area,” including a plan to strengthen European banks and bolster the bailout fund.  After the Sunday meeting, another European Council meeting is set for next Wednesday, during which the European Council will finalize its plan.  With European policymakers aware of the need for a measured and adequate response to the crisis, it is hoped that a large and bold enough one will be delivered that will instill greater confidence in the Eurozone.

Domestically, better-than-expected manufacturing data, and a spate of strong earnings from the likes of McDonalds, Intel, and Morgan Stanley, were bright spots during the week.  Though Apple reported earnings that fell short of analysts estimates (mainly due to a delay in iPhone purchases), in general corporate earnings reports have been favorable, adding to the belief that the US economy is not heading toward a double-dip recession as has been feared.

Next week, a durable orders (manufacturing activity) report on Wednesday and the release of the initial third quarter US GDP reading on Thursday highlight the domestic economic calendar.  Look for the September durable orders report to show a modest increase in manufacturing activity compared to August, and for third quarter GDP to measure in the 3.0% neighborhood, compared to 1.3% in the second quarter.

Have a good weekend,

James Skjong

 

On the strength of an encouraging retail sales report, earnings from Google, and hopes of a solution to Europe’s debt problems, the Dow rose 166 on Friday, finishing the week up 481 points, or 4.9%,.  It was the Dow’s third weekly rise in a row – the longest such streak since April – and one that propelled the Dow back into positive territory for the year.

Not surprisingly, the markets again this week were primarily driven by news out of Europe.  On Monday, the Dow roared to an impressive start, gaining 330 points on an announcement over the weekend from Europe that French and German leaders were set to announce, by early November, a “comprehensive package” to help recapitalize struggling European banks and keep Greece in the Eurozone.  On Wednesday, a day in which the Dow gained 103 points, Slovakia, the last Eurozone member to vote on an expansion of the European Financial Stability Facility (the bailout fund for the region), announced they would join the other member countries and support the fund in a vote later in the week.  Also on Wednesday, the European Commission outlined plans to review Eurozone banks’ capital needs, recommended that a permanent Eurozone rescue fund be implemented by mid-2012, and suggested that Greece receive another round of bailout funds.

On the domestic side, a slight decrease in the number of initial jobless claims on Thursday followed by the announcement on Friday of a jump in September retail sales by 1.1% month-over-month, added to the positive sentiment out of Europe and helped push markets higher.  With third quarter earnings season coming into full swing next week, Google’s better-than-expected earnings announcement late Thursday injected hope that more of the same will follow.

Looking into next week, Europe and news from abroad will continue to dominate the economic landscape.  This weekend, the G20 Finance Ministers will meet in Paris, with the goal of building on the progress made this week by European leaders in establishing a package of measures to combat the Eurozone crisis.  And on Tuesday, China will release its third quarter GDP, as well as reports on September retail sales, investment and industrial output.

Domestically speaking, economic reporting highlights include the release of manufacturing reports on Monday and Thursday, inflation and housing starts reports on Wednesday, and existing home sales data on Friday.  Expect inflation to remain flat, manufacturing to tick up, housing starts to decrease slightly and existing home sales to increase by a small margin.

Have a good weekend,

James Skjong

 

After falling 258 points on Monday, the Dow rebounded Tuesday through Friday, finishing up 190 points or 1.74% for the week.  The weekly gain was the Dow’s second in a row, and its first such streak since July.

The European debt crisis and a focus on US domestic economic data once again commanded the spotlight as investors seemed to hang on every bit of news.  Monday’s slide was triggered by the news that Greece’s deficit will likely make up 8.5% of the country’s GDP as opposed to an earlier estimate of 7.8%.  Though better-than-expected U.S. manufacturing and construction spending data induced a short-lived rally in the morning, fears that Greece may not attain approval for its next round of financing due to the missed deficit-reduction target outweighed any positives.

On Tuesday, investors reversed the Dow’s downward momentum after a report appeared in the afternoon claiming that European Finance Ministers were cooperating and discussing ways to help recapitalize European banks.  Though only an article and not actual implementation of policy, the news quickly turned around a languishing market and the Dow finished up 153 points.

Both Wednesday and Thursday saw the markets rally, with the Dow finishing up 131 and 183 points, respectively.  On Thursday, comments from the European Commission President asking member countries to undergo coordinated recapitalization of regional banks lent further support to possible coordinated action by Europe’s leaders.  European Central Bank President Jean-Claude Trichet added fuel to the rally when he announced that the European Central Bank will continue its bond buying program and provide loans to banks to stem liquidity problems.  At home, the unemployment claims report showed only a slight increase for the week.

On Friday, a better-than-expected jobs report, showing that employers added 103,000 workers in September (and an upward revision of the August jobs report by 57,000), spurred buying in early trading.  However, more negative news out of Europe, specifically a downgrade of UK banks, and a downgrade of both Spain and Italy’s credit ratings, soon overshadowed the rosier domestic jobs data and brought the Dow back into negative territory, eventually closing down 21 points.

With US jobs and economic data continuing to sputter, and the European debt crisis unresolved, investors remain cautious.  Further coordination by European leaders in dealing with the bank liquidity problem and a more concrete austerity plan from Greece would help matters.  Expect the markets to continue to be heavily influenced by news out of Europe.

Next week, the economic reporting highlight comes on Friday, when September retail sales are announced.  Look for retail sales to remain as they were, relatively flat.

Have a good weekend,

James Skjong