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Weekly Market Update – October 23, 2015

The Dow gained 158 points Friday on the strength of better-than-expected earnings from three large technology firms and another Chinese interest rate cut.  For the week the Dow was up 2.5% (its fourth straight week of gains) and for the year the index is now down 1.2%.

China announced Friday a quarter point cut in its benchmark interest rate and a half point reduction in its banks’ reserve-requirement ratio, it’s sixth rate reduction since last November.  The move comes just days after China reported Q3 GDP of 6.9%, the country’s slowest rate of growth since the beginning of 2009 during the financial crisis.  China also announced it would lift the cap on bank deposit rates, giving a boost to the income households will receive from savings deposits as China works to transition from an exporting economy to one more dependent upon domestic consumption.  The policy moves are intended to ensure China achieves its goal of 7% annual growth, an outcome presently being challenged by slowing demand for its goods and services, weak factory output and pricing pressure.

China’s interest rate cut comes a day after European Central Bank President Mario Draghi’s comments hinted at additional stimulus measures to try and jumpstart Europe’s moribund economy.  Markets responded in kind with the Dow rising over 320 points.

In the US, three large tech companies, Amazon, Microsoft and Google, all reported earnings that beat analysts’ expectations Friday.  On the strength of the news, Amazon and Google hit all-time highs.  Overall, Q3 corporate earnings have been better than expected and going forward, the continued global economic stimulus measures should help strengthen sales and profits.

The yield on the 10-year Treasury rose 6 bps Friday to 2.08%, up 6 bps for the week and down 10 bps for the year.  Oil fell 78 cents Friday to $44.60, down almost 6% for the week.  Strength in the US dollar and the reduction of only one oil drill rig this week (the smallest number in eight weeks) pressured pricing.  Rigs are down 63% from their high point last year.

Next week’s economic calendar highlights include September new home sales on Monday, consumer confidence reports on Tuesday and Friday, the first estimate of Q3 GDP and weekly jobless claims on Thursday and an October manufacturing report on Friday.  Expect the housing data to show a slight increase in activity from August, consumer confidence to rise, Q3 GDP to show growth of approximately 3.2%, weekly jobless claims to settle in the 260-270,000 range (from 259,000 this week) and the manufacturing report to show a slight decline in activity from September.  Q3 corporate earnings will continue next week as well.

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