Market Matters…
|
Market/Index |
Year Close (2012) |
Qtr Close (09/30/13) |
Previous Week (09/27/13) |
Current Week (10/04/13) |
YTD Change |
Week Change |
|
Dow Jones Industrial |
13,104.14 |
15,129.67 |
15,258.24 |
15,072.58 |
15.02% |
-1.22% |
|
NASDAQ |
3,019.51 |
3,771.48 |
3,781.59 |
3,807.76 |
26.11% |
0.69% |
|
S&P 500 |
1,426.19 |
1,681.55 |
1,691.75 |
1,690.50 |
18.53% |
-0.07% |
|
Russell 2000 |
849.35 |
1,073.79 |
1,074.19 |
1,078.25 |
26.95% |
0.38% |
|
Global Dow |
1,995.96 |
2,310.26 |
2,331.73 |
2,325.73 |
16.52% |
-0.26% |
|
Fed Funds |
0.25% |
0.25% |
0.25% |
0.25% |
0 bps |
0 bps |
|
10 yr Treasury (Yield) |
1.76% |
2.61% |
2.63% |
2.65% |
89 bps |
2 bps |
Aw, the dysfunction in Washington strikes again. (Anyone remember how S&P responded last time?) The federal government officially closed for biz on October 1 because the nation’s “best and brightest” can’t seem to agree about anything. Heck, they have to start talking before they can even agree. Hundreds of thousands of federal workers went on temporary vacation (furlough), while their elected officials bicker and badmouth each other over (mostly) Obamacare. The White House and Senate Dems placed the blame clearly on the shoulders of the House Republicans, who shot back rhetoric that Obama and Co. are refusing to negotiate and all they (Rs) want is “fairness for the American people…”. In one breath, Speaker Boehner indicated that he will not let the US default on its debt (the debt ceiling faces an October 17 deadline); in another, he kowtows to his “people” and insists that changes to health care remain a prerequisite to ending the shutdown. While gov workers are “enjoying” much-deserved time off, some of their cohorts from the private sector are feeling similar repercussions. United Technologies, for example, is furloughing thousands of employees involved in working on Black Hawk helicopters for the Defense Department. Boeing warned that future deliveries of jets will be delayed.
As a brief history lesson, in the summer of 2011, politicos engaged in a similar budget debate and the ramification hit the stock market and investors’ pocketbooks. After the shenanigans began and S&P ultimately downgraded the US’s debt rating, equities plummeted over 15% in a matter of weeks and the bloodbath only ended when the Fed stepped in with new stimulus (low rates for two years). Granted, the economy (domestic and global) seems to be on firmer ground now, but the Fed is not in position to enact new programs, but rather has been in discussions to end the bond buying. (Remember when that topped the headlines?) Fitch Ratings is warning about “potentially negative implications” on its AAA rating. While centrist politicos appear to be trying to come up with some “compromise,” that word doesn’t exist in many of the hard-liners’ (on both “teams”) vocabularies. And so the dysfunction continues.
In biz news, Twitter filed for its much-anticipated public offering; Burlington Stores, Re/Max, Empire State Realty Trust, and Potbelly went public during the strange week; Blackberry is listening to new suitors ( Cerberus ) since the Fairfax deal may not stick; Ford posted strong September sales, though rival GM disappointed amid weaker pickup demand. Merck’s restructuring may result in a cutback of 20% of its 81k workforce (not gov shutdown-related), though Amazon is beefing up its seasonal workforce by 70k on strong holiday sales expectations.
Investors have long memories (regarding gov shenanigans) and stocks fell early during the week as the shutdown became reality and the debt ceiling deadline approached before rallying late. The Dow suffered its second straight weekly decline, though other indexes held their own and the Twitter announcement helped the tech-heavy Nasdaq. With little economic data to dissect (thanks to the shutdown), investors followed the dysfunction, contemplated history, and eased into the homestretch of the year.
Economic Calendar
|
Date |
Release |
Comments |
|
October 1 |
ISM – Manu (09/13) |
Highest level since April 2011 |
|
Construction Spending (08/13) |
DELAYED DUE TO GOV SHUTDOWN |
|
|
October 3 |
Jobless Claims (09/28/13) |
Official gauge conducted before government shutdown |
|
Factory Orders (08/13) |
DELAYED DUE TO GOV SHUTDOWN |
|
|
ISM – Services (09/13) |
Lower than expected reading |
|
|
October 4 |
Nonfarm Payroll (09/13) |
DELAYED DUE TO GOV SHUTDOWN |
|
Unemployment Rate (09/13) |
DELAYED DUE TO GOV SHUTDOWN |
|
|
The Week Ahead |
||
|
October 7 |
Consumer Credit (08/13) |
|
|
October 9 |
Fed Policy Meeting Minutes |
|
|
October 10 |
Jobless Claims (10/05/13) |
|
|
October 11 |
Retail Sales (09/13) |
|
|
PPI (09/13) |
Investors rested up for the hectic week on the economic calendar; they should have scheduled vacations instead. The gov shutdown means that the departments that release the economic data are not around to accumulate those stats and package them in the expected format. No construction spending…no factory orders…no nonfarm payrolls…no unemployment rate. Instead, analysts relied on private data to gauge the economy and this week, plenty was available. The ISM reported that the manufacturing sector is on solid ground as it reached its highest point in over two years. On the other hand, the ISM services index, declined in September and missed expectations, though still remains firmly in expansion mode. The ADP/Moody ’s private sector payroll report showed that biz added 166k new jobs last month, less than the 178k expected and the August release was revised down by 17k jobs.
If the shutdown continues for an extended period, the Fed may find itself in a bind, heading into its late-October policy meeting. Many of the reports that they rely on to make their policy decisions will not be released as the employees at Commerce and Labor Departments remain out of pocket. Additionally, furloughed employees are not counted in unemployment data (if it were to be released) so only private sector jobs lost would be figured in those measures. Bernanke and friends have their work cut out for themselves and one official even speculated that the bond buying program will survive yet another policy meeting as the Fed cannot shift policy without a proper reading on the jobs situation.
The European Central Bank even warned that the US gov shutdown will impact the recoveries of certain euro-zone countries and its Chair hinted that rate cuts and other stimuli are certainly not off the table. China’s manufacturing sector slowed a tad as its HSBC purchasing managers’ index was revised lower in September, but still revealed sector growth (just barely). Bank of Japan’s biz sentiment index jumped for a third consecutive quarter.
On the Horizon… Alcoa is officially on the clock for what should prove to be a rather interesting earnings season. Some analysts have been worried that the Fed’s indecisiveness could begin to impact activity and prompt weaker earnings. Now, the shutdown and potential debt ceiling fiasco could have even greater negative implications. A few key economic releases are on the calendar for next week (retail sales and PPI), but who knows at this point what will be reported? The longer the dysfunction continues, the worse the ramifications. The rating services are watching and losing confidence by the day (remember 2011). Global investors are watching and losing confidence by the day (plenty of profits to lock in from earlier in the year). The Fed is watching and unable to assess the economy (or has Bernanke been furloughed?). At some point the “powers-that-be” need to stop bickering and start talking (and not for 22 hours in front of an empty Senate chamber). Too much is at stake to keep this ridiculous act up for much longer. Then again…the more things change, the more that stay the same.
The information set forth was obtained from sources which we believe reliable but we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation by us of the purchase or sale of any securities. Past performance is not a guarantee of future performance.
© Brounes & Associates
http://www.ronbrounes.com/mtkcom.htm
