MMRecap for Oct. 21st

Posted by Joel pate in Uncategorized. Tagged:

Stocks made moderate gains last Monday in the hopes of a resolution to the stand-off between the Democrats and Republicans and the partial government shut-down.  The bond market was closed, of course, in honor of Columbus Day.

Stocks turned tail on Tuesday as multiple factions proposed solutions to the debt crisis.  None had “the answer” the markets were hoping for.  At noon the Dow was down 55 points, or 0.34%, while the Nasdaq fell 0.22% and the S&P 500 slid 0.27%.  These percentages fell rapidly.  By the time the markets closed, each stock index had more than doubled its losses on the day.  The 10-year note yield, which moves inversely to price, was also on the move.  At midday it was up four basis points to 2.73%, but it closed at 2.72%.

One economic report was released, the NY Empire State index on manufacturing, and it took a dive.  It plunged to 1.5% in October from 6.3% the previous month.  The Federal Reserve Bank of New York produces that report.

After the markets closed, Congress continued to work.

On Wednesday Sen. Ted Cruz of Texas, the voice of the Tea Party of late, said he would oppose the plan crafted by the House of Representatives, but not seek to delay its passage.  Officials said the proposal called for the Treasury to continue borrowing through Feb. 7, with the government reopening through Jan. 15.

The only economic release was a housing market index for October from the National Association of Home Builders.  It fell two points in October to 55 after posting 57s and 58s for the past several months.

The bond market closed with the 10-year yield falling five basis points to 2.67%, while stocks zoomed higher.  Each index rose, with the S&P 500 increasing 1.38%.  It was followed by the Dow, which climbed 1.36%.  The Nasdaq added 1.20%.

On Wednesday night the country escaped default and the government reopened its doors.  Good news?  Sure.  But it’s another case of Congress kicking the financial can down the road.  Solutions to the shutdown and possible default now have new deadlines, but the problems still exist.  The debt ceiling deadline was extended to Feb.7, 2014, and funding for government operations will end Jan. 15, 2014.

Investors didn’t respond well on Thursday to the temporary solution, so they turned to the safety of the 10-year Treasury.  Its yield dropped nine basis points, closing at 2.58% — the lowest it’s been since August 8.  The Dow Jones opened in negative territory and closed there, but it rebounded from -144 points to close at -2.18 points.  The Nasdaq and S&P 500 crept into positive territory, but gains were small.

Two economic reports were released.  The first was first-time unemployment claims for the week ended Oct. 12.  They fell to 350,000, down 23,000 from the previous week.  The Philly Fed index on manufacturing conditions in October dropped to 19.8 from 22.3, but that’s far better than the single-digit readings of August and September.

Leading economic indicators were scheduled for Friday but never released.  The Conference Board probably didn’t have data, either.  During the day of inactivity, the 10-year yield was unchanged at 2.58%.  The Nasdaq climbed 1.32%, thanks to Google’s strong quarterly report.  Its stock rose 122.61 points, or 13.80%, and closed at $1,011 per share.  The Dow rose 0.18%, and the S&P 500 closed up 0.65%.

The Mortgage Bankers Association said applications for the week ended Oct. 11 rose 0.3% from the previous week.  Applications to refinance jumped 3.0%.  However, the purchase index was down 5% from a week ago, and applications were 1% lower than they were last year at this time.

This week is hit-or-miss as far as economic indicators go.  When reports from the previous two weeks will arrive remains a mystery.  Only a couple of heavy hitters are currently on the list.  Existing home sales for September are due today, but analysts believe sales will fall to an annual rate of 5.35 million units from 5.48 million in August.

On Tuesday the better-late-than-never employment report for September will be released, with analysts estimating 185,000 jobs were added to non-farm payrolls last month.  That would be a sizable increase from the previous 169,000 and could push the 10-year yield higher.  The unemployment rate should remain at 7.3%.

So far, we know that Wednesday will bring the FHFA housing price index for August.  The previous month it rose 8.8% year-over-year, but no estimates are available for the current index.  Import/export prices indices for September are also scheduled.

On Thursday the first-time jobless claims report for the week ended Oct. 19 is due, with sizable increases expected.  Economists believe they could shoot up to 427,000 from the previous 358,000 — largely due to the government shutdown.

New home sales in September are also listed, but whether the data are ready for release remains a question.  Sales have been volatile, coming in at annual rates of 455,000 in July and 394,000 in August.  Sales are predicted to rebound to 421,000 in September.

Durable goods orders for September are scheduled for Friday, but whether or not they will be ready for release is also an unknown.  August orders were up 0.1%, but down 0.1% excluding transportation.  Unless there is a big move either way, this report generally doesn’t impact the markets.

The final Thomson-Reuters/University of Michigan consumer sentiment report for September could, however, move the markets.  The preliminary report issued two weeks ago fell to a nine-month low of 75.2.  It’s difficult to believe that it would move up substantially — or at all.  Should it fall, the 10-year yield could fall with it.  Because it is not a government release, it should come out on time.



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