MMRecap for Sept. 30th

Posted by Joel pate in Uncategorized. Tagged: , , , , , , , , ,

Last Monday stocks fell, but so did Treasury yields. The catalysts for the movements were the possibility of a government shutdown and the possibility of a budget battle that, if unresolved, could lead to default.
These are serious issues, and because of the status of the U.S., countries around the world could be affected by the outcome. Each of the three main stock indices suffered considerable losses. The only winner — and it wasn’t big — was the 10-year yield, which fell to 2.71% from 2.73%. There were no economic reports on Monday.

Stocks, oil, gold and Treasuries opened down again Tuesday, but the decline in the 10-year yield was notable, considering how yields have fared recently. It fell to 2.65% from 2.71% and closed there. The government’s dual problems with the debt ceiling and budget cuts continued to rattle Wall Street.

The Case-Shiller housing price index in July rose 1.0% from the previous 0.7% increase in June, which was good news, but not a market-mover. The consumer confidence index for September dropped to a lower-than-expected 79.7 from a revised 81.8 in June. This wasn’t received well.
When the markets closed, stocks were off their morning lows, but only the Nasdaq ended in positive territory, gaining 0.8%.

Two economic reports, released Wednesday morning, had little impact on stocks. Durable goods orders in August were up 0.1%; that doesn’t appear to be a big deal until you realize they were down 8.1% in July. Durables, excluding transportation, fell 0.1%, but that was better than the 0.5% drop the previous month.

New home sales soared in August, reaching an annual rate of 421,000 units. That was better than expected, up from the previous 390,000 units and up 13% from one year ago. In addition, there has been a significant drop in foreclosures, and 2.5 million homes are no longer under water. The housing industry is definitely looking up, and the 10-year yield is moving down. Yields should stay on the low side as long as the nation’s financial future remains uncertain.

When the bond market closed, the 10-year had fallen again — this time dropping four basis points to 2.61% — the lowest it’s been since August 12. Stocks struggled again, with the major indices closing in the red. The Dow fell 61 points, or 0.40%. The Nasdaq was down 0.19%, while the S&P slid 0.27%.

On Thursday stocks edged their way into positive territory with a whimper, not a bang. After five days of losses it was time. Initial jobless claims for the week ended Sept. 21 dropped to 310,000 — 5,000 fewer than the previous week. The number was roughly in line with recent claims. It was followed by the final estimate for 2nd quarter GDP which came in unchanged at 2.5%, as forecast. The final report, pending home sales in August, actually declined a tad, but not as badly as expected. Pending sales fell 1.6% — slightly lower than the 1.4% drop in July. Analysts were way off, forecasting a 2.4% decline.

Stocks ended in positive territory, so the 10-year yield took a slight hit. It rose three basis points to close at 2.64%. Nasdaq was the big winner, gaining 0.70%. Both the Dow and the S&P 500 added about 0.36%.
Better-than-expected economic reports were unable to pull stocks out of the red zone on Friday. The first was personal spending/personal income for August. Both categories came in above expectations, with spending up 0.3% and income rising 0.4% — good news for the economy. The PCE, a major inflation guide, edged up to 0.2% from the previous 0.1%, but it’s a long way from worrisome.

This was followed by the Thomson-Reuters/University of Michigan final consumer sentiment survey for September. It rose to a better-than-expected 77.5 from the previous 76.8. Stocks again failed to be impressed; but the 10-year yield, which opened down three basis points, held at 2.61%.

Treasuries held their ground, and then some. The yield edged down two basis points to close at 2.62%. Stocks, however, were hit hard. The Dow lost 70.06 points, or 0.46%, followed by the S&P 500, which fell 0.41%. The Nasdaq sustained a loss of only 0.15%.

The Mortgage Bankers Association reported that applications rose 5.5% during the week ended Sept.20 from the previous week, while the purchase index jumped 7% — the highest it’s been since July. Refis rose 5.0%, but their share was unchanged at 61%. The 30-year average contract rate on a conventional conforming loan fell to 4.62% from 4.75%.
This week there is at least one report scheduled every day, but the focus will remain on the nation’s budget.

Today’s lone report, the Chicago PMI index on September manufacturing conditions, is expected to climb to 54.0 from 53.0. Although good news for the beaten-up manufacturing sector, it’s unlikely to affect trading.
The ISM index on nationwide manufacturing conditions in September, due Tuesday, should dip to 55.0 from the previous 55.7. That would not likely affect the markets. Nor would the 0.6% increase in construction spending in August, although it would be the second consecutive 0.6% rise, which can’t be ignored.

On Wednesday, ADP, the payroll processing giant, will release its data on the number of new jobs filled in September. Analysts are expecting 175,000, which would be somewhat higher than the 169,000 jobs added in August. This could push the 10-year yield up a notch or so.
Thursday features first-time jobless claims for the week ended Sept. 28, and they are expected to rise. Analysts believe 327,000 will be added, versus 309,000 the previous week. That could make Treasuries attractive to some buyers. Other reports include factory orders for August, which are expected to rise 0.3%. While that doesn’t seem like a big deal, they were down 2.4% in July.

The final release, the ISM index on the service sector, could fall to 56.9 from 58.6. While the service sector employs huge numbers of workers, many of them have low-paying jobs in the hospitality and retail sectors, so their income doesn’t grow the economy.

The monthly employment report for September is due Friday. Analysts are saying 180,000 new jobs will have been added to payrolls. That would be a whole lot better than the 152,000 added in August. The unemployment rate is also expected to fall to 7.3% from 7.5%. While, if correct, those are decent numbers, they still lag the data the Fed wants to see before tapering begins.