AND THAT’S THE WEEK THAT WAS…

For the Week Ended November 5, 2010

 

Market Matters…         

                           

Market/Index	Year Close (2009)	Qtr Close (09/30/10)	Previous Week (10/29/10)	Current Week (11/05/2010)	YTD Change
Dow Jones Industrial	10,428.05	10,788.05	11,118.49	11,444.08	+9.74%
NASDAQ	2,269.15	2,368.62	2,507.41	2,578.98	+13.65%
S&P 500	1,115.10	1,141.20	1,183.26	1,225.85	+9.93%
Russell 2000	625.39	676.14	703.35	736.59	+17.78%
Global Dow	1,984.48	1,947.85	2,021.14	2,087.22	+5.18%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	3.85%	2.52%	2.61%	2.54%	-131 bps

 

Don’t let anyone ever say traders don’t earn those seven figure bonuses.  Dissecting election results, a Fed policy meeting statement, several key economic releases, and new earnings reports can prove pretty stressful.  No one deserves a Bud (or a Glenfiddich 30 year single malt) more than they do.  This week saw a somber Obama offer an olive branch to Republicans following their big victory in the midterms.  Bear in mind, Prez Clinton suffered a similar fate in 1994 and lived to fight another day.  Politicos now expect conciliation over taxes, health care, offshore drilling, and other GOP action items as Big Oil, Big Pharma, and Wall Street prepare for another boom.  (The pressure is on, Speaker Boehner.)  Traders then shifted focus to Dr. B’s statement that the Fed will buy another $600 billion in govies over the next eight months to keep rates low and stimulate the economy.  While “experts” questioned the move in the aftermath of the prior $1.7 trillion bond purchase experiment, investors seemed pleased with the magnitude of the plan. 

 

Traders then flipped attention to the contradictory employment figures which highlighted the week’s crucial economic data.  They also followed the mixed earnings results by the likes of BP, Pfizer, AIG, and Freddie Mac.  As of early in the week, 60% of S&P companies had posted and the showings were generally favorable.  Still, analysts worry that revenue growth is not at the levels consistent with a strong recovery and future quarters may look weaker due to the more difficult prior year comparisons.  (Earnings numbers began looking better in the 4th quarter 2009.) 

 

Transaction continued to reveal board room confidence, though few may have even noticed this week.  Wilmington Trust is buying M&T Bank; natural gas producer Exco Resources may go going private; and Oracle hopes to add Art Technology to its e-commerce software arsenal.  In other company news, carmakers Ford, GM, Chrysler, Honda, and Nissan revealed decent sales results in October, though Toyota continued to suffer negative PR from prior recalls.  Retailers grew a bit more optimistic about the holidays and engaged in new competitive pricing wars as Macy’s, Saks, and Nordstrom (among others) offered some pretty solid same-store sales results. 

 

Though news from the election and the Fed were expected, investors still embraced the decisions and pushed the markets higher.  The jury remains out over whether a Republican Congress will prove more biz friendly (or just more grandstanding and gridlock) and the bond buying program comes with plenty of risk.  Still, the initial reaction showed that investors are more optimistic about prospects for the economy and the major equity indexes moved higher during the week to levels not seen in two years since the Lehman collapse.  Commodities followed the equity lead as oil pushed to a six-month high.  Corporations rushed to take advantage of the low borrowing costs as another $12+ billion in new offerings hit the Street in the day that followed the Fed move with Coca Cola leading the charge with a $4.5 billion package of various maturities.  So while investors (and Tea Partiers) may be celebrating with that Bud (Glenfiddich), Obama and the Dems are drowning their sorrows and setting sights on 2012.  Will O. pull a Clinton (or a Carter)? 
Economic Calendar

Date	Release	Comments
November 1	Personal Income/Spending (09/10)	Slower spending ahead of holidays
	ISM (Manu) Index (10/10)	Better than expected sector growth
	Construction Spending (09/10)	Increase in September negated by August revision
November 3	ISM (Services) Index (10/10)	10th consecutive month of expansion
	Factory Orders (09/10)	Larger than expected increase in orders
	Fed Policy Meeting Statement	Announced $600 bln bond buying program
November 4	Jobless Claims (10/30/10)	Larger than expected increase
November 5	Unemployment Rate (10/10)	Still high at 9.6%
	Nonfarm Payroll (10/10)	Better than expected payroll increases
	Consumer Credit (09/10)	Unexpected increase by the most in 2 years
The Week Ahead
November 10	Balance of Trade (09/10)
November 11	Jobless Claims (11/06/10)

 

After days, weeks, months of rumors, the Fed moved forward with quantitative easing, round two (QE2) as the policymakers plan to buy another $600 billion in treasuries over the next eight months.  They also kept fed funds near 0% and expect to do so for “an extended period.”  While investors cheered the decisions, plenty of opposition emerged almost immediately.  Perpetual naysayer and KC Fed Chief Hoenig stood alone among his peers in his dissent, while several noted economists warned of asset bubbles and runaway inflation.  (Weren’t these same folks all stressed out about deflation just a few days ago?)  The ramifications of the Fed program spread across the globe and Asian and European leaders sharply criticized the action; fireworks will be flying at next week’s G20 meeting of the world’s leading economies.  For its part, the European Central Bank refused to engage in new stimuli, while sharing a rant or two in the Fed’s direction… “it isn't a normal situation to have financial institutions addicted to special funding.”  While the Bank of England chose not to follow the Fed’s lead as well, it left the door open for additional bond buying should the British economy weaken in the months to come. 

 

The economic calendar was plenty heavy this week as news from manufacturing served as a nice precursor to the much anticipated unemployment releases.  Both the ISM manufacturing index and September factory orders data revealed continued strength in the sector that had led the recovery over the past year and even the services version of ISM grew for the 10th straight month.  Additionally, manufacturing surged in both China and India as the rest of the world stayed hopeful that these emerging economies will lead the recovery.  Though the domestic jobless rate remained way too high for comfort at 9.6%, the nonfarm release was actually more positive with regards to the labor picture.  A better-than-expected 151,000 new nonfarm jobs were added to the economy in October and the private sector additions were also revised upward in both September and August as well.  Digging deep inside the numbers, the average workweek grew in October, a favorable sign because employees generally start increasing their workers’ hours in advance of more serious hiring moves.  Another byproduct of the average hourly enhancement would be the additional dollars on employees’ paychecks just in time for the holiday shopping season. 

 

On the Horizon…While next week promises to be slower in terms of economic releases and major news stories, investors will be hard at work analyzing the potential longer-term repercussions of the Fed moves and election results.  Dr. B. must prove thick-skinned as criticism will come from all corners of the globe.  Further, Boehner and his Republican counterparts will be expected to “put their money where their mouths are” (if any money is left about the expensive midterm campaigns) and lay out some specifics in terms of strategies to get the economy rolling again.  Investors also will be able to focus again on corporate earnings as Macy’s (11/10), Kohl’s (11/11), and JC Penney (11/12) headline the retailers’ participation in the season.  But for now, some much-deserved R&R awaits politicos, policymakers, and investors alike. 

Brounes & Associates is a Houston-based consulting/marketing firm that performs research, marketing, and education projects for financial services companies and other professionals.  “And That’s the Week That Was” is a weekly market/economic commentary that is distributed each Friday afternoon.  Any financial professionals who have interest in rebranding the piece and sending to their investors should inquire to:

Ron Brounes

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ron@ronbrounes.com

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