Market Matters…         

                           

Market/Index	Year Close (2010)	Qtr Close (09/30/11)	Previous Week (11/04/11)	Current Week (11/11/11)	YTD Change
Dow Jones Industrial	11,577.51	10,913.38	11,983.24	12,153.68	4.98%
NASDAQ	2,652.87	2,415.40	2,686.15	2,678.75	0.98%
S&P 500	1,257.64	1,131.42	1,253.23	1,263.85	0.49%
Russell 2000	783.65	644.16	746.49	744.64	-4.98%
Global Dow	2,087.44	1,725.68	1,860.04	1,862.40	-10.78%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	3.31%	1.92%	2.05%	2.06%	-125 bps

 

Another week…another European sob story (delete Greece, insert Italy).  It’s beginning to sound like a broken record.  (Am I dating myself?  Broken iPod perhaps?)  After the Italian bond yield surged above the dreaded seven percent level, Prime Minister Berlusconi decided it was time to call it quits (after fast-tracking an austerity plan aimed at improving Italy’s budget woes…what took so long?).  Perhaps Berlusconi was jealous of the free time former Greece PM Papandreou was about to have on his hands.  So good luck Mario Monti (Italy?) and Lucas Papademos (Greece) in your (expected) new roles in leading your respective governments.  Enjoy the constant second guessing, downgrade concerns, media blasts, mass protests, and never-ending “suggestions” from big brother Germany.   (BTW…the jobs look great on a résumé.)  So, should Prez O be worried about his future?  What are his views on abolishing the Department of Energy? 

In the corporate world, retail took center stage in the earnings’ game as Macy’s, Kohl’s, and Nordstrom brought renewed hope for the holiday season.  Home builders Toll  Brothers and DR Horton both depicted higher profits, though plenty of concerns remain for housing.  While GM portrayed a pessimistic picture for future quarters (thanks Thailand), Cisco Systems gave a relatively upbeat outlook (to go along with its declining profits).  Yum Brands looks to become the first company to make a major acquisition of a Chinese brand with its planned purchase of Little Sheep Group.  (Will Mongolian hot pot provide a nice complement to KFC?)  Starbucks is acquiring Evolution Fresh and hopes to transform the way the world drinks juice in much the same manner as it has done with coffee.  (Will they offer venti half decaf OJ?) 

 

The roller coaster ride continued for investors this week as many choose to focus exclusively on Italy in making their trading decisions.  (Domestic earnings and transactions have grown so boring these days.)   Early in the week, investors rejoiced when the Prime Minister (the man apparently behind all of the nation’s troubles?) announced plans to resign after gaining approval of a budget.  Then Italian bond rates skyrocketed amid new margin requirements, and US equities suffered their worst decline in about two months.  Once Italy’s Senate passed its budget (and showed Berlusconi the door), investors resumed their buying ways (but only after they confirmed that France’s credit rating had not been downgraded by S&P…at least, not yet).  They also welcomed some decent news on the domestic economic front in the form of stronger labor and consumer data.  Volatility remained the name of the game and equity investors closed the week on a positive note, knowing good and well that sentiment can change on a dime. 

 

Likewise, oil moved higher on stronger demand forecasts from (the friendly folks at) OPEC and a weekly inventory report that depicted declining supplies.  While the mid-week concerns about Italy slowed the rise for a bit, crude continued its trek back toward $100/barrel on bullish signs in stocks (though new talks of potential inflation can wait for another day…right Dr. Bernanke?).  So whose turn for next week’s eurozone crisis: Malta? Luxembourg? Estonia? 

Economic Calendar

Date	Release	Comments
November 7	Consumer Credit (09/11)	Higher borrowing for auto and college loans
November 10	Jobless Claims (11/05/11)	Lowest level since early April
	Balance of Trade (09/11)	Shrank as trading activity with EU declined
The Week Ahead
November 15	PPI (10/11)
	Retail Sales (10/11)
November 16	CPI (10/11)
	Industrial Production (10/11)
November 17	Jobless Claims (11/12/11)
	Housing Starts (10/11)
November 19	Leading Eco Indicators (10/11)

 

When renown economists talk…people listen (and then wait for them to revise their projections).  In a recent Wall Street Journal poll, leading economists now put the possibility of a recession in the US at 1-in-4, down from the 1-in-3 odds they laid just two months ago.  Then again, Europe remains the real wildcard, even for the future direction of domestic growth, and all bets are off if Greece or Italy (or even Estonia, Slovenia, or Slovakia) default on their debt.  On the other hand, these same economists believe Europe remains in far graver danger of slipping into recession with the new odds being placed at 2-in-3.  (How does one make such a bet?  Do economists charge juice?) 

With a former European Central Bank taking over the helms of Greece’s government, perhaps he will have more say with the powers-that-be (regulators) when it comes to the bailout package.  World leaders probably will not be losing any sleep over Berlusconi’s departure as many have long felt his government took its sweet time in acting on any meaningful austerity plan.  France overcame a mid-week scare as S&P appeared to downgrade its debt below AAA before informing the recipients of the erroneous message that it mess up.  (Or, as Governor Perry would say…OOPS.)  Germany continues to buck the trend when it comes to economic challenges in the EU as the country is experiencing low unemployment and the government has seen fit to cut taxes as part of its latest budget.  (The German Tea-Partiers must love Chancellor Merkel.)   Elsewhere, China’s inflation rate fell from the prior month, giving its government one less thing to worry about as it overcomes some export weakness with its struggling European trading partners. 

Closer to home, analysts welcomed a relatively mild week on the economic calendar (which gave them more time to focus on the rest of the world).  Jobless claims fell to its lowest reading since the week of April 2; even the less-volatile 4-week moving average dropped to the all-important 400k level, which implies some potential for job expansion (just barely).  Late in the week, a consumer sentiment index showed a surprisingly strong increase, a nice sign for the holidays (especially when coupled with the decent retailer earnings reports).   Then again, consumers used their credit cards less in September for the third straight month so a cautious mood still exists for the upcoming season.

On the Horizon…Retailers continue to showcase their prior quarters as Home Depot, Wal-Mart, Staples, Gap, and Ann Taylor take turns reporting profits (or losses?).  Additionally, October retail sales give investors one final look at the picture before the mad rush of Black Friday.  The inflation data is also reported though the latest push upward in crude will not be reflected quite yet.  Europe continues to be the talk of the town and all eyes will remain on Greece and Italy as the world watches the transitions of power in those two struggling economies.  Can the rates on Italy’s bonds remain below the critical seven percent level?  Can Greece secure that badly needed aid?  Will Moody’s or Fitch accidently downgrade France (or elsewhere) and then have to apologize?  (Certainly, next week will bring another “oops” moment or two.)    

 

 

 

(C) Brounes & Associates

www.ronbrounes.com