Monthly Archives: October 2014

Market Insights 10/31/2014

QE Japan……Surges Stocks Around the World

The U.S. equity markets closed the trading session with sizable gains, as the Dow and S&P both logged record-high closes, in the wake of a surprising announcement from the Bank of Japan (BOJ) that it is expanding its vast stimulus spending program in an effort to boost core inflation to a level in line with the BOJ’s goal. Meanwhile, gold and crude oil prices were under solid pressure and the U.S. dollar rallied.

Treasuries were lower as domestic economic reports showed that consumer sentiment was unexpectedly revised higher and business activity in the Midwest region jumped to a twelve-month high, while personal income and spending missed expectations and 3Q employment costs rose more than forecasted.

In earnings news, Citigroup lowered its previously reported quarterly results due to an increase in legal expenses and Starbucks posted softer-than-expected same-store-sales, while Dow members Exxon Mobil and Chevron both topped the Street’s earnings forecasts.

The Markets…

The Dow Jones Industrial Average gained 195 points (1.1%) to 17,390

On the NYSE winning issues beat losers by a 5 to 1 margin in lopsided trading

The S&P 500 Index was 23 points (1.2%) higher at 2,018, sectors leading the way higher today included Energy (+2.03%) Materials (+1.87%) and Technology (+1.55%)

Small and MidCaps beat the S&P 500 today with the SmallCap 600 higher by 1.65% and MidCaps better by 1.22%

The Nasdaq Composite gained 65 points (1.4%) to 4,631

In moderately heavy volume, 1.0 billion shares were traded on the NYSE, and 2.4 billion shares changed hands on the Nasdaq

WTI crude oil decreased $0.58 to $80.54 per barrel, wholesale gasoline was $0.01 lower at $2.15 per gallon

The Bloomberg gold spot price decreased $26.96 to $1,171.89 per ounce

Markets were higher on the week, as the DJIA surged 3.5%, the S&P 500 Index increased 2.7% and the Nasdaq Composite Index advanced 3.3% For the week, leading sectors included Healthcare (+4.18%) Utlilities (+3.08%). Financials (+3.02%) and Industrials (+2.60%)

Consumer sentiment revised higher, while personal income and spending report misses

The final University of Michigan Consumer Sentiment Index was revised higher to 86.9 from the preliminary level of 86.4 for October, with economists surveyed by Bloomberg expecting an unadjusted reading, and compared to the 84.6 level posted in September. The upbeat report came as a downward adjustment to the component pertaining to current economic conditions was more than offset by an upward revision to the portion regarding the economic outlook. On inflation, the 1-year expectation was revised higher from 2.8% to 2.9%, compared to September’s 3.0% figure, while the 5-year inflation outlook was unadjusted at 2.8%, matching the rate posted last month.

Personal income rose 0.2% month-over-month in September, below the 0.3% gain that economists had projected, while August’s 0.3% rise was unrevised. However, personal spending declined by 0.2% m/m last month, versus expectations of a 0.1% gain, while August’s 0.5% rise was unrevised. The September savings rate as a percentage of disposable income rose to 5.6%, from August’s unrevised rate of 5.4%.

Meanwhile, the PCE Deflator was up 0.1% m/m in September, matching the increase that was expected, and compared to the downwardly revised 0.1% decline seen in August. Compared to last year, the deflator was 1.4% higher, versus expectations of a 1.5% increase. Excluding food and energy, the PCE Core Index was up 0.1%, inline with forecasts and was 1.5% higher y/y, matching expectations.

The Chicago Purchasing Managers Index (chart) showed growth in Midwest activity unexpectedly accelerated, rising to 66.2 for October—the highest level in a year—from 60.5 in September, and versus expectations of a decline to 60.0, with a reading above 50 depicting growth.

The 3Q Employment Cost Index increased by 0.7% quarter-over-quarter, above the 0.5% increase that economists had expected, after rising by an unrevised 0.7% in 2Q.

Treasuries were lower, with the yields on the 2-year and 10-year notes increasing 2 basis points (bps) to 0.49% and 2.33%, respectively, while the yield on the 30-year bond rose 1 bp to 3.06%.

Stocks post second-straight weekly rally

The equity markets registered their second-straight weekly advance as volatility continued to fade. 3Q earnings season rolled on, with 78% of the 362 companies that have reported out of the S&P 500 exceeding earnings estimates and 59% topping sales forecasts, per data compiled by FactSet.

News on the week included that The Federal Reserve decided to end its asset-purchase program and upgraded its assessment of the labor market. Also, the first look at 3Q U.S. GDP showing a 3.5% pace of expansion easily bested growth forecasts, while Europe’s banking sector stress test results eased some concerns about the health of the region’s financial system. The U.S. economy continues to grow, the Fed remains accommodative, and global growth isn’t falling off a cliff. However, volatility could continue but equity investors should keep the longer-term picture in mind, which we believe is positive. We feel investors who remain underexposed to equities relative to their plan should use pullbacks to gradually add exposure. The time to buy has proven throughout history to be when investors most want to sell.

Finally, the weekly winning streak was solidified by the Bank of Japan’s surprising move to boost its asset purchases, which was complemented by Japan’s $1.2 trillion GPIF—the world’s largest public pension fund—announcing that it will more than double its portfolio allocation of foreign and domestic stocks.

Markets in for another heavy week as U.S. jobs and European central banks take the stage

Next week, with earnings season past its apex, the domestic economic calendar is likely poised to carry the bulk of the data load, starting with Monday’s release of the ISM Manufacturing Index and concluding with Friday’s October non-farm payroll report. Every piece of economic data will be examined thoroughly as the Fed’s statement maintained its “considerable time” language with respect to its forward guidance on the fed funds rate, it was made clear that the pace of any potential rate hikes will be data-dependent. The Committee took a more upbeat tone to the employment situation, while also adjusting their wording of slack in the labor market, noting that indicators are suggesting that it is gradually diminishing.. But with inflation still relatively tame, we don’t think the Fed will necessarily be in a rush to hike rates, and the pace of hikes may remain slow.

Europe broadly higher, while Asia rallied

The European equity markets finished nicely higher across the board as yesterday’s better-than-expected 3Q GDP out of the U.S. was met with some upbeat earnings reports from the region’s banking sector. However, the bulk of the broad-based advance came amid an unexpected announcement from the Bank of Japan that it will increase its asset purchase program. In economic news in the region, the Eurozone consumer price inflation estimate rose inline with economists expectations for October, French consumer spending fell more than expected, and German retail sales dropped by a larger amount than anticipated for September. Finally, Russia’s central bank raised its benchmark interest rate more than expected to 9.50%, from 8.00%, and compared to the 8.50% rate that was expected.

Asian equity markets finished broadly higher on the heels of the 3Q U.S. GDP report yesterday and after the Bank of Japan (BOJ) unexpectedly boosted its asset purchase plan. Stocks in the region surged, while the yen fell sharply as the BOJ announced that it would expand its annual asset purchases to 80 trillion yen ($726 billion), from its previous target of 60-70 trillion yen, through purchases of government bonds, while also saying it expects to triple the amount of purchases of exchange-traded funds (ETFs) and Japanese real-estate investment trusts (REITs). The move was split between policymakers as five members voted in favor of it, while four members opposed it.

The BOJ justified its actions in its statement by saying, “If the current downward pressure on prices remains, albeit in the short term, there is a risk that conversion of deflationary mind-set, which has so far been progressing steadily, might be delayed.” Additionally, Japan’s massive Government Pension Investment Fund (GPIF) announced that it would boost its target allocations for domestic and foreign stocks to 25% from 12%, while lowering its overall bond allocation. The news comes after Japan reported mixed inflation data and a larger-than-expected drop in the country’s household spending.

Stocks in China finished higher with some strength in financials leading the way after some upbeat earnings reports out of the sector, ahead of tonight’s read on Chinese manufacturing activity, while Indian equities rallied as continued optimism regarding government reforms added to the upbeat mood.

The international calendar will be dominated by monetary policy decisions from the Reserve Bank of Australia, the European Central Bank and the Bank of England. Also, China’s manufacturing PMIs will be accompanied by Markit’s business activity reports on the Eurozone, the U.K. and Japan, while Germany’s trade balance and industrial production reports will be reported later in the week.

Market Insights 10/30/2014

Stocks Advance; 3Q GDP Read Better than Expected

Following a rocky start to the session, the U.S. equity markets rebounded nicely and closed the trading day with solid gains as investors digested more corporate earnings data and a stronger-than-expected domestic 3Q GDP report.

Stocks may have found additional support from some late-day resiliency displayed in the European equity markets despite disappointing German inflation data and lingering banking sector concerns. Treasuries were higher despite the GDP report, which also showed that personal consumption missed expectations, while a separate release revealed that domestic jobless claims rose more than anticipated.

In equity news, the Dow enjoyed a triple digit move to the upside, with Visa leading the gains for the index in the wake of better-than-expected bottomline results and a new $5.0 billion share repurchase program. In other earnings news, MasterCard also topped analysts’ earnings forecasts, while Kraft Foods missed the Street’s revenue estimates and Time Warner Cable posted softer-than-expected quarterly results.

The Markets….

The Dow Jones Industrial Average ascended 221 points (1.3%) to 17,196

The S&P 500 Index was 12 points (0.6%) higher at 1,995, sectors leading the S&P higher were Utilities (2.20%), Healthcare (1.84%), Materials (.76%), laggards include Energy (-.36%)

The Nasdaq Composite added 17 points (0.4%) to 4,566

In moderate volume, 764 million shares were traded on the NYSE, and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil fell $1.08 to $81.12 per barrel, wholesale gasoline declined $0.02 to $2.16 per gallon

The Bloomberg gold spot price decreased $13.54 to $1,198.61 per ounce

First look at 3Q GDP tops forecasts, while jobless claims rise more than expected

The first look (of three) at 3Q Gross Domestic Product , the broadest measure of economic output, showed a quarter-over-quarter annualized rate of expansion of 3.5%, from the 4.6% expansion in 2Q, and above the 3.0% growth that was forecasted by economists surveyed by Bloomberg. However, personal consumption came in south of forecasts, rising 1.8%, following the 2.5% increase recorded in 2Q, and versus the 1.9% gain that was projected. The GDP growth came as the increase in personal consumption was accompanied by positive contributions from exports, nonresidential fixed investment, and government spending, partially offset by a negative contribution from private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased. However, most of the aforementioned positive contributors showed decelerations in growth, leading to the slower pace of GDP expansion q/q.

*Click on Chart to Enlarge*

REAL GDP

On inflation, the GDP Price Index came in cooler than expected at a 1.3% rise, from the 2.1% advance seen in 2Q, and compared to the 1.4% increase that economists anticipated, while the core PCE Index, which excludes food and energy, rose 1.4%, matching expectations, and following the 2.0% growth in 2Q.

Weekly initial jobless claims rose by 3,000 to 287,000 last week, above the 285,000 level that economists had expected, as the prior week’s figure was upwardly revised by 1,000 to 284,000. However, the four-week moving average, considered a smoother look at the trend in claims, dipped by 250 to 281,000, while continuing claims rose by 29,000 to 2,384,000, north of the forecast of economists, which called for a level of 2,352,000.

Treasuries are higher with the yield on the 2-year note dipping 1 basis point to 0.47%, while the yields on the 10-year note and the 30-year bond are decreasing 2 bps to 2.29% and 3.03%, respectively. Bond yields were mixed yesterday as the Federal Reserve ended its asset purchase program, as expected, and made little change to its statement compared to its September meeting regarding a “moderate” pace of economic expansion. The Fed offered an upgraded assessment of the job market, noting that labor market conditions improved somewhat further.

The end of the Fed’s bond-buying programs means that there is one less thing in the way of the first rate hike. Although the “considerable time” language remained in the statement, it was made clear that the pace of any potential rate hikes will be data-dependent. With the Fed using more qualitative guidance, we think it will be important to pay attention to each release of the economic projections to get an idea of when the Fed might start hiking rates and how high they may go. We still think a hike sometime in 2015 is most likely.

Tomorrow, the U.S. economic calendar will yield reports on personal income, anticipated to increase 0.3% m/m in September, and personal spending, expected to have grown 0.1% m/m. After the opening bell, we will receive the Chicago Purchasing Manager Index, anticipated to decrease slightly to a reading of 60.0 in October from the level of 60.5 in September, but a level above 50 depicts expansion in business activity in the Midwest region. Rounding out the day, the final University of Michigan Consumer Sentiment Index for October will be released, with a reading of 86.4 expected, unchanged from the preliminary report level.

Europe rallies in late-day to overcome early losses, Asia mixed

The European equity markets finished higher following a late-day rally on the heels of the stronger-than-expected 3Q GDP report out of the U.S. and some upbeat earnings reports in the region. The advance for stocks followed yesterday’s monetary policy decision by the Federal Reserve, where it ended its asset purchase program. Eurozone banking stocks were bogged down by uncertainty toward the health of the sector in the wake of last weekend’s release of stress tests results by the European Central Bank and European Banking Authority (EBA). The mood toward the sector was exacerbated by comments from an EBA official noting that the conclusion of the test results and asset-quality review won’t lead to an immediate boost to lending, per Bloomberg. Stocks showed some resiliency in the face of disappointing inflation data in Germany showing consumer price inflation fell more than expected. In other economic news, Spain’s Q3 GDP growth matched expectations, while the German unemployment change for October surprisingly fell.

The U.K. FTSE 100 Index, Spain’s IBEX 35 Index and Italy’s FTSE MIB Index finished 0.2% higher, France’s CAC-40 Index rose 0.7%, Germany’s DAX Index advanced 0.4%, and Switzerland’s Swiss Market Index gained 0.8%.

Stocks in Asia finished mixed on the heels of the Federal Reserve’s monetary policy meeting in which it ended its asset purchase program and offered an upgraded assessment of the labor market. Japanese equities found some support from weakness in the yen following the Fed’s decision, while traders await tonight’s inflation data and tomorrow’s monetary policy decision by the Bank of Japan. The Chinese government announced that it will boost consumption in key industries including housing and e-commerce, while a report out of South Korea showed the country’s industrial production rose at a much smaller rate than expected for September.

The international economic docket for tomorrow will offer housing starts and construction orders from Japan, as well as the aforementioned inflation data and monetary policy decision from the island nation’s central bank, the PPI from Australia, retail sales from Germany, the GfK consumer confidence from the U.K., the CPI from Italy and GDP data from Canada.

Word of the Day

Risk

The chance that an investment’s actual return will be different than expected. Risk includes the possibility of losing some or all of the original investment. Different versions of risk are usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment. A high standard deviation indicates a high degree of risk.

A fundamental idea in finance is the relationship between risk and return. The greater the amount of risk that an investor is willing to take on, the greater the potential return. The reason for this is that investors need to be compensated for taking on additional risk.

For example, a U.S. Treasury bond is considered to be one of the safest (risk-free) investments and, when compared to a corporate bond, provides a lower rate of return. The reason for this is that a corporation is much more likely to go bankrupt than the U.S. government. Because the risk of investing in a corporate bond is higher, investors are offered a higher rate of return.

U.S. GDP Climbs 3.5% in Third Quarter

The U.S. economy grew at a 3.5% annual pace in the third quarter, aided by a surge in exports and a big jump in military spending, the government said Thursday.

Click on below graph to expand

REAL GDP

Economists had predicted gross domestic product would expand by a seasonally adjusted 3%. The increase in consumer spending, the main source of U.S. economic activity, slowed to a 1.8% annual pace from 2.5% in the prior quarter. Business investment on equipment, while up 7.2%, also decelerated, as did outlays on housing construction. Yet exports surged 7.8% while imports dropped 1.7%, making trade the biggest contributor to economic growth in the third quarter. A 10% jump in federal spending, mostly on Pentagon hardware, also bolstered growth. It was the biggest increase in federal spending since 2009, when the Obama administration put in place a huge economic stimulus package.

Inventories, meanwhile, rose by a smaller $62.8 billion vs. $84.8 billion in the prior quarter and were a drag on growth. Inflation as measured by the PCE index rose at a 1.2% annual rate, down from 2.3%, as falling energy prices work to keep price pressures under wraps. The core PCE that excludes food and energy climbed at a 1.4% clip. The government will issue an updated look at GDP in another month.

Market Insights 10/29/2014

Fed Helping Hand Comes to Conclusion

The U.S. equity markets finished lower after the Federal Reserve confirmed in its statement following its two-day monetary policy meeting that its asset purchase program, affectionately known as quantitative easing, or QE3, has come to an end.

Treasuries finished mixed following the Fed’s decision, while the only other economic report today showed mortgage applications declined. Finally, gold was lower, while the U.S. dollar and crude oil prices were higher.

The Markets…

The Dow Jones Industrial Average fell 31 points (0.2%) to 16,974

On the NYSE, losers edged out winners by a 1.5 to 1 margin

The S&P 500 Index was 3 points (0.1%) lower at 1,982, leading sectors were Energy (+.33%), Financials (+.26%) and Healthcare (+.05%). laggard sectors include Materials (-1.24%), Utilities (-.58%) and Industrials (-.35%).

The Nasdaq Composite declined 15 points (0.3%) to 4,549

In moderate volume, 814 million shares were traded on the NYSE, and 2.2 billion shares changed hands on the Nasdaq

WTI crude oil rose $0.78 to $82.20 per barrel, wholesale gasoline added $0.02 to $2.18 per gallon

The Bloomberg gold spot price decreased $16.42 to $1,212.10 per ounce

Fed remains steady, ends bond purchases

The Federal Reserve Open Market Committee (FOMC) concluded its two-day meeting, releasing its statement that showed little change from its September meeting release, in regards to the “moderate” pace of economic expansion. As expected, the FOMC concluded its asset purchase program, noting that labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate.

The Fed made no change to its target to keep interest rates near zero, as expected, while also maintaining its “considerable time” language as to when the Fed expects to maintain the target range for the federal funds rate after the asset purchase program ends. Committee member Narayana Kocherlakota dissented, noting that “in light of continued sluggishness in the inflation outlook and the recent slide in market-based measures of longer-term inflation expectations, the Committee should commit to keeping the current target range for the federal funds rate at least until the one-to-two-year ahead inflation outlook has returned to 2 percent and should continue the asset purchase program at its current level objection to the use of the ‘considerable time’ guidance given in the statement.”

There was no scheduled press conference from Chairwoman Yellen and no new economic projections were released.

The MBA Mortgage Application Index decreased 6.6% last week, after jumping 11.6% in the previous week. The decline, which snapped a string of three-straight weekly advances, came as a 7.4% drop for the Refinance Index was accompanied by a 5.0% decrease for the Purchase Index. Moreover, the average 30-year mortgage rate rose by 3 bps to 4.13%.

Treasuries finished mixed following the Fed’s statement, as the yield on the 2-year note rose 6 bps to 0.49%, the yield on the 10-year note ticked 2 bps higher to 2.32%, while the 30-year bond rate declined 2 bps to 3.05%.

Tomorrow’s economic calendar will offer investors the first look at 3Q GDP, with economists forecasting a 3.0% quarter-over-quarter annualized rate of growth, down from the 4.6% rate of expansion posted in the 2Q. Personal consumption is expected to rise 1.9% q/q, compared to the 2.5% increase in the 2Q. On inflation, both the GDP Price Index and the core PCE index, which excludes food and energy, are anticipated to show 1.4% q/q increases, following the respective 2.1% and 2.0% advances the quarter prior. The only other item on tomorrow’s docket is weekly initial jobless claims, forecasted to move modestly higher to a level of 285,000 from the 283,000 registered in the previous week.

Europe mixed, Asia higher ahead of Fed

The European equity markets finished mixed coming off yesterday’s broad-based advance that came amid some better-than-expected earnings reports and a jump in U.S. Consumer Confidence. Traders digested some diverging earnings reports in the region, ahead of today’s monetary policy decision by the Federal Reserve. In economic news, French consumer confidence came in slightly below expectations for October, Spanish retail sales rose last month, and U.K. consumer credit modestly topped forecasts for September.

The U.K. FTSE 100 Index was up 0.7%, Germany’s DAX Index ticked 0.1% higher, and Switzerland’s Swiss Market Index advanced 0.3%, while France’s CAC-40 Index dipped 0.1%, and Spain’s IBEX 35 Index and Italy’s FTSE MIB Index fell 1.6%.

Stocks in Asia finished mostly higher on the heels of the broad-based gains in the U.S. and Europe yesterday that came amid some upbeat earnings reports and a favorable read on U.S. Consumer Confidence. Meanwhile, traders awaited today’s monetary policy decision by the Federal Reserve, while the Bank of Japan is expected to issue its policy stance later this week. In economic news in the region, Japan’s industrial production rose more than expected in September, while South Korea’s current account surplus widened for last month.

Items set for release on tomorrow’s international economic calendar include: industrial production from South Korea, trade data from Australia and Japan, housing prices from the U.K., GDP from Spain, unemployment figures and CPI from Germany, and confidence data from the eurozone.

Word of The Day

Quantitative Easing (quan·ti·ta·tive eas·ing)

An unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity. Quantitative easing is considered when short-term interest rates are at or approaching zero, and does not involve the printing of new banknotes.

Typically, central banks target the supply of money by buying or selling government bonds. When the bank seeks to promote economic growth, it buys government bonds, which lowers short-term interest rates and increases the money supply. This strategy loses effectiveness when interest rates approach zero, forcing banks to try other strategies in order to stimulate the economy. QE targets commercial bank and private sector assets instead, and attempts to spur economic growth by encouraging banks to lend money. However, if the money supply increases too quickly, quantitative easing can lead to higher rates of inflation. This is due to the fact that there is still a fixed amount of goods for sale when more money is now available in the economy. Additionally, banks may decide to keep funds generated by quantitative easing in reserve rather than lending those funds to individuals and businesses.

Fed Ends QE Stimulus

The following is the Federal Reserve’s statement after the central bank ended a long-running program of bond purchases, or “quantitative easing,” meant to stimulate the U.S. economy.

Information received since the Federal Open Market Committee met in September suggests that economic activity is expanding at a “moderate pace”. Labor market conditions improved further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing. Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow.

Inflation has continued to run below the Committee’s longer-run objective. Market-based measures of inflation compensation have declined somewhat; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate.

The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced. Although inflation in the near term will likely be held down by lower energy prices and other factors, the Committee judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year.

The Committee judges that there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability.

Accordingly, the Committee decided to conclude its asset purchase program this month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress — both realized and expected — toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.

The Committee anticipates, based on its current assessment, that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program this month, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Stanley Fischer; Richard W. Fisher; Loretta J. Mester; Charles I. Plosser; Jerome H. Powell; and Daniel K. Tarullo.

Voting against the action was Narayana Kocherlakota, who believed that, in light of continued sluggishness in the inflation outlook and the recent slide in market-based measures of longer-term inflation expectations, the Committee should commit to keeping the current target range for the federal funds rate at least until the one-to-two-year ahead inflation outlook has returned to 2 percent and should continue the asset purchase program at its current level.

Market Insights 10/28/2014

Consumer Confidence A Boost for Stocks

Amid a mixed bag of earnings reports and a surprising drop in durable goods orders, U.S equities were able to finish strong, getting a boost from a seven-year high in domestic consumer confidence. It appears stocks may have gotten a lift from a broad-based advance in Europe, as well as a rebound in Chinese industrial profits and optimism that China may expand its free-trade zone.

The Federal Reserve began its two-day monetary policy meeting, and other reports on the economic front showed softer-than-expected home prices and an unexpected acceleration in regional manufacturing activity.

In equity news, Dow member DuPont posted mixed quarterly results and Dow component Pfizer beat the Street’s expectations, but narrowed its guidance, while higher commercial medical costs overshadowed Aetna’s better-than-expected results, and shares of Twitter came under pressure after disclosing disappointing growth and 4Q guidance.

Treasuries and the U.S dollar finished lower, while gold and crude oil prices were higher.

The Markets….

The Dow Jones Industrial Average rose 188 points (1.1%) to 17,006

Winning issues crushed losers by a 5 to 1 margin on the NYSE

The S&P 500 Index was 23 points (1.2%) higher at 1,985, sectors leading the S & P higher were Energy with a 2.28% advance and Industrials with a 1.77% move higher.

Smaller Capitalized stocks had a banner day with the S & P SmallCap 600 higher by 2.95% and the MidCap 400 Index higher by 1.74%.

The Nasdaq Composite jumped 78 points (1.8%) to 4,564

In moderate volume, 786 million shares were traded on the NYSE, and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil rose $0.42 to $81.42 per barrel, wholesale gasoline added $0.03 to $2.16 per gallon

The Bloomberg gold spot price increased $2.06 to $1,228.68 per ounce

Durable goods orders unexpectedly drop, while Consumer Confidence jumps to seven-year high

Durable goods orders decreased 1.3% month-over-month in September, compared to the 0.5% gain expected by economists surveyed by Bloomberg, while August’s 18.2% drop was revised lower to an 18.3% fall. Today’s report reaffirmed the volatile nature of the data, with non-defense and defense aircraft and parts orders falling 16.1% and 7.8%, respectively. Ex-transportation, orders declined 0.2% m/m in September, versus the forecasted 0.5% gain, while August’s figure was un-revised at a 0.7% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, dropped 1.7% m/m last month, compared to the projected 0.7% increase, while the 0.6% gain in August was revised to a 0.3% rise. Orders for computer and related products fell 5.3% and machinery demand dropped 2.8%, while communications equipment orders tumbled 16.6%, suggesting the recent flare-up in global weakness may be dampening corporate confidence.

It’s important to remember not to put too much weight in one month’s worth of data, leading indicators of capital spending point to a further acceleration over the next several quarters. The private sector is largely through its painful de-leveraging process, business confidence indexes have turned up; and bank lending—notably commercial and industrial (C&I) lending—is on the rise. Interestingly, the average age of private fixed assets is at a 50-year high and activist investors are increasingly pushing companies to refocus their attention on long-term investments vs. short-term financial engineering such as stock buybacks and dividends.

The drop in the gauge of business spending was somewhat disconcerting and likely further tamped down expectations of a premature rate hike by the Federal Reserve. Tomorrow the Fed will conclude the two-day Federal Open Market Committee (FOMC) meeting, with the statement due out at 2:00 p.m. ET. There is no scheduled press conference from Chairwoman Yellen and new economic projections will not be released.

The Central Bank is expected to announce the end of its asset purchase program, known as quantitative easing (QE3), while traders will be looking for any tweaks to its statement regarding the timing of its interest rate hike campaign, though at the last meeting policymakers expressed concern about the recent global weakness, while noting the rally in the U.S. dollar poses a risk to the economy. We feel declining inflation expectations, slow wage growth, and deflation fears in Europe could keep it from considering an earlier first interest rate hike; while one voting member even suggested QE4. We don’t believe anything so drastic would be necessary, or beneficial, but it does help bolster the “don’t fight the Fed” case for stocks.

Most surprising, the Consumer Confidence Index jumped to 94.5 in October—the highest since October 2007—from an upwardly revised 89.0 in September and compared to the estimated 87.0 level. A solid m/m improvement in the component pertaining to expectations of business conditions was met with a modest gain in sentiment regarding the present situation.

The 20-city composite S&P/Case-Shiller Home Price Index showed a gain in home prices of 5.6% y/y in August, compared to the expected 5.7% increase. Moreover, m/m, home prices were lower by 0.2% on a seasonally adjusted basis for August, versus forecasts of a 0.2% increase.

Treasuries are lower, with the yield on the 2-year note ticking 1 basis point higher to 0.39%, while the yields on the 10-year note and the 30-year bond are rising 3 bps to 2.29% and 3.06%, respectively.

Europe broadly higher amid a flood of earnings reports

The European equity markets moved broadly higher, with some upbeat news out of China being met with a plethora of earnings reports in the region, which more than offset some caution ahead of tomorrow’s monetary policy decision by the U.S. Federal Reserve. On the economic front, German import prices unexpectedly rose in September and Italian business confidence surprisingly improved for October, while Sweden’s central bank cut its benchmark interest rate more than expected to 0.00%, from 0.25%, and compared to the 0.10% that economists had anticipated.

The U.K. FTSE 100 Index was up 0.6%, Germany’s DAX Index gained 1.9%, France’s CAC-40 Index advanced 0.4%, Spain’s IBEX 35 Index rose 2.2%, Italy’s FTSE MIB Index traded 2.4% higher, Switzerland’s Swiss Market Index increased 1.3%, and Sweden’s OMX Stockholm 30 Index ascended 1.5%.

Stocks in Asia finished mixed on the heels of the lackluster session in the U.S. yesterday, while traders awaited tomorrow’s monetary policy decision from the Federal Reserve. However, stocks in China advanced, aided by a report that showed the nation’s industrial profits rebounded 0.4% y/y last month, after declining 0.6% in the prior month. Sentiment may have found some support from a media report noting that the nation’s president suggested Shanghai’s free-trade zone could be expanded into other parts of the country, per Bloomberg.

Japan’s Nikkei 225 Index declined, despite a much stronger-than-expected read on the nation’s September retail sales, with traders treading cautiously ahead of the Fed’s decision tomorrow, which will precede the Bank of Japan’s monetary policy statement later in the week. In other economic news in the region, South Korea’s consumer confidence declined for this month.

While most eyes will likely be on the FOMC’s monetary policy decision, there are some international reports out tomorrow that could garner some attention, including industrial production from Japan and housing data from the U.K. As well, Brazil’s central bank will meet to discuss monetary policy, with no change to its stance expected.

Word of the Day

Emerging Market Economy

A nation’s economy that is progressing toward becoming advanced, as shown by some liquidity in local debt and equity markets and the existence of some form of market exchange and regulatory body.

Emerging markets generally do not have the level of market efficiency and strict standards in accounting and securities regulation to be on par with advanced economies (such as the United States, Europe and Japan), but emerging markets will typically have a physical financial infrastructure including banks, a stock exchange and a unified currency.

Emerging markets are sought by investors for the prospect of high returns, as they often experience faster economic growth as measured by GDP. Investments in emerging markets come with much greater risk due to political instability, domestic infrastructure problems, currency volatility and limited equity opportunities (many large companies may still be “state-run” or private). Also, local stock exchanges may not offer liquid markets for outside investors.

Market Insights 10/27/2014

Markets Begin the Week Nearly Where They Began

U.S. equities ended the first trading day of the week mixed and nearly unchanged, as investors appeared content to fence-sit ahead of a heavy week of economic data, headlined by Wednesday’s Fed policy decision. Treasuries finished slightly higher, crude oil prices were nearly unchanged, while gold and the U.S. dollar were lower.

Meanwhile, another disappointing report out of Germany kept sentiment in check, overshadowing mostly better-than-expected banking sector stress test results out of Europe over the weekend. On the earnings front, Dow member Merck & Co beat the Street’s expectations, but the drugmaker narrowed its guidance, and Seagate Technology bested analysts’ quarterly forecasts.

The Markets….

The Dow Jones Industrial Average gained 12 points (0.1%) to 16,818

The S&P 500 Index was 3 points (0.2%) lower at 1,962, sectors higher today included Technology, Healthcare and Consumer Staples, while Energy and Materials produced the most drag.

The Nasdaq Composite added 2 points (0.1%) to 4,486

In moderate volume, 759 million shares were traded on the NYSE, and 1.5 billion shares changed hands on the Nasdaq

WTI crude oil inched $0.01 lower to $81.00 per barrel, wholesale gasoline lost $0.01 to $2.13 per gallon

The Bloomberg gold spot price declined $2.22 to $1,228.79 per ounce

Housing and business activity reports miss forecasts

Pending home sales rose 0.3% month-over-month in September, versus the projected 1.0% gain that economists surveyed by Bloomberg had forecasted, and following the unrevised 1.0% decrease registered in August. Compared to last year, sales were 1.0% higher last month, versus the 2.2% rise that was anticipated, and following August’s unadjusted 4.1% drop. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which rose more than expected in September.

The preliminary Markit U.S. Services PMI Index declined more than expected to 57.3 in October from 58.9 in September, and compared to the decrease to 57.8 that economists had expected, with a reading above 50 denoting expansion. The release is independent and differs from the Institute for Supply Management’s (ISM) non-Manufacturing Index, as it has less historic value and Markit weights its index components differently. Markit’s services sector gauge is the companion to its manufacturing index, which last week also declined more than expected to 56.2 for this month.

The Dallas Fed Manufacturing Index showed growth in activity for the region unexpectedly decelerated, declining to 10.5 in October from 10.8 in September, and compared to the 11.0 figure that was forecasted, with readings above zero denoting expansion.

Treasuries are higher in afternoon action, with the yields on the 2-year note and the 30-year bond dipping 1 basis point (bp) to 0.38% and 3.03%, respectively, while the yield on the 10-year note is declining 2 bps to 2.25%.

Along with the Fed starting its two-day monetary policy meeting tomorrow, the U.S. economic calendar will bring the release of the September durable goods orders report, forecasted to show a 0.5% m/m increase, following the 18.2% drop registered in the previous month. Excluding transportation, orders are projected to also grow 0.5% after rising 0.7% in August. The report is volatile m/m, due to the nature of aircraft and other transportation orders. However, the orders for non-defense capital goods excluding aircraft are used as a gauge of business spending, and are forecasted to increase 0.7%, following the 0.6% gain posted in the month prior.

Other items on tomorrow’s docket include: the S&P/Case-Shiller Home Price Index, forecasted to show home prices in the 20-city composite rose 0.15% m/m on a seasonally-adjusted basis for August, following the 0.5% m/m decline in July, while year-over-year (y/y) prices are expected to have gained 5.70%, compared to the 6.75% increase the month prior.

Also, Consumer Confidence will be released with economists expecting a reading of 87.0 for October, up slightly from the 86.0 registered in September, and the Richmond Fed Manufacturing Index is anticipated to show manufacturing in the mid-Atlantic region decelerated to 11 during October from the 14 posted in the month prior, with a reading above zero denoting expansion.

Europe mostly lower as banks’ stress test overshadowed by disappointing German data

The European equity markets finished lower as an early boost from the weekend’s banking sector stress test results that came in mostly better-than-expected evaporated in the wake of another disappointing economic report out of Germany. The European Central Bank (ECB) and the European Banking Authority reported that of the 130 banks that were tested, 25 had failed, but only 13 still need to raise capital. Italian banks saw some pressure after the test results revealed the nation’s institutions were the most exposed, led by lender Banca Monte dei Paschi di Siena SpA (BMDPY $0.52), which had the largest capital hole to fill and the company announced that it has hired advisers to explore strategic options, per Bloomberg. Shares of the Italian lender were down sharply.

Meanwhile, Germany’s Ifo Business Climate Index, a gauge of business confidence derived from a survey of 7,000 executives, declined for a sixth-straight month to 103.2 for October, from 104.7 last month, and compared to the 104.5 level that economists had projected. This was the lowest reading on German business confidence since December 2012.

The U.K. FTSE 100 Index was down 0.4%, Germany’s DAX Index declined 1.0%, France’s CAC-40 Index decreased 0.8%, Spain’s IBEX 35 Index dropped 1.4%, Italy’s FTSE MIB Index fell 2.4%, and Switzerland’s Swiss Market Index dipped 0.1%.

Stocks in Asia finished mixed to start the week, as some caution ahead of Wednesday’s Fed policy decision offset some of the optimism from last week’s solid advance that was fueled by mostly better-than-expected earnings reports out of the U.S. Meanwhile, traders also digested the weekend’s banking sector stress test results out of Europe, which showed a large majority of banks had sufficient capital positions to weather another economic downturn. Stocks in Japan advanced, despite some strengthening of the yen, however Chinese markets declined amid lingering uncertainty regarding the timing of the trading link between the Shanghai and Hong Kong markets.

Word of The Day

Frontier Markets

The frontier, or pre-emerging, equity markets are pursued by investors seeking potentially high returns who are able to accept the higher risks these type of markets would be exposed to. Some of the risks investors face in these frontier markets are political instability, poor liquidity, inadequate regulation, substandard financial reporting and large currency fluctuations. In addition, many markets are overly dependent on volatile commodities.

Frontier market investments can have a low correlation to developed markets and thus can provide addtional diversification to an equity portfolio.

Economy on Track for Best Growth in Nine Years

First of 3, Q3 GDP Reports This Week

The global economy is sputtering again. Most Americans remain pessimistic five years after the end of the Great Recession. And the deadly Ebola virus is adding fresh uncertainty to an already fragile recovery. Yet, the U.S. economy continues to chug along and it could soon register its longest and strongest period of expansion in nine years.

On Thursday, the government is likely to report the U.S. grew in excess of 3% in the third quarter, right on the heels of 4.6% growth rate in the spring. What’s more, economists polled by Bloomberg predict the nation will also grow at least 3% in the final three months of 2014. The last time the U.S. posted three straight quarters of similar growth was from late 2005 through early 2006. The steady pace of expansion has made the U.S. an oasis of growth, untroubled so far by slowdowns in Europe and Asia. This is one reason why we remain bullish on the US stock market and believe rates will stay low for an extended period of time.

MW-CX431_GDPC1_20141024160202_ZH

The fundamentals of the economy are stronger now, compared to 2 or 3 years ago as the recovery entered its early stages. We clearly do not have the same drag from government-spending cuts, debt ceiling scares an government shutdowns. Corporate balance sheets are in their best shapes in over a decade. Households generally have less debt and the economy is adding 200,000 jobs a month. Things could be worse, much worse. As a result, the Federal Reserve is expected to end a long-running economic-stimulus program this week when top central bankers meet to fine-tune their strategy to help the nation grow.

The economy won’t truly turn the corner, however, until businesses boost investment and Americans start to spend more freely. The upcoming slate of economic reports this week will offer further clues on the behavior of companies and consumers.

Split picture

U.S. executives are probably seeing double vision these days. Sales are rising at home as companies hire more workers and newly employed Americans spend money. But U.S. exports could take a hit with Europe on the doorstep of another recession and China and Japan also slowing.

Still, companies probably increased spending and investment in September, especially if the volatile airline and auto sectors are stripped out. Economists predict that new orders for durable goods minus transportation may have risen close to 1% last month.

Business investment is one of three main pegs holding up the U.S. economy. Although it’s been surprisingly soft during most of the recovery, it’s shown more signs of life lately. Investors will look for evidence on whether the latest global malaise is causing companies to rethink their plans.

An even bigger story, consumer spending, has also been lackluster since the U.S. exited recession in mid-2009. Americans spent several years working down debts, but they’re still not spending as much as they normally do and slow income growth is a chief cause. While millions of jobs have been added, clearly there is a debate as to the quality of the jobs, part-time vs full-time and wage competition remains low.

Consumer spending is not expected to show a big bump in September, but it’s not all bad news. After splurging on new cars and trucks in August, Americans visited auto showrooms less in September. Households also spent less on gasoline and other sources of energy because of falling prices.

A majority of economists believe the rapid gains this year in hiring and the sinking unemployment rate — it fell below 6% last month for the first time since 2008 — are all but certain to push wages higher in the next year. Companies will have to pay more to attract and retain talent, the thinking goes, giving the economy another jolt of momentum as that translates into faster consumer spending.

Not everyone is buying the idea, though. A new Pew poll, for example, found that only 27% of Americans think the economy will be better a year from now. Some three-quarters think the economy is either “fair” or “poor.”

The boom years of 2003-2008 are like a New Years hangover that last 2-3 days rather than 24 hrs. While we feel the US is entrenched in solid and sustained expansion the hard fall from the top has taught many Americans a hard lesson and it could be years before people live, spend and resume their “live for today” approach to really stimulate a true and sustained economic expansion.

Market Insights 10/24/2014 – Friday

Earnings Encourage Equities

The U.S. equity markets closed the trading session in positive fashion as another round of upbeat corporate earnings reports aided in improving sentiment on the Street. Treasuries were mostly flat as the lone release from the economic docket revealed a slight miss for domestic new home sales in September.

Meanwhile, the U.S. dollar, gold and crude oil prices were all lower.

The Markets….

The Dow Jones Industrial Average gained 128 points (0.8%) to 16,806

The S&P 500 Index was 14 points (0.7%) higher at 1,965, the best performing sectors on the day were Healthcare better by 1.19%, Financials were up .79% along with Industrials. The worst performing sector was Energy, giving up .50%.

For the week, Healthcare gained 6.81%, followed by Industrials at 5.47% and the Consumer Discretionary and at 5% and Energy which was better by 4.76%.

Over the past 30 days Utilities have lead the way gaining more that 4.75%, followed by Consumer Staples at 1.29% and healthcare up .25. The laggard S&P sectors were Energy, still off 6.77% despite it’s recent 5 day performance and Materials off 4.47% in the last 30 days.

The Nasdaq Composite gained 31 points (0.7%) to 4,484

In moderate volume, 718 million shares were traded on the NYSE, and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil decreased $1.08 to $81.01 per barrel, wholesale gasoline was $0.03 lower at $2.14 per gallon

The Bloomberg gold spot price decreased $1.08 to $1,230.76 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was 0.2% lower at 85.71

Markets were higher on the week, as the DJIA increased 2.6%, the S&P 500 Index surged 4.1% and the Nasdaq Composite Index advanced 5.3%

September new home sales miss modestly after August’s downward revision

New home sales ticked 0.2% higher month-over-month in September, to an annual rate of 467,000 units from August’s sharp downward revision to a 466,000 unit pace, from the previously reported pace of 504,000 units. September’s figure missed the 470,000 rate that economists surveyed by Bloomberg had expected. Within the report, the median home price declined 4.0% y/y and fell 9.7% m/m at $259,000. The 207,000 units of new home inventory was 13.1% higher y/y and 1.5% above last month, representing a rate of 5.3 months of supply at the current sales pace, matching the figure posted for the previous month and comparing to the 5.5 months pace in the same period a year ago. New home sales are considered a timely indicator of conditions in the housing market as they are based on contract signings instead of closings. Regionally, m/m sales in the Midwest rose 12.3% and were up 2.0% in the South, while the West saw an 8.9% drop and Northeast sales were flat. Finally, sales in all regions were nicely higher y/y.

Treasuries are mostly unchanged in afternoon action, with the yields on the 2-year note and the 30-year bond flat at 0.39% and 3.04%, respectively, while the yield on the 10-year note is dipping 1 basis point to 2.27%.

Domestic earnings and Eurozone reports help stocks snap back

After seeing some heavy downside volatility in recent weeks, the equity markets managed to rebound sharply for the week, aided by a mostly stronger-than-expected flood of earnings reports and signs of life in business activity out of the eurozone. In the wake of the heaviest week for U.S. 3Q earnings season thus far, of the 208 companies that have reported in the S&P 500, 79.3% have posted upside earnings surprises, while 61.1% have logged positive revenue surprises, per data compiled by Bloomberg.

Financials continue to hold on to the largest positive aggregate surprise percentage, followed closely by materials, while telecommunications and utilities are the two lone sectors that have recorded overall negative earnings surprises.

Adding to the resiliency for stocks this week, the preliminary Markit Eurozone Composite PMI Index—a gauge of business activity in both the services and manufacturing sectors—showed growth unexpectedly accelerated, highlighted by a return to expansion for German manufacturing output.

The domestic economic front was on the quieter side, though existing home sales rose more than expected and consumer price inflation remained subdued for last month. Finally, stocks shrugged off lingering concerns about Chinese economic growth, with the nation’s posting mixed data, headlined by 3Q GDP growth that decelerated to a slightly better-than-expected 7.3% y/y pace of growth, falling below the government’s 7.5% growth target.

The stock market finally reached the tipping point, with major averages flirting with correction territory (10% loss or more), at least on an intra-day basis. Fears of a renewed European recession morphed into concerns over the U.S. economic outlook. Fears over Ebola also added to the flight away from risky assets and into the perceived safety of U.S. Treasuries, as the 10-year yield briefly dropped below 2%. Yet stocks quickly bounced and we believe the bull market is intact and investors who remain underexposed to equities relative to their plan should use further pullbacks to gradually add exposure. To us, the secular bull market case hasn’t changed; we’re just in a mature phase. The U.S. economy continues to grow, the Federal Reserve remains accommodative, and global growth isn’t falling off a cliff.

Heavy global economic week looms

With earnings season will continuing, the global economic calendar will also heat up, with headlining U.S. reports being Tuesday’s durable goods orders, Wednesday’s Federal Reserve’s monetary policy decision, and Thursday’s first look at 3Q GDP. The Fed is expected to end its monthly asset purchase program, but declining inflation expectations, slow wage growth, and deflation fears in Europe could keep the it from considering an earlier first interest rate hike; while one voting member even suggested a fourth round of quantitative easing (QE4). We don’t believe anything so drastic would be necessary, or beneficial, but it does help bolster the “don’t fight the Fed” case for stocks.

Other reports on the domestic economic front include: Markit’s Services PMI Index, pending home sales, the S&P/Case-Shiller Home Price Index, Consumer Confidence, the Richmond Fed Manufacturing Index, MBA mortgage applications, jobless claims, the 3Q Employment Cost Index, personal income and spending, the Chicago PMI Index, and the final October University of Michigan Consumer Sentiment Index.

The international economic docket will be full of key reports for traders to digest. The Bank of Japan (BOJ) is expected to deliver its monetary policy decision, and the nation will release its consumer price inflation data. In the Eurozone, the preliminary consumer price inflation estimate will be released, along with German unemployment and retail sales reports, while this weekend’s release of the European Central Bank’s banking sector stress test results will likely also command attention. China will report industrial profit figures and Canada will release its September GDP numbers.

In contrast to our U.S. outlook, the international picture is more concerning but diversification is important across asset classes and our more risk tolerant investors have exposure to not only developed international countries but to emerging and frontier markets as well.

Europe lower on U.S. Ebola worries and earnings reports in the region

The European equity markets finished mostly to the downside, with resurfacing U.S. Ebola fears dampening conviction on the reported case in New York, while traders may have treaded with some caution ahead of this weekend’s release of Europe’s banking sector stress test results. In economic news, German consumer confidence unexpectedly improved for November, while U.K. 3Q GDP growth of 0.7% quarter-over-quarter matched economists’ forecasts.

The U.K. FTSE 100 Index was down 0.5%, Germany’s DAX Index and France’s CAC-40 Index decreased 0.7%, and Switzerland’s Swiss Market Index declined 0.2%, while Spain’s IBEX 35 Index ticked 0.1% higher and Italy’s FTSE MIB Index gained 0.3%.

Stocks in Asia finished mixed on the heels of yesterday’s solid advance in the U.S. yesterday, which was fueled by some upbeat earnings reports, while the aforementioned Ebola case hampered sentiment, along with a disappointing read on Chinese home prices. Japanese equities extended their weekly rally, but finished off the best levels of the day, with the yen strengthening on the Ebola news. Chinese stocks were mostly flat following a report that showed home prices fell in all but one city the government tracks, the most since January 2011, per Bloomberg. South Korea reported Q3 GDP growth accelerated to a 0.9% quarter-over-quarter rate, from the 0.5% growth in 2Q, matching expectations, but the y/y expansion was slightly below expectations.

Word of the Day

GROSS DOMESTIC PRODUCT – GDP

The monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

GDP is commonly used as an indicator of the economic health of a country, as well as to gauge a country’s standard of living. Critics of using GDP as an economic measure say the statistic does not take into account the underground economy – transactions that, for whatever reason, are not reported to the government. Others say that GDP is not intended to gauge material well-being, but serves as a measure of a nation’s productivity, which is unrelated.

Market Insights 10/23/2014

Stocks Fire Higher as Earnings Heat-Up

The U.S. equity markets closed the trading day with sizable gains, continuing the recent volatile trend, as stocks were able to reclaim all of the previous session’s losses in the wake of some upbeat corporate earnings releases that may have helped soothe some of the recent global growth worries. Sentiment received a boost following an upbeat eurozone business activity report and as German manufacturing output returned to a level depicting growth.

Treasuries were lower on the gains for stocks, despite domestic reports showing a larger-than-expected rise in jobless claims and softer-than-estimated reads on manufacturing activity, while Leading Indicators grew more than expected. Gold was lower, while the U.S. dollar and crude oil prices were higher.

The Markets…

On the NYSE, sentiment was decidedly bullish with winners beating losers by nearly 4.5 to 1

The Dow Jones Industrial Average increased 201 points (1.2%) to 16,662

The S&P 500 Index advanced 22 points (1.1%) to 1,949, all 10 sectors of the S & P were higher with Industrials leading the way with a 2.38% surge, followed by Energy with a 2.15% gain and Healthcare with a 1.79% gain.

Over the last 5 trading days the best performing sector was materials with a 5.27% gain, followed by Energy with a 4.68% gain and HealthCare with a 4.48% gain.

The Nasdaq Composite added 67 points (1.5%) to 4,450

In moderate volume, 648 million shares were traded on the NYSE, and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil gained $1.57 to $82.09 per barrel, wholesale gasoline was $0.05 higher at $2.21 per gallon

The Bloomberg gold spot price decreased $8.59 to $1,232.68 per ounce

Jobless claims rise and manufacturing growth slows, while Leading Indicators top forecasts

Weekly initial jobless claims increased by 17,000 to 283,000 last week, above the 281,000 level that economists surveyed by Bloomberg had expected, as the prior week’s figure was upwardly revised by 2,000 to 266,000. However, the four-week moving average, considered a smoother look at the trend in claims, declined by 3,000 to 281,000, while continuing claims dropped by 38,000 to 2,351,000, south of the forecast of economists, which called for a level of 2,380,000.

The Conference Board’s Index of Leading Economic Indicators (LEI) increased 0.8% month-over-month in September, above the 0.7% growth that economists had projected, while August’s 0.2% gain was revised to a flat figure. The report showed positive contributions from components pertaining to ISM new orders, the yield curve, credit and jobless claims, while the index was negatively impacted by a roughly flat reading on consumer expectations.

The preliminary Markit U.S. Manufacturing PMI Index for October was revised downward more than expected to 56.2 from September’s 57.5 level, and compared to the decline to 57.0 that economists had expected, with a reading above 50 denoting expansion. Markit said the report showed the slowest rise in new export sales since July and output and new order growth both eased markedly, while the “robust rate” of job creation was maintained. The release is independent and differs from the Institute for Supply Management’s (ISM) Manufacturing Index, as it has less historic value and Markit weights its index components differently.

The Kansas City Fed Manufacturing Activity Index showed growth in the Midwest region unexpectedly decelerated in October, declining to 4 from 6 in September, where economists had expected it to remain, with a reading above zero depicting expansion.

Treasuries are lower in afternoon action, with the yield on the 2-year note rising 4 basis points (bps) to 0.39%, the yield on the 10-year note increasing 7 bps to 2.29%, and the 30-year bond rate rising 6 bps to 3.05%.

Tomorrow, the U.S. economic calendar will be light, with new home sales set as the lone release, forecasted to have decreased 6.8% m/m in September to an annual rate of 470,000 units from the 18.0% m/m surge to 504,000 units posted in August.

Europe higher on U.S. gains and upbeat eurozone business activity reports

The European equity markets finished higher, with some better-than-expected business activity reports helping sentiment, along with the gains in the U.S., fueled by some upbeat earnings reports. The data overshadowed some mixed earnings reports in the region and exacerbated geopolitical concerns on yesterday’s deadly shootings at Canada’s parliament.

The preliminary Markit Eurozone Composite PMI Index—a gauge of activity out of both the services and manufacturing sectors—improved to 52.2 for October, from 52.0 in the previous month, and compared to the decline to 51.5 that economists had projected. A reading above 50 denotes expansion and the unexpected acceleration in growth came as German manufacturing output moved back to a level depicting growth. Meanwhile, in other economic news, Eurozone consumer confidence unexpectedly improved in October.

The U.K. FTSE 100 Index was up 0.3%, Germany’s DAX Index rose 1.2%, France’s CAC-40 Index gained 1.3%, Spain’s IBEX 35 Index advanced 0.8%, Italy’s FTSE MIB Index increased 0.9%, and Switzerland’s Swiss Market Index traded 0.5% to the upside

Stocks in Asia finished lower on the heels of yesterday’s pullback in U.S. stocks, while sentiment was unnerved by deadly shootings in and around the Canadian parliament, which likely added another layer to the heightened geopolitical concerns. Losses in Japan may have been limited by some softness in the yen and a preliminary report from Markit that showed growth in the nation’s manufacturing activity unexpectedly accelerated for October.

Chinese stocks fell as resurfaced concerns about the impact of new IPOs hitting the market, along with increased uncertainty regarding the start of a trading link with Hong Kong, overshadowed an upbeat read on China’s manufacturing output. The preliminary HSBC China Manufacturing PMI Index rose to 50.4 this month, from the 50.2 level posted in September, where economists had expected it to remain, with a reading above 50 denoting expansion.

Word of The day

STANDARD DEVIATION
A measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is calculated as the square root of variance.

In finance, standard deviation is applied to the annual rate of return of an investment to measure the investment’s volatility. Standard deviation is also known as historical volatility and is used by investors as a gauge for the amount of expected volatility.

Standard deviation is a statistical measurement that sheds light on historical volatility. For example, a volatile stock will have a high standard deviation while the deviation of a stable blue chip stock will be lower. A large dispersion tells us how much the return on the fund is deviating from the expected normal returns.