Markets ended a fairly bullish week mixed, gaining in some sectors, while others fell to earnings jitters. The S&P 500 notched a new high, while the Dow finally reached a record close.[1] For the week, the S&P 500 gained 0.11%, the Dow gained 0.29%, and the Nasdaq lost 0.54%.[2] Earnings season hit the halfway point and some analysts are giving the performance a barely passing grade. While corporate profits are healthy, they are being achieved through cost cutting and accounting acrobatics rather than revenue growth. Barely half of S&P 500 companies that have reported in have beaten estimates, highlighting the fact that U.S. firms are still struggling with weak demand and slow economic growth.
Of course, there are some bright spots such as in the tech sector, where third-quarter earnings growth is expected to hit 5.81%, as compared to estimates of 2.6% at the beginning of the season. Consumer discretionaries are another strong point, led by double-digit growth from retailers.[3]
The Federal Reserve held a scheduled FOMC meeting last week, but decided to delay any taper of its bond-buying program for another day. This was not unexpected since the government shutdown caused the delay of critical economic reports and data collection, leaving Fed economists without a clear picture of the current state of the economy. While the Fed has one more meeting left in 2013, it's looking increasingly unlikely that they'll initiate tapering while the country is still recovering from Washington's actions.
We expect that the earnings season will occupy investors' attention this week as they look for confirmation of the market rally. We'll also get a look at the October jobs report and an advance third-quarter GDP estimate. It's hard to know how investors will view these reports since the effects of the government shutdown will have skewed results. Although we don't yet have any complete information about the costs of the shutdown, one report suggests that it took a $24 billion chunk out of the economy.[4] This may mean that fourth quarter growth may slow down and that people who lost wages may not be spending as much on holiday shopping.
ECONOMIC CALENDAR:Monday: Factory Orders
Tuesday: ISM Non-Mfg. Index
Wednesday: EIA Petroleum Status Report
Thursday: GDP, Jobless Claims
Friday: Employment Situation, Personal Income and Outlays, Consumer Sentiment, Ben Bernanke Speaks 3:30 PM ET
HEADLINES:
U.S. factory growth fastest in 2 ½ years. The manufacturing sector expanded at its fastest pace since April 2011 in October. The growth was unexpected and could signal a strong start to the fourth quarter.[5]
Eurozone inflation slumps to near four-year low. Inflation in Europe fell to 0.7% in October, shocking economists and increasing pressure on the ECB to ease policy to combat high unemployment.[6]
Economists slash U.S. growth estimates. Economists cite the effects of the drawn-out government shutdown on economic activity and have cut their estimates of U.S. GDP growth in the 3rd and 4th quarter to 2.3% and 3.0% annualized growth, respectively.[7]
Gasoline price volatility spikes. Local gasoline prices are swinging drastically due to fuel distribution problems. Refiners keep stocks of gasoline low to save money, increasing the system's vulnerability to temporary shocks that can affect prices. [8]
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.
The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.
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[1] http://money.cnn.com/2013/10/29/investing/stocks-markets/
[2] http://briefing.com/investor/markets/weekly-wrap/weekly-wrap-for-october-28-2013.htm
[4] http://money.cnn.com/2013/10/16/news/economy/shutdown-economic-impact/
[5] http://www.reuters.com/article/2013/11/01/us-usa-economy-idUSBRE99L04G20131101
[7] http://www.businessinsider.com/societe-generale-slashes-us-gdp-forecast-2013-10