For the week ending October 24, 2014, the markets have been up 4 of the last 5 trading days, with the S&P 500 nearly wiping out losses incurred over the prior two weeks; it’s been a rollercoaster ride this month. The economic news this past week was mixed, but mostly positive, indicating moderate growth continues. Below is a recap of the markets for each day of the week.
The markets were little changed on Monday in what turned out to be a quiet trading day despite the poor earnings report from IBM; reports from other companies beat expectations. The Dow advanced fractionally; the S&P 500 advanced 0.91 percent to 1,904.
On Tuesday the markets rose dramatically on news that the ECB (European Central Bank) would soon be buying corporate bonds to fight the risk of deflation and recession. A major rally in European equities helped raise the Dow by 1.3 percent to 16,614; the S&P 500 rose 1.96 percent to 1,941.
On Wednesday, the consumer price index was flat reducing concerns of a Fed rate hike in the short-term. However, a shooting attack on Canada’s parliament (leaving a Canadian soldier dead) has raised concerns over terrorism, causing the markets to retract at the close. The Dow dropped -0.90 percent to 16,461; the S&P 500 dropped -0.88 percent to 1,924.
The markets strongly rebounded on Thursday as the shooting in Canada was seen as an isolated event. While economic news was on the soft side, a strong FHFA house price index along with strong earnings reports from Caterpillar and 3M, caused the Dow to rise 1.30 percent to 16,678; the S&P 500 rose 1.23 percent to 1,951.
On Friday, the markets rose despite news that a New York City doctor was diagnosed with Ebola. On good economic news (solid gains from new home sales) from The Dow ended higher by 0.80 percent to 16,805; the S&P 500 rose 0.71 percent to 1,965.
The economic news this past week focused on housing, manufacturing, and inflation; overall, the news was positive. Heading into the fourth quarter, economic momentum appears to be increasing.
As the Fed taper program is scheduled to end this month (there has been some discussion about extending the QE program beyond this month), there is some concern regarding liquidity post QE3. St. Louis Fed President James Bullard feels the QE program should be extended until the economy shows more strength. Boston Fed President Eric Rosengren believes the program will terminate as planned.
The anxiety over Ebola in the U.S., after the latest case in NYC, has led to a mandatory quarantine in both New York and New Jersey for individuals arriving at two airports who have been in contact with those infected with the deadly virus.
The ISIS threat continues in the West as isolated attacks rise. British police arrested four individuals plotting a bombing attack; Australian authorities arrest twelve individuals plotting a public beheading and other murders; in Canada a gunman assaults the Parliament killing a Canadian soldier guarding a war memorial; in New York a man with a hatchet attacks four police officers. These incidents occurred over the last four weeks and are raising concerns over the ability of ISIS to influence individuals and small groups to plan attacks around the Western world.
Fears of a global economic slowdown have been abated with recent news that the UK is going to be the fastest growing G7 economy and that the ECB plans to purchase corporate bonds to help strengthen the EU economies. There is some skepticism that the ECB bond buying program would be ineffective. The markets responded positively on Tuesday after Reuters reported the ECB would decide by December to initiate the corporate bond buying program.
The bottom line: with inflation still low, it is likely the Fed will delay any tightening. While manufacturing and housing continue to oscillate up and down, the overall direction for both is a moderate upward trend.
Globally, equities rebounded from the prior two weeks of decline amid volatile trading. Positive earnings data and no surprises from the central banks (Bank of Canada; Reserve Bank of Australia; Bank of England) led to the rally.
The focus next week in the U.S. will be the Fed’s FOMC decision. When tapering ends, the focus will be on the timing of the Fed rate hike. Globally, focus will be on Japan’s release of its monthly major indicators.
Year-to-date the markets are up: Dow 1.4%; S&P500 6.3%; Nasdaq 7.4%.
The Markets for the past week were: DJIA up 2.6%; S&P500 up 4.1%; Nasdaq COMP up 5.3%.
Commodities (ETFs) for the past week were: Gold (GLD) down -0.54%; Silver (SLV) down -0.48%; Oil (OIH) up 3.77%; Dollar (UUP) up 0.53%; 30-yr Bonds (TYX) rose 7 basis points to 3.04%.
The VIX this past week (a measure of market sentiment and volatility) dropped to 16.11% as fears over a global economic slowdown have abated and the abundance of good earnings releases.
To see what’s on the calendar for next week, go to the Econoday calendar.
The economic calendar for next week is full: on Monday – Pending Home Sales Index, Dallas Fed Mfg Survey; on Tuesday – Durable Goods Orders, S&P Case-Shiller HPI, Consumer Confidence; on Wednesday – Weekly EIA Petroleum Status Report, FOMC Meeting Announcement; on Thursday – Weekly Jobless Claims, GDP; and Friday – Personal Income and Outlays, Employment Cost Index, Chicago PMI, Consumer Sentiment.
If you’re trading options, we suggest Put Credit spreads for next week at 1.75 standard deviations or greater. Expect the price of the SPX to fall within 1878 and 2054 (2 standard deviations).
For more information about options, see the ‘Suggested Links’ below.