What I’m Watching This Week – 6 October 2014

The Markets

For the second straight week, a Friday rally after encouraging employment numbers couldn’t outweigh equities’ losses earlier in the week. However, it did manage to rescue the Russell 2000 from a brief dip into correction territory (a correction is generally considered to be 10% down from the most recent high). Once again, the Dow industrials and the S&P 500 outpaced the small caps, while equities’ recent slump translated into gains for the price of the benchmark 20-year Treasury.

Market/Index 2013 Close Prior Week As of 10/3 Weekly Change YTD Change
DJIA 16576.66 17113.15 17009.69 -.60% 2.61%
Nasdaq 4176.59 4512.19 4475.62 -.81% 7.16%
S&P 500 1848.36 1982.85 1967.90 -.75% 6.47%
Russell 2000 1163.64 1119.33 1104.74 -1.30% -5.06%
Global Dow 2484.10 2551.32 2493.99 -2.25% .40%
Fed. Funds .25% .25% .25% 0% 0%
10-year Treasuries 3.04% 2.54% 2.45% -9 bps -59 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

  • The 248,000 new jobs created in September helped cut the U.S. unemployment rate from 6.1% to 5.9%; it’s the first time since July 2008 that joblessness has been below 6%. Also, the Bureau of Labor Statistics said hiring during the prior two months was stronger than previously thought. However, at least some of the decline in the unemployment rate resulted from 97,000 people dropping out of the labor force (for example, retiring baby boomers). That brought the percentage of people in the workforce to 62.7%–the lowest participation rate since 1978.
  • Though home prices measured by the S&P/Case-Shiller 20-City Composite Index continued to rise in July, the pace slowed significantly. Year-over-year gains were down in 19 of the 20 cities, and monthly increases were smaller in 17 cities. Nevertheless, the index was 6.7% ahead of a year earlier, and prices rose 0.6% during the month.
  • The European Central Bank declined to make any further cuts to interest rates until it sees the impact of bond purchases scheduled to begin this month, including sovereign bonds from Greece and Cyprus. However, President Mario Draghi reiterated that the ECB stands ready to adopt further stimulus measures if necessary.
  • Both personal income and consumption were up in August, according to the Bureau of Economic Analysis. The increase in private wages and salaries was almost double that of July, pushing personal income up 0.3%. Personal consumption–one of the Fed’s favorite measures of inflationary pressure–rose 0.5%. That increased consumption helped cut the savings rate from 5.6% to 5.4%.
  • The failure of China’s manufacturing sector to rebound in September from the previous month’s low level fanned concerns about global growth. HSBC Corp.’s Purchasing Managers’ Index remained at 50.2–barely above the level that would represent contraction.
  • The U.S. services sector continued to grow in September, but at a slightly slower pace. The Institute for Supply Management’s non-manufacturing purchasing managers’ index nudged downward one point from August’s record level to 58.6.

Eye on the Week Ahead

The Q3 earnings season will have its unofficial kickoff when Alcoa reports its results after Wednesday’s market close. Discussions of what should happen after the anticipated end of quantitative easing will be scrutinized when minutes of the most recent Federal Open Market Committee meeting are released on Wednesday.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.