A Few Bright Spots


Weekly Update October 8, 2012

 

 

 

Markets started the week off slowly, but quickly picked up steam after several upbeat economic reports were released. Despite the headwinds blowing across global economies, a handful of important domestic indicators showed that the economy improved in September. All three major indices responded well to this news, posting their first positive week in three weeks, and the Dow finished at its highest level since December 2007.[i]

 

 

 

The biggest news last week was that Friday’s jobs report showed that the unemployment rate slid to 7.8% – dropping to a near four-year low – and the economy gained 114,000 new jobs in September. While these numbers beat economists’ expectations, the not-so-great news is that many of the jobs added were only part time. While it’s too early to see the full effect of the Fed’s QE3 program, the monthly jobs report is one of the best indicators of the economy’s current state of health. Since the whole point of QE3 is to create more jobs and soothe jittery markets, economists and analysts will likely key in on this report to gauge the effectiveness of the Fed’s plan.[ii]

 

 

 

In the FOMC (Federal Open Market Committee) meeting minutes released last week, we were able to gain some insight into the Fed’s decision to use mortgage bonds (instead of the usual Treasury securities) to bolster the economy. According to the official release, Fed officials determined that boosting the housing market was a good way to lift the broader economy.[iii] According to remarks by Chicago Fed President, the Fed will continue its QE3 actions until unemployment falls below seven percent.[iv]

 

 

 

Moving ahead, we should not be surprised to see some market volatility as earnings season heats up. Of the 103 S&P 500 companies that have provided earnings guidance, 78% of them (80) have issued a third-quarter forecast that falls below the Wall Street consensus estimate. But that doesn’t mean you should buy into the doom and gloom forecasts you may be hearing. While past performance is no guarantee of future results, even during the peak of the 2007-2008 financial crisis, more than half of S&P 500 companies topped Wall Street estimates in the third and fourth quarters of 2008.[v] As always, we’ll be keeping an eye on things; and we’ll be keeping you informed. We hope you have a great week!

 

 

 

ECONOMIC CALENDAR:

 

Monday: U.S. bond markets closed for Columbus Day Holiday

 

Wednesday: Beige Book, Treasury Budget

 

Thursday: International Trade, Jobless Claims, EIA Petroleum Status Report

 

Friday: Producer Price Index, Consumer Sentiment

 

www.reuters.com/article/2012/09/14/us-usa-economy-prices-idUSBRE88B1JM20120914

 

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