Mel's Blog

August 31,2011 Market News

August 31st, 2011 9:29 AM by Mel Samick

It was a devastating week for the East Coast. An earthquake, a magnitude of 5.8, struck Tuesday near Richmond, Virginia, and the nation's capital, sending shock-waves up and down the East Coast. If that was not enough, Hurricane Irene came to U.S. shores as winds of up to 115 miles per hour whipped across the Eastern Seaboard, ripping power lines from poles and snapping trees in half. The number of power outages that can be blamed on Hurricane Irene has surpassed 4 million. According to the most recent government model, projected economic loss from the wind damage alone is forecast to top $1 billion. That's less than earlier estimates that topped $2 billion but it does not account for flood and other storm damage. In other shocking news, Steve Jobs, our generation's version of Thomas Edison, resigned as CEO of Apple, Inc. This could be a sign that technology has gone as far it can go.

Last week, investors were on a buying spree after a month-long plethora of selling. A light economic calendar as well as favorable market indicators in the corporate sector helped investors to have faith in the future growth of the economy. However, investors were waiting for Fed Chairman Ben Bernanke's Friday speech for the Fed's future course of action in response of the recent sell-off. To their disappointment, the Fed did not elaborate on any new quantitative easing but he did announce that the upcoming FOMC meeting has been expanded from one day to two days (September 20-21) to allow for more in-depth discussion about monetary policy. The Fed also feels that second half economic growth will surpass the first half growth. The speech triggered a sell-off in equity markets which recovered by the end of the day.

For the week, all major indices ended up around 4.5 percent with the S&P closing at 1,176 while the Dow ended the trading week at 11,284. All 10 sectors gained last week with the technology sector up by 6.2 percent followed by the industrial sector, up by 6.0 percent. One of the major events in the corporate sector was the resignation of Apple CEO, Steve Jobs. Under his legacy, Apple became a leading technology brand from a nearly collapsed company. However, investors kept their faith in the brand and other management and Apple stock ended up by nearly 7 percent.

In another major move, Bank of America received new life last week, after Warren Buffett's Berkshire Hathaway invested $ 5 billion. By the end of the week, Bank of America shares were up by 11 percent and Berkshire Hathaway was up by 2 percent. On the economic indicators side, the Department of Commerce revised the second quarter GDP to 1 percent from 1.3 percent, still much better than the first-quarter growth of .4 percent. In the commodity sector, an increase in margin requirements was the main cause of gold falling by 1.2 percent while crude prices were up by 4 percent. The Ten-year treasury yield was up 12 basis points and ended the week at 2.19 percent. Towing the same line, mortgage rates were also up a bit last week. At the end of the week, the Conforming Fixed 30-year rate leveled out at around 3.97 percent while the Conforming Fixed 15-year rate finished at around 3.25 percent. Standard 5/1 ARM rates were hovering around 2.8 percent.

This week investors will be busy with heavy economic indicators releases. The housing sector's future will be gauged from Pending Home Sales on Monday and the S&P/Case-Shiller Home Price Index on Tuesday. Industrial sector growth will be gauged from Chicago PMI on Wednesday and the ISM Manufacturing Index on Thursday. ADP private payroll employment on Wednesday and the Employment Situation report on Friday will be much awaited by investors.

Mel

Information provided by NYCB Capital Markets

Posted in:General
Posted by Mel Samick on August 31st, 2011 9:29 AM

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