October 14th, 2010 10:25 AM by Mel Samick
This past week, the market ended in a bullish mode even as economic indicators trended against market expectations. There was a belief among investors that the Fed would intervene and begin buying more debt, particularly after the poor employment report on Friday revealed mediocre private sector job creation. Unemployment for September remains unchanged at 9.6 percent, with the government sector continuing its job cutting spree, after significant temporary hiring for census work in May. Federal and state government cut around 75,000 jobs while the education sector took a big hit with a cut of nearly 57,000 jobs. The private sector added around 65,000 jobs.
For the week, all major indices ended up, with gains approximating around 1.5 percent. The Dow finished above 11,000 for the first time since May and the S&P 500 ended up at 1165. Except for the telecom sector, every sector posted gains with materials leading the market with a 3.2 percent gain. Another boost to the economy came with better-than-expected store sales. Riding on late back to school sales, most major store chains topped market expectations.
With the start of the fourth quarter, companies began releasing third quarter earnings; another reason for investors to look beyond economic indicators. To investors' joy, companies like Alcoa, Pepsi and Costco beat analysts' expectations. With improved chances of Fed intervention, the dollar weakened and a weaker dollar moved commodities higher. While Gold and Silver touched their highest levels of the last couple of decades, oil moved in an upward direction on better future economic prospects. At the same time, yields on the 10- year Treasury dipped down to 2.39 percent, its lowest level since the beginning of last year.
The housing market is in the news again as some major mortgage lenders suspended the sales of foreclosed homes due to reports of improper foreclosure procedures. Mortgage rates were again at an all-time low this past week with the Conforming Fixed 30-year rate leveling out at around 3.9%, while the Conforming Fixed 15-year rate closed at around 3.52%. Standard 5/1 ARM rates were hovering around 3%. But as long as a significant percentage of borrowers are still ineligible to qualify to receive mortgages, low mortgage rates are not going to be very productive in fueling the economic recovery.
This coming week, investors will be busy digesting economic indicators as well as corporate earnings. In major economic indicators, releases of the Unemployment Report on Thursday and the Consumer Price Index (or inflation number) on Friday will be important to keep an eye on. Within corporate earnings announcements, around fifteen companies are expected to release their third quarter reports.
Information provided by AMtrust Capital Markets