October 23rd, 2013 9:29 AM by Mel Samick
After a 16-day government shutdown and nearly orchestrating another financial crisis, members of the House and Senate figured out a way to temporarily end the impasse that has left members with their lowest poll numbers in recent memory. In a stop-gap measure to avert a U.S. debt default, a deal was brokered by Democratic Senate Majority Leader Harry Reid and Republican Senate Minority Leader Mitch McConnell to fund the Government until January 15th and extend the $16.7 trillion debt ceiling until February 7th. The Senate voted 81-18 to approve the deal, the House 285-144, with 87 Republicans going along with the package while sequestration remains in place. Hence, the "can was kicked down the road" again. Remember the childhood game, "Kick the Can?" This is indeed a game that Washington knows all too well.
Even though it's a stop-gap deal, investors took the news positively and major indices ended up significantly higher. The Dow Jones rose 1.1 percent to 15,399, and the S&P 500 gained 2.3 percent to a new all time high of 1,744. The NASDAQ tacked on 3.2 percent and is up 30 percent for the year! In economic indicators, the disruption in the stream of economic data continued last week. However, the Federal Reserve did issue its latest Beige Book on regional economic activity which indicated "moderate to modest" growth.
In corporate earnings, American Express, Google, and Morgan Stanley beat their earnings expectations while IBM, eBay, and Goldman Sachs were a few who missed their respective earnings marks. Overall, corporate earnings were a little better than expected. Google was the stock of the week as it jumped by $124 on Friday to $1,013 after the company reported a 23 percent rise in revenue from its internet business. Riding on the revenues from paid clicks and advertising revenues on mobile platforms, Google earned $2.97 billion or $10.74 per share. In the financial sector, Goldman Sachs and Citigroup reported earnings below expectations. While Goldman's third-quarter profit was flat, Citi saw a 5 percent drop in its earnings. However, Bank of America saw its revenue rise 4.8 percent in the third quarter, in-line with expectations, while Morgan Stanley and Bank of New York beat expectations in both the earnings and revenues categories.
Following the Congressional deal, bond prices rallied. At the end of the week, the Ten- year treasury yield was down 10 bps to 2.58 percent. At the end of the week the Conforming Fixed 30-year rate leveled out at around 4.06 percent, while the Conforming Fixed 15-year rate finished at around 3.2 percent. This is welcome news because a recent spike in interest rates had caused a decline in refinancing activity, a drop-off that has curtailed a two-year refinancing wave that started in 2011 and subsequently led to the nation's largest banks shedding thousands of mortgage jobs. As per a rough estimate, the banking industry cut 10,000 mortgage-related jobs in the third quarter of 2013.
This week investors' will be busy digesting lot of economic data. On Monday we'll see Existing Home Sales. Tuesday's data is the most anticipated of the week as Nonfarm Payrolls, Nonfarm Private Payrolls, the Unemployment Rate, Hourly Earnings, and Average Workweek for the month of September are due to be released. Friday's data slate includes Durable Orders, Durable Orders Ex-transportation and Michigan Sentiment.
Information Provided by NYCB Capital Markets