Market Week: October 29, 2012

The Markets

Despite good economic news, particularly from the housing market, disappointing corporate earnings continued to contribute to strong downdrafts last week as any halting attempts at a rally generally gave way to renewed selling. The large caps of the Dow and S&P 500 were hit hardest among the domestic indices, while the Global Dow fared even worse.

Market/Index 2011 Close Prior Week As of 10/26 Week Change YTD Change
DJIA 12217.56 13343.67 13107.21 -1.77% 7.28%
Nasdaq 2605.15 3005.62 2987.95 -.59% 14.69%
S&P 500 1257.60 1433.19 1411.94 -1.48% 12.27%
Russell 2000 740.92 821.00 813.25 -.94% 9.76%
Global Dow 1801.60 1959.01 1915.30 -2.23% 6.31%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 1.89% 1.79% 1.78% -1 bps -11 bps

Equities data reflect price changes, not total return.

Last Week’s Headlines

  • Sales of new homes rose more in September than in any month since April 2010. The 5.7% increase over August put new home sales a whopping 27.1% ahead of the previous September. If sales were to continue at that pace, the Department of Commerce said, it would take 4.5 months to deplete the inventory of new homes for sale–the shortest amount of time since October 2005.
  • U.S. economic growth accelerated in the third quarter, rising to 2% from 1.3%, according to the Bureau of Labor Statistics’ initial estimate. The increase was driven in part by a 14.4% increase in construction spending, consumer spending that rose 2%, and a 3.7% increase in federal spending, primarily on the military, while capital spending by businesses fell 1.3%.
  • More than 80 CEOs of some of the largest and most well-known U.S. corporations issued an open letter urging Washington to attack the national debt. The letter didn’t endorse either presidential candidate’s economic proposals. However, it did call the approach developed by the bipartisan Simpson-Bowles Commission–a combination of spending cuts, increased tax revenues, and measures to limit health-care costs and strengthen Social Security–an “effective framework” for attacking the debt problem.
  • Significant orders for commercial aircraft helped durable goods orders soar almost 10% in September–their biggest increase in more than two years. However, even setting aside the nearly 32% increase in the transportation category, orders for goods intended to last at least three years were up 2%.
  • As expected, the Fed will continue to buy $40 billion of mortgage-backed securities each month. The Federal Open Market Committee said that without such support, the current moderate economic growth might not be enough to produce improvement in the labor market.
  • After reaffirming Spain’s bond rating the previous week, Moody’s downgraded 5 of Spain’s 17 regions.
  • The U.S. Justice Department filed a $1 billion suit against Bank of America, charging that the bank fraudulently sold Fannie Mae and Freddie Mac defective mortgages that were processed without proper quality checks.

Eye on the Week Ahead

More earnings reports, fewer days until November 6: In addition to corporate earnings, Friday’s unemployment data will be of interest, as will any potential economic impact of Hurricane Sandy.

Key dates and data releases: personal income/spending (10/29); home prices (10/30); business productivity/costs, U.S. manufacturing (11/1); unemployment/payrolls, factory orders (11/2).

Data sources: Includes data provided by Brounes & Associates. 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 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

This information is not intended to be a substitute for specific individualized tax or investment advice.  We suggest that you discuss your specific tax and investment situation with qualified tax and investment professionals. No strategy assures success.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2012.