The Washington impasse continued to take its toll on the Dow industrials, which fell for the second straight week. However, the S&P 500 ended the week essentially flat despite some volatility, while the Nasdaq and small caps of the Russell 2000 managed to eke out slender gains. After hitting its lowest point in two months, gold rebounded roughly $34 before falling back slightly to $1,310 an ounce.
|Market/Index||2012 Close||Prior Week||As of 10/4||Week Change||YTD Change|
|Fed. Funds||.25%||.25%||.25%||0 bps||0 bps|
|10-year Treasuries||1.78%||2.64%||2.66%||2 bps||88 bps|
Equities data reflect price changes, not total return.
Last Week’s Headlines
- The government shutdown left investors with more question marks than usual about the state of the economy, since reports from the Commerce Department, Census Bureau, and Bureau of Labor Statistics–all of which supply data on economic activity–weren’t available. Worries about the economic impact of the shutdown began to merge with worries about whether an agreement on the debt ceiling would be reached in time to avert default on the nation’s bills. A Treasury report warned that a default after October 17 could not only weaken the dollar and lead to a credit freeze as well as higher interest rates, but also could be worse than the 2008 financial crisis.
- With government unemployment statistics unavailable, the Automatic Data Processing, Inc. jobs report (which covers only the private sector, not government jobs) assumed greater importance. According to the ADP survey, companies added 166,000 jobs in September. That’s slightly better than the 159,000 jobs added in August or the 162,000 monthly average for the last three months, but much weaker than the 220,000 new jobs seen by ADP in January. Employment indices compiled by the Institute for Supply Management (ISM) for the manufacturing and services sectors also rose (see next item).
- Growth in U.S. manufacturing activity accelerated in September as the ISM’s manufacturing index hit 56.2%–the highest reading of the year and slightly better than August’s 55.7%. However, the ISM’s gauge of the services sector grew more slowly during the month. Though the index was at 54.4% and represented the 45th straight month of growth, that was lower than August’s 58.6%. The ISM’s index of manufacturing employment hit its highest level year-to-date, increasing to 55.4% from August’s 53.3%, while growth in services employment slowed from 57% in August to 52.7% in September.
- The European Central Bank kept its key interest rate at 0.5%, saying that lending in Europe remains relatively weak. ECB President Mario Draghi also warned that a protracted U.S. government shutdown could undercut global growth.
Eye on the Week Ahead
The Washington wrangling will continue to be the focus of investor attention, as little economic data may be available to influence markets. However, third-quarter earnings season gets under way with Alcoa’s after-hours report on Tuesday, and the U.S. Treasury is scheduled to auction 3-, 10-, and 30-year securities on Tuesday, Wednesday, and Thursday. Minutes of September’s Fed meeting could shed light on the likelihood of an “Octaper” of economic support.
Key dates and data releases: balance of trade (10/8); Federal Open Market Committee minutes (10/9); wholesale inflation, retail sales (10/11).*
Data sources: All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: U.S. Treasury (Treasury yields); WSJ Market Data Center (equities); Federal Reserve Board (Fed Funds target rate); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold, NY close); Oanda/FX Street (currency exchange rates). 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.
*Because of the government shutdown, some data releases may not be available.