The stock market went on a rampage this past week as equities surged northward due to several important events including the mid-term elections, the Fed’s policy announcement, and an improving employment report for the month of October. All the major equity indexes moved higher, partly due to the Republicans winning back control of the U.S. House, which is seen as being very favorable to business. Also, the Federal Reserve’s announcement of a substantial second round of quantitative easing aided stocks higher. The Fed’s move had multiple impacts on the market as lower rates are seen as lowering the cost of capital for corporations, and also make returns from equities more attractive. Also, expected expansion of the Fed’s balance sheet bumped the dollar down, which lifted many commodity oriented stocks. In terms of timing, the biggest gains were experienced this past Thursday. After digesting all this favorable news, the stock market’s upside move on this day alone put an additional $300 billion in investor’s pockets, based on the Wilshire 5000, the broadest measure of the U.S. equity market.
For the action packed week, the Dow ended higher by some 326 points, or 2.9%, and now sits at the 11,444 level, or 9.7% higher on the year. The Standard & Poor’s 500 rallied for its fifth straight week as it added 43 points, or 3.6%. That’s its highest finish since September 19, 2008, and puts this benchmark up by 9.9% for the year. Meanwhile the Nasdaq Composite Index added 72 points, or 2.9%, while the smaller-cap stocks, as represented by the Russell 2000, jumped by a remarkable 4.7%. These last two indices are now higher on a year-to-date basis by 13.7% and 17.8% respectively. Not bad when you consider how negative most of the pundits were at the beginning of this year!
It was encouraging to see the U.S. economy add 151,000 jobs in October this past Friday, although that tally certainly doesn’t even dent the present jobless rate of 9.6%. And while the stock market shrugged this improving number of, it does raise hopes for more job growth in 2011 and does away with the notion that the economy might be double-dipping into another recession out the window. As employers added more than double the jobs that analysts had been expecting, we’ve still got a long way to go before we’re anywhere near full employment. Nearly 15 million people are still out of work and looking, and the unemployment rate has been flat since May. On a more dismal note, economists say that it would take up to 300,000 new jobs a month to significantly reduce the unemployment rate. Thus far, 7.5 million jobs have vanished from the economy since the recession started. Some pundits feel that it could take until the end of the decade to drop the jobless rate to the 6 percent range.
Thanks to the Fed’s decision to buy over $600 billion in Treasuries over the next eight months to lower interest rates and stimulate demand, we definitely saw a big impact in the bond market. The benchmark 10-year note’s yield fell to 2.538% this past Friday, which was a dip of 6.5 basis points from the previous Friday. Yields on the five-year notes also fell to record lows. However, on the longer end of the maturity curve, we saw the 30-year bond’s yield rise to 4.122% which widens the spread between the two yields. This is consistent with the accompanying increased inflation fears as evident in gold’s surge. Gold hit a record of just shy of $1,400 an ounce Friday and crude oil ended the week at a two-year-high of $86.85 a barrel. Fed chairman Ben Bernanke went on to say that some concerns about the purchase program, known as quantitative easing, are “overstated.”
This will be another busy week when it comes to earnings reports, as we have several major retailers, as well as media giants and networking-gear maker Cisco Systems among the companies that will post quarterly results. Cisco and media entertainment giant Walt Disney, both components of the Dow Jones Industrial Average, and more than a dozen other companies in the Standard & Poor’s 500 Index will report this week. Some of the more notables include; Macy’s, Kohl’s, J.C. Penney, Priceline.com, Green Mountain Coffee Roasters, Frontier Communications, Fossil, Polo Ralph Lauren, Viacom, Sara Lee, Marsh & McLennan, D.R. Horton, and Agilent Technologies..
Other economic news will include the U.S. trade deficit for September, which comes out on Wednesday as well as wholesale inventories on Tuesday. On Friday, it’s the University of Michigan’s consumer sentiment index, which hopefully will show some marked improvement in our mood swings.
In closing, don’t forget that stock markets will be open but bond markets and government offices will close this Thursday, for the Veterans Day holiday.
Sources: Barron’s, The Wall Street Journal, CNN, The New York Times, The Financial Times, Bespoke Investment Group, Yahoo1finance