Stocks gain as the stock market managed to rack up a second consecutive week of gains even as the euro zone’s latest band aid to fix its debt crisis was met with timid responses. Hopes were high for another one of those last-minute, big-deal breakthroughs that would ultimately save the day for the European union, and by the looks of the week’s rally Wall Street, you would have thought that was exactly what happened. The problem, however, was that the EU Summit did not quite live up to its task of saving the day for the EU. Britain’s Prime Minister David Cameron decided to snub the broader EU bailout vote, and has now left many investors wondering if the EU and the euro might quickly split apart or meltdown. Nevertheless, stocks still managed to move higher even with some disappointing forecasts from big U.S. Companies.
On the week, the Dow Jones Industrial Average rose by 1.37% to close at the 12,184.26 mark. This was on top of the previous week’s 7% rally, and the Dow is now higher by 1.2% for the month. The broader Standard & Poor’s 500 Index was up 0.88% to 1,255.19, while the Nasdaq Composite added 0.76% to a level of 2,646.85. The Russell 2000 index of smaller-cap stocks also continued its winning streak as it tacked on another 1.41% for the tumultuous week.For the year-to-date statistics, the major equity indexes still remain mainly to the downside, with the exception for the Dow. The S&P 500 is down 0.19 percent; the Nasdaq Composite is down 0.23 percent; and the Russell 2000 is off by 4.88 percent. The Dow Jones Industrial Average however is higher by 5.24 percent.Looking forward, should the European countries continue to unravel, this would be of a major concern for the Federal Reserve. Economists feel that a breakup of the EU or a ditching of the euro could have devastating global implications. A freeze up in the global financial networks and the commodities market could really rattle the markets to a degree that regular investors could panic as they have in past meltdowns. That is not the scenario the bullish camp wants to see, so you can bet that the bulls will be rooting for calmer heads to prevail whatever decisions the EU, the U.S. Government, or the Fed need to make. Bulls seem to get particularly nervous when the emergency financial decisions start being made by career politicians. And that is exactly what is currently going on in the EU, which is why the markets are on edge.Treasury securities took their cue from the events transpiring in Europe and finished out the week relatively unchanged. As would be expected, Treasury note and bond prices slid this past Friday amid the stock market rally. Net on the week, yields were scarcely changed. The benchmark 10-years’s yield edged up to 2.065%, from 2.04% the prior Friday.
This week’s economic calendar is particularly heavy with both inflation and manufacturing data on tap. The highlights are on Tuesday with an update on consumer spending with retail sales, and then later in the afternoon with the Federal Reserve’s Federal Open Market Committee meeting statement. No policy changes are expected with respect to the Fed, but Fed watchers think that the panel could make a move toward greater transparency by discussing its guidance about future policy. On the inflation front, import prices post on Wednesday, the producer price index on Thursday, and the consumer price index on Friday. In addition we have manufacturing updates on Thursday for the Empire State, Philly Fed and industrial production.
With more haggling as to the euro zone debt issues likely to consume the news headlines, there’s no doubt that the markets will continue to be volatile as we move into the holiday season. So keep your seat-belts fastened, and until next week, take care!!
Sources:Barron’s, Wall Street Journal, Assoc. Press, Econoday, Bloomberg, Dow Jones & Co., Briefing.com, Gorilla Trading