It was a volatile week in the markets as traders vacillated between fears of a slowdown and fears that better than expected growth will cause a rise in interest rates. The new administration rules designed to prevent companies from moving headquarters overseas for tax reasons caused a sharp selloff in potential “inversion” candidates on Tuesday. Unfortunately, the President and Congress have not been able to strike a deal on how to fix the US corporate tax system, with the highest incremental tax rates of all industrialized countries. Such a deal could also offer a break for repatriating earnings from overseas. This would provide a onetime windfall to the treasury and increase funds in the US for capital spending.
For the week, US Stocks were sharply lower despite a rally on Friday. Bond prices and the dollar rose for the week. Historically, September is a down month. In particular this week:
- The National Association of Realtors reported that sales of previously owned homes fell 1.8% in August. Existing home sales are also down 5.3% from a year ago. It is believed that the decline is due more to there being fewer distressed properties being on the market and fewer investors buying homes rather than a lack of home buyers for principal residences.
- The Commerce Department reported that new home sales rose 18% in August from July, the biggest monthly increase since 1992.
- HSBC reported that the Chinese Manufacturing index increased to 50.5 in September from 50.2 in August. This private reading is accorded more confidence than the official government numbers due out October 1. Many economists had predicted a slowdown so this number was well received.
- New orders for durable goods fell 18.2% in August from July according to the Commerce Department. July saw an increase of 22.5% from June. Excluding the volatile Transportation sector durable goods orders rose 0.7% in August. Factory shipments increased 0.1% in August after rising 1.9% in July.
- The Labor department reported that initial claims for unemployment rose 12,000 to 293,000 in the prior week, better than forecasts of 296,000.
- On Friday the Commerce Department revised up the measure of 2nd quarter growth to an annual pace of 4.6% from a previously reported 4.2%.
