U.S. stocks had strong gains this week based on comments from the European Central Bank Chairman, Mario Draghi, indicating they may increase their stimulus. Also, China, in response to slower growth, cut interest rates for the sixth time in the last 12 months and lowered the banks’ reserve requirements to spur more lending. The International Monetary Fund’s chief Asia economist, Changyong Rhee, pointed out that while China’s manufacturing is declining its services sector is expanding rapidly and doubted there would be a hard landing. Healthcare stocks did not participate in the rally as a prominent short seller raised concerns about the accounting and valuations of some pharmaceutical companies. Energy stocks were also left out of the rally as U.S. crude inventories rose sharply. Commodity prices also fell. Many companies reported earnings this week. Several technology stocks posted strong earnings driving up their stocks. However, we would exercise caution at this point. According to Factset, overall earnings reported so far this quarter are down 3.8% from last quarter which saw about a 1.0% decline. If this trend continues this will be the first back to back decline in earnings since the financial crisis. We are coming up on a deadline to increase the Federal debt limit by November 3rd which can create market volatility. Also, we are faced with uncertainty about a FED rate increase given persistent low inflation and slower new job creation the past couple of months. The dollar rose sharply this past week on stimulus speculation for Europe and China which may further hurt U.S. exporters and multinationals. Treasury yields rose slightly and prices fell on the improving investor sentiment.
In economic news this week:
- The Commerce Department reported that housing starts rose 6.5% in September mostly due to a rise in multi-family housing construction.
- The National Association of Realtors reported that existing home sales rose 4.7% in September. This follows a sharp drop in August. For the year to date this has been the best year for existing home sales since the financial crisis.
- The US Energy Information Administration reported U.S. crude oil inventories rose by 8 million barrels in the week ending October 16th, much more than expected. Part of the increase was due to seasonal refinery maintenance. Even though drilling rigs are down 63% from their peak a year ago, S. production remains very high.
- Markit’s flash Purchasing Managers Index showed a rebound in US business conditions in October with the index rising from 53.1 to 54.0.
- The Labor Department reported that initial claims for unemployment rose 3,000 in the prior week, better than expected. The four week moving average of claims fell 2,000 to 263,250, the lowest since December 1973.
Please call us if you have any questions.
Loren C. Rex, CFP®, AIF® Erik Smith
Generations Financial Planning & Wealth Management 269-441-4143
77 E. Michigan Ave, Suite 140
Battle Creek, MI 49017
Carrie Fuce, Assistant 269-441-4091
Toll Free: 800-513-8180
Visit our Website: www.genfinplan.com
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