With the third quarter earnings season now underway, stocks took another opportunity to continue their upward ascent, which again was a welcome relief. Stocks advance thanks to some blowout earnings numbers from such tech stalwarts as Google, and the roll out of Apple’s newest iPhone, stocks jumped to their highest close since early August and pushed both the Dow Jones Industrial Average and the Nasdaq Composite back into positive territory for the year. It also helped to have a positive reading on U.S. retail sales along with signs of progress in Europe’s sovereign-debt crisis. In just the past 10 months, investors have had to deal with the debt downgrade of the U.S. government, the escalating debt crisis in Europe, political upheaval in the Middle East and of course the tsunami disaster in Japan. Now apparently all that is old news.
The Dow Jones Industrial Average surged by 4.9% or 541.37 points last week and now stands at the 11,644.49 level. It was the Dow’s biggest weekly point and percentage gain since the week ending July 1. Meanwhile the Nasdaq Composite moved northward by 7.6%, which was its biggest weekly percentage gain since March 2009. Apple, Inc, International Business Machines and Amazon.com Inc. all jumped to record highs. Even the broader Standard & Poor’s 500 index got into the act, as it advanced by 5.98% this past week. It’s hard to believe, but just nine trading days ago, investors were standing on the edge of a bear market, by the traditional definition. The S&P 500 stock index had been down by more than 20% from its April high, and then fortunately our recent rally began. The smaller-cap stocks as represented by the Russell 2000 also had a great week as this indexed moved higher by 8.6%. The major indexes have now risen for three weeks in a row, which is their longest streak in six months.
On a year-to-date basis, both the Dow and Nasdaq returned to positive territory, with both up 0.6 percent. However the S&P and the Russell 2000 are still negative on the year, by 2.6% and 9.1 percent respectively.
As to the bond market, Interest rates continued to rise, and their subsequent prices fall. Remember, bond prices and interest rates are inversely related. The yield on the 10-year Treasury note rose to 2.25% from 2.18% last Thursday. The key factor was obviously the perceived improvement in the resolution of the European sovereign debt crisis. In addition, the fact that money flows into equities increased also helped rates move higher.
This week will be chock full of indicators which should clarify whether the third quarter, and even the early part of the fourth quarter is gaining any momentum. Upcoming news runs the gamut on manufacturing, housing, and inflation. Empire State and industrial production post on Monday and the Philly Fed prints on Thursday for an update on the health of the manufacturing sector. Housing is updated with housing starts on Wednesday and existing homes sales comes out on Thursday. The producer price index and the consumer price index are released Tuesday and Wednesday respectively. At mid-week, the Fed’s Beige Book will garner trader’s attention as well. The volatility we have seen as of late shows that we are at an importunate juncture for stocks, so we’ll just have to wait and see what type of economic news unfolds.
In closing, kudos to our founder and president, Donald Rice, as he has spent the greater part of the past two weeks in both Washington and Miami, by advocating new legislation to Congress and to a summit of other policymakers as to a proposed bill concerning registered investment advisory firms like Money Management Services, Inc. His main goal is to avoid the costly oversight by the present Financial Industry Regulatory Authority (FINRA), and keep such oversight for investment advisers under the more cost effective Securities and Exchange Commission. Congrats to Donald on his hard fought efforts.
Sources: Barron’s, Wall Street Journal, Associated Press, Econoday, Gorilla Trading, Dow Jones & Company, Briefing.com