Stocks surged this past week thanks to a new plan to resolve the European sovereign debt crisis, as well as data showing that our own U.S. economy expanded by some 2.5% in the third quarter, which is the fastest tally by far this year. Stocks have now surged some 17% since October 3 and are just a slight 6% off of their 2011 peak. As it now stands, 19 out of 20 stocks are above their 50-day moving averages, which are causing many pundits to predict a pullback in the near-term. However, it was enjoyable to see that October’s surge almost wiped out the carnage of the third quarter, whereby stocks lost nearly 14%. With just one day left of trading in the month of October, stocks are in line for the best month in a quarter-century. Thus far, the major indices are looking at monthly gains of 11% for the Dow, 10% for the Nasdaq and 12% for the S&P 500. This was most definitely an October to remember!
As the bulls continued to snort, The Dow Jones Industrial Average stretched its rally into a fifth straight winning week as it gained 422 points, or 3.6%, and now sits at the 12,231 mark. The Standard & Poor’s 500 index rallied for a fourth week and closed up 47 points, or 3.8%, to 1,285. The tech-laden Nasdaq Composite Index added almost 100 points, or 3.8%, and now rests at a perch of 2,737. The smaller cap stocks as represented by the Russell 2000, jumped 49 points, or 6.8%, to 761. The ghosts of all of those Octobers past took a back seat to a rally that has certainly rattled the bears and must be having them scratching their heads.
As we enter into the month of November, the majority of the major indexes are now to the positive on a year-to-date basis. Thus far, the tallies are as follows: the S&P 500, up 2.2 percent; the Nasdaq, up percent; the Dow Jones Industrial Average, up 5.6 percent. Only the smaller-cap stocks as represented by the Russell 2000 finds itself in the red for the year, as this index is down 2.9 percent.
Treasury securities once again got pounded as investors abandoned this favored safe harbor and put money back into riskier assets such as stocks. During last Thursday’s huge stock rally, the Treasury’s 10-year yield hit a peak of 2.376%, up sharply from the previous Friday’s close of 2.210%. Friday, the yield slipped back to 2.310% as the stock market took somewhat of a breather. The action was even more extreme with the 30-year bond, which hit 3.46% during Thursday’s risk rally, up from 3.26% the prior Friday. By week’s end, the long bond yield was back to 3.36%. This week the markets’ attention will shift to the Federal Open Market Committee, which will wind up a two-day policy meeting on Wednesday. Federal Reserve Chairman will then hold a press conference where he more than likely will be peppered with questions about the prospects for further central-bank securities purchases, also known as QE3.
This week will again be very eventful with the highlight being the Federal Reserve’s meeting as mentioned above, and the October jobs report out this Friday. Also garnering market attention will be the Institute for Supply Management’s manufacturing data and motor vehicle sales on Tuesday. With respect to the October employment report, the consensus is that U.S. employers probably added around 100,000 jobs, which will be not nearly enough to lower the unemployment rate.
On the earnings horizon, we have several big names reporting this week such as Warren Buffett’s Berkshire Hathaway, Prudential, Lowe’s, insurance giant AIG, Kraft Foods, Kellogg, CVS Caremark, Baker Hughes, El Paso, Time Warner, Archer-Daniels-Midland and MasterCard.
Let’s hope that the traditionally strong November-December period does not turn upside down, and send us to the downside like October sent us to the upside. Don’t be spooked if the market does take a couple of steps backwards, as a rest after such a huge rally would actually be healthy. Until next week, take care!!
Sources:Barron’s, Wall Street Journal, Associated Press, Econoday, Gorilla Trading, Dow Jones & Company, Briefing.com