Another Rocky Week Sends Stocks Slightly Higher

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Last week proved to be another volatile and emotionally driven one, as stocks continued to show signs of increased volatility. The latest worry was the country of Italy and its possibility of defaulting on its debt. The story in Italy is basically the same as the story in Greece, except that it’s much larger which means that it’s potentially far worse. Italy is the third-largest economy in Europe and it now holds some $2.6 trillion in debt. That’s more than Greece, Ireland, Spain and Portugal combined. It that figure ever did default, investors would certainly take notice. Last Wednesday was the low light, as the Standard & Poor’s 500 got hit for a 3.67% loss over fears that Italy wouldn’t be able to pay its debt. However, the markets righted themselves on the last two trading days of the week, and the major domestic indexes ended the trading week somewhat mixed. Either way, given all the turmoil swirling around the globe, the results of last week would have to be considered a ‘moral’ victory to say the least.

For the week, the Dow Jones Industrial Average finished higher by 1.42%, and now sits at the 12,154 level. The broader Standard & Poor’s 500 Index also gained some positive traction and finished last Friday up 0.85% on the week. Unfortunately, both the Nasdaq and the Russell 2000 indexes didn’t have the same luck, as they closed out the past five trading days lower by 0.28% and 0.25% respectively.For the year-to-date figures, the major indexes are also somewhat mixed and stand as follows: the Dow, up 4.98 percent; the S&P 500, up 0.49 percent; the Nasdaq, up 0.98 percent; and the Russell 2000, down 4.98 percent.Treasury securities continued their wild and wooly path as we saw Italian 10-year bonds soar over the 7.4% level, and other sovereign debtors such as Greece, Ireland and Portugal also saw their yields rocket higher. Our U.S. Treasuries were quite stable on the week as they were little changed from the previous Friday. The benchmark 10-year note is now yielding 2.057%, and the 30-year bond is at 3.108%. With the bond market closed for Veterans Day last Friday, Treasuries may have some catching up to to do in terms of higher yields, especially after last Friday’s +2% rally in stocks.This week marks the sixth week of the third quarter earnings season, a time when many professional investors adjust their positions based on company performance and projections. But many analysts expect theses traders have turned their eyes away from earnings to focus instead on the European developments unfolding with hope of uncovering the fate of the global economy. Given both Europe’s and Italy’s potential to drastically alter the global economy, it’s easy to understand that investors may brush off earnings as a negligible statistic. After all, a strong earnings report for the third quarter will hardly matter if the economy plunges into a global recession.

With respect to earnings reports this week, many of the major retailers will be reporting, including: Urban Outfitters, Lowe’s, Limited Brands, J.C. Penney, Home Depot, Wal-Mart Stores, Staples, Dicks Sporting Goods, Target, Abercrombie & Fitch, Dollar Tree, Gap, Foot Locker and Sears Holdings. Hopefully we’ll see continued improvement with these results as we head into the all-important holiday shopping season.

This week also brings a boatload of wide-ranging economic news. The highlight of the week will more than likely be the retail sales figures, which come out on Tuesday. Posting on the same day are producer prices and the Empire State manufacturing tally. At mid-week, traders get to parse the October consumer price index and industrial production. Thursday is highlighted by housing starts along with the Philadelphia Fed manufacturing results.

As we enter the third week of November, the increased volatility which we’ve been dealing with for some time now will more than likely continue. However, despite the volatility in the financial markets, the real economy appears to be making some progress with an improving (albeit slow) recovery. The export sector is still an engine of growth and the consumer sector is beginning to show some signs of increased confidence. In addition, we are in the heart of the bullish time of year (historically) for stocks, so maybe that means we’ll see a strong finish to what has been a wild and rough year for the overall equity markets. Until next week, take care!!

Sources:Barron’s, Wall Street Journal, Associated Press, Econoday, Bloomberg, Dow Jones & Company,


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