In the markets:
Friday’s 157 point gain in the Dow Jones Industrial Average marked the end of a strong week on Wall
Street. The Dow gained over 430 points to close at 17,646. The Nasdaq surged over +2.9% ending the
week back above the psychologically-important 5000 number at 5031. The LargeCap S&P 500 added
+2.07%. However, the gains were concentrated in the LargeCap space, as the S&P 400 MidCap index
gained only +0.38% and the SmallCap Russell 2000 rose an anemic +0.32%. A particularly weak
September job gains number is believed by some market watchers to have been the death knell for a
2015 interest-rate increase, and the interest rate cut by the People’s Bank of China added to the buying
rush.
In international markets, Canada’s TSX gained +0.84% to close at 13953. Much bigger returns for the
week were found in Europe, where Germany’s DAX vaulted over +6.8%, followed by France’s CAC40
jumping +4.7%. The United Kingdom’s FTSE gained +1.04%. In Asia, Japan’s Nikkei gained +2.92% and
China’s Shanghai Stock Exchange rose a more modest +0.62%.
In commodities, Gold declined more than -$14 to $1,162.80 an ounce. Silver likewise declined -1.27% to
$15.83 an ounce. A barrel of West Texas Intermediate crude oil declined more than -6.5% to $44.60 a
barrel.
In US economic news, jobless claims remained near their recent lows as initial claims rose only 3,000 to
259,000 last week. Analysts had expected a reading of 265,000. There were 2.17 million continuing
claims, while the 4-week moving average of claims reached a 15-year low of 2.184 million.
Housing starts for September came in at an annual rate of 1.206 million in September, which was the
second strongest monthly reading since 2007 and well above expectations. Starts were +17.5% higher
versus a year ago. On the other hand, new construction permits fell -5% at 1.1 million, missing
expectations. This may indicate a slower pace of building in the future. Existing home sales were up
+4.7% last month to an annual rate of 5.55 million according to the National Association of Realtors.
That was the second highest reading since 2007 and handily beat estimates of 5.35 million. Mortgage
and refinance applications both jumped for the week, too, up +11.8% and +16.4% respectively. More
good news on the housing front came from the Homebuilder Confidence reading from the National
Association of Home Builders, which jumped to a new decade high in October.
The early reading on October US manufacturing activity, the “flash” Purchasing Managers Index (PMI),
saw its sharpest pickup in new business conditions since May. The reading increased nearly a point to
54.0, beating estimates of an unchanged reading. Strong output was mostly driven by demand from the
domestic US market.
The Conference Board’s US Leading Economic Indicators (LEI) fell -0.02% in September to 123.3.
Expectations had been for a flat reading. The September reading suggests that growth will continue but
at a tepid pace—around +2.5%, according to the Conference Board.
In Canada, wholesale shipments fell -0.1% in August, missing expectations of a slight gain. Canada’s
economy continues to struggle with the effects of low oil prices. However, retail sales rose +0.5% in
August, beating expectations. The yearly gain increased to +2.8% suggesting better growth for the 3rd
quarter.
In the Eurozone, The European Central Bank left rates and its bond buying program unchanged, as
expected. ECB President Mario Draghi suggested an increase in bond buying would be considered in
December. He stated that monetary policy alone wouldn’t be enough to spur the Eurozone to stronger
growth. ECB Governing Council member Ewald Nowotny stated that fiscal policy must become looser.
Previously fiscal policies were “restrictive”, and are now “neutral”, but there may be a need for it to
become “expansive”, he was quoted as saying.
Eurozone construction output declined -0.2% in August. Building was down 0.2% during the month, and
civil engineering fell 0.3%. Construction activity has remained relatively weak along with the broader
Eurozone economy. Consumer sentiment also lost ground as October’s reading slipped to -7.7 from 7.1. This was the lowest reading since January. Germany, struggling to get even a little inflation in its
economy, reported that producer prices fell -0.4% last month, more than expected. The yearly decline
now stands at -2.1%, the biggest year-over-year reading since January. Excluding energy, which fell 1.1%, the producer price index was still down -0.1%.
In China, GDP grew at an annualized rate of +6.9% in the 3rd quarter. That’s slightly below the official
target of +7%, and the slowest rate of GDP growth since 2009. Industrial production missed
expectations, increasing only +5.7% versus last September. Retail sales rose +10.9% versus last year,
matching expectations. The People’s Bank cut interest rates for the 6th time in a little less than a year
and relaxed reserve requirements for banks making China’s stimulus levels the most accommodative
since the financial crisis.
Finally, this past week Italian luxury sports car maker Ferrari had its initial public offering priced at $52 a
share, under the ticker symbol RACE. However, Ferrari’s IPO was one of the declining number of IPOs in
the current bull market. According to Dealogic data, to this point in 2015 just 153 deals have been
brought public, versus 242 at this same time last year, and 173 the year before. The cooling in the IPO
market is attributed by analysts to a disconnect between company expectations and current market
reality. Supermarket chain Albertson’s wished to raise $1.95 billion through a public sale of stock last
week, but delayed its IPO until later this month or next. Volatile markets, marked by a steep sell-off in
late August, have led potential investors to demand better prices from the companies aspiring to go
public. Also not helping the IPO market is the fact that this year’s overall IPO returns are negative.
Renaissance Capital estimates that half of the companies that have gone public this year are trading
below their IPO price, and even more are trading below their “first trade” prices (the price assigned to
the public IPO-buyer not in on pre-trade share allocations). In the case of Ferrari, the first-trade price
was $60, yet Ferrari closed the week at $56.38, meaning that all public buyers of the IPO at the “first
trade” price are under water already.
(sources: Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com,
ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance,
stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com,
pensionpartners.com, cnbc.com; Figs 3-5 source W E Sherman & Co, LLC)