It Was a Busy Week
Weekly Update – November 5, 2012
It was a busy week as Hurricane Sandy pounded the East Coast; securities exchanges
were forced to close on Monday and Tuesday; and a slew of economic reports were
released. Stocks ended the shortened week with a selloff Friday, erasing gains made
earlier, and finishing basically flat. For the week, the S&P gained 0.16% and the Dow
climbed 0.12%, while the Nasdaq trimmed 0.19%.i
Although the economic impact of Hurricane Sandy won’t be known for weeks or months,
the true cost of a disaster like this is always the human suffering. It is painful to see
beautiful homes and townships devastated by natural forces, and our thoughts go out to
all those impacted. If you or someone you love has been affected in any way, and if
there is anything we can do, please don’t hesitate to let us know.
On the bright side – without making light of this disaster – it should be noted that major
storms rarely have a lasting impact on the U.S. economy. Generally, even large
disasters like this one aren’t costly enough to damage the enormous economic machine
that is the U.S. economy. Insurance companies may be stuck footing a large bill, and
the government may have to pay for relief efforts, but economic snags of this type are
usually temporary. The major exception to this general rule was Katrina, which
devastated New Orleans and caused over $100 billion in estimated damages. One of
the major reasons Katrina was so expensive was because of the area’s economic
importance as a major shipping port and oil and gas hub. Although the effects of Sandy
are widespread, the storm would have had to shut down major cities for weeks to
achieve similar effects.ii Fortunately, it passed somewhat quickly, and major recovery
efforts are underway.
One note of positive news could be found in last week’s Labor Department report
showing that employers added 171,000 new jobs last month. Although the
unemployment rate ticked slightly upwards to 7.9%, the increase was attributed to
discouraged workers restarting job searches, which is a positive sign for the economy.iii
This good news combined with recent consumer confidence highs indicate that we may
be able to expect consumer spending to increase during the holiday season, which
would be excellent for retailers.
As earnings season continued last week, markets responded positively to some solid
results. Consumer discretionary stocks edged higher as several well known travel
companies and luxury retailers beat estimates.iv Overall, the corporate earnings picture
has improved as more companies have reported; according to November 2nd data, of
the 378 S&P 500 companies that have reported so far, 61.9% have beat expectations,
which is in line with the 62% average since 1994. While we may see additional volatility
in the weeks ahead, solid earnings and upbeat economic reports mean that investors
have a lot to be pleased about right now.v
ECONOMIC CALENDAR:
Monday: ISM Non-Mfg. Index
Wednesday: EIA Petroleum Status Report
Thursday: International Trade, Jobless Claims
Friday: Import and Export Prices, Consumer Sentiment
Data as of
11/2/2012
Standard &
Poor's 500
1-Week
Since
1/1/2012
1-Year
5-Year
10-Year
0.16%
12.45%
14.24%
-1.26%
5.70%
DOW
0.12%
7.17%
7.05%
-0.74%
5.37%
NASDAQ
-0.19%
14.47%
12.96%
1.22%
11.92%
MSCI EAFE
0.13%
10.93%
8.66%
-5.27%
4.98%
10-year Treasury
Note (Yield Only)
1.75%
N/A
2.01%
4.29%
3.98%
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not available.
HEADLINES:
Euro crisis strikes Greek hospitals. German drug maker Merck KGaA has stopped
delivering a critical cancer drug to Greek hospitals due to unpaid bills. Although Greeks
can still buy the popular prescription drug in pharmacies, until public hospitals are able
to pay down their debts, the drug will not be available to hospital patients.vi
Consumer confidence rises to four-year high. The Conference Board Consumer
Confidence index rose in October to the highest level since February 2008. Despite
tough economic conditions, Americans were more confident about their finances and
expected the job market to improve in the next six months.vii
Planned layoffs jump to five-month high. The number of planned employee layoffs
by U.S. firms jumped 41.1% to the highest level since May. While the last three months
of the year historically see the largest number of layoffs, analysts believe that the
deteriorating situation in Europe and worries about the fiscal cliff are leading companies
to cut back on staffing.viii
Long-term shifts in retail may hinder employment growth. The retail sector is a key
provider of employment. As consumer confidence grows, and mortgage refinances put
money back in consumers’ pockets, retailers are beginning to increase hiring. However,
structural shifts towards self-checkout and online sales may limit the pace of hiring
increases.ix
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect
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Diversification does not guarantee profit nor is it guaranteed to protect assets
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock
market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock
Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the
performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia
and Southeast Asia.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is
seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
The Housing Market Index (HMI) is a weighted average of separate diffusion indices based on a monthly survey of NAHB
members designed to take the pulse of the single-family housing market. Each resulting index is then seasonally adjusted
and weighted to produce the HMI.
The Pending Home Sales Index, a leading indicator of housing activity, measures housing contract activity, and is based on
signed real estate contracts for existing single-family homes, condos and co-ops. The PHSI looks at the monthly
relationship between existing-home sale contracts and transaction closings over the last four years. The results are
weighted to produce the index.
The Chicago Board Options Exchange Market Volatility Index (VIX) is a weighted measure of the implied S&P 500 volatility.
VIX is quoted in percentage points and translates, roughly, to the expected movement in the S&P 500 index over the
upcoming 30-day period, which is then annualized.
The BLS Consumer Price Indexes (CPI) produces monthly data on changes in the prices paid by urban consumers for a
representative basket of goods and services. Survey responses are seasonally adjusted and weighted to produce a
composite index.
The Conference Board Leading Economic Index (LEI) is a composite economic index formed by averages of several
individual leading economic indicators, which are weighted to produce the complete index.
Google Finance is the source for any reference to the performance of an index between two specific periods.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future
performance.
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i
http://www.briefing.com/investor/markets/weekly-wrap/weekly-wrap-for-october-22-2012.htm
ii
http://www.marketwatch.com/story/big-storms-rarely-dent-economy-for-long-2012-10-29
iii
http://news.yahoo.com/index-futures-tread-water-ahead-jobs-report-110825182--finance.html
iv
http://www.briefing.com/investor/markets/weekly-wrap/weekly-wrap-for-october-29-2012.htm
v
http://news.yahoo.com/index-futures-tread-water-ahead-jobs-report-110825182--finance.html
vi
http://news.yahoo.com/germanys-merck-halts-supply-cancer-drug-greek-hospitals-121035696--finance.html
vii
http://www.cnbc.com/id/49639222
viii
http://www.cnbc.com/id/49637586
ix
http://www.usatoday.com/story/money/business/2012/11/03/retail-remodeling-jobs/1677457/