Week In Review

The week that was:

The U.S. markets were beat back down to the lowest levels since the midterms elections.  Energy was the sole sector group to gain ground last week.  The Nasdaq was hit especially hard by Cisco’s disappointing outlook.  Stocks also fell on increasing concerns about European sovereign debt and China’s anticipated steps to curb its economy.  In my opinion, this action is healthy because the market has been overdue for a pullback.

A headline that caught my eye this week:  Credit rating agency Fitch sacked by Portuguese Banco Espirito Santo.  As I learned in the first week of footnote accounting class (30116), the firing of an auditor, or in this case a ratings agency, certainly merits a closer look under the hood.  I suspect there may be more problems in store for the bank. 

Stocks:

The S&P 500 fell 26.64 points this week, or 2.17%, to 1199.21.  The Nasdaq Composite fell 60.77 points, or 2.36%, to 2518.21.  The Dow Industrials fell 251.50 points, or 2.2%, to 11192.58.  This is the first weekly decline for the S&P in six weeks and the first weekly decline for the Nasdaq in five weeks.

• As of Friday, 458 companies in the S&P 500 have reported results for the 3^rd quarter, with the remaining 42 reporting over the next five weeks.  Wal-Mart and Home Depot report on Tuesday.

Bonds:

End of week bond yields:

2 Year yield = 0.50%, up 13 bps from last week.

3 Year yield = 0.66%, up 16 bps from last week.

5 Year yield = 1.37%, up 28 bps from last week.

10 Year yield = 2.77%, up 24 bps from last week.

30 Year yield = 4.29%, up 17 bps from last week.

QE2, combined with the re-investment of principal payments from their existing holdings of GSE debt and Agency MBS portfolio, will total roughly $110 Billion per month in Treasury purchases. The Fed expects to buy securities with various maturities, ranging from 1.5 years to 30 years with a weighted average target duration between 5 and 6 years. 90% of the purchases will be concentrated in the 2-10-year part of the curve. One of the more interesting nuances to their program was the decision to purchase very few securities in the 30-year part of the curve. By not intervening in the ultra-long end, the Fed can now accurately assess the markets’ true long-term inflation expectations, which it is trying hard to increase

What to look for next week:

7:30 AM          Monday           Retail Sales

8:15 AM          Tuesday           Industrial Production

7:30 AM          Wednesday     Consumer Price Index

• Expected to rise 0.3%

7:30 AM          Wednesday     Housing Starts

9:00 AM          Thursday         Philadelphia Fed Survey

• GM is expected to price its IPO on Wednesday evening.  The estimated price range is $26 - $29.  Post-IPO, the Treasury Department’s stake is expected to fall to as little as 41% from the current 61%.