Recap: Week Ending October 4, 2013
US stocks closed mixed on the week following news driven markets brought upon through Washington. The NASDAQ 100 continued to lead the way higher with the Dow showing strong downside closing well into the red on the week. On the other hand, the S&P500 closed near breakeven as the lack of correlation between markets continue. As the correlation breaks down, the moves in stocks are expected to be muted. With the lack of in sync moves taking place, equities have stutter stepped for the past few weeks. The divergent situation is even stronger in Europe where the FTSE closed down 90 basis points of a percent on the week, and the Frankfurt DAX closed up nearly 0.70%. As this lack of direction continues across global markets, equities will trade in tight ranges with little conviction in either direction. The chop trade also carried across into the metals market where gold saw extreme weakness at the start of the week which was then later matched by relative strength. According to the media, the central cause for downside in gold is a single seller liquidating a large position. As this holder of gold continued to sell, he or she hit sell stop loss orders, resulting in further downside. The resilience of buyers in gold can be seen by a strong the strong turnaround following a larger than $40 loss on the day. The Toronto Stock Exchange, TSX, traded on some of the lowest daily volumes we have seen in weeks. As volume continues to drift lower, the TSX continues to trade in a tight narrow range. The Toronto based index has been caught in this tight range for over the past 10 trading periods.
Early in the week the US congress failed to pass a fiscal budget deal. The failure to pass the bill led to the shutdown of federal run services including national parks, locking out over 800,000 Americans from their government paid jobs. With the lockout in place, limited economic data is being released as the majority of those employed who do so are currently locked out. One of the most recognized figures that are not being released includes the unemployment figures. The lack of information has left the markets unsure on the actual state of the economy, pricing in neither a good figure nor bad. Upon the actual release of the figure it is believed that the markets may move violently, pricing in the economic figure which has been published past its scheduled date. The lockout is not only bad for equity markets but also consumers spending as those 800,000 workers paychecks are currently being withheld. Investors must take note that the lockout is also affecting companies which are contracted out by the federal government. Such organizations affected by the lockout include Boeing and Lockheed Martin, two of the largest companies contracted out by the government.
The upcoming coming week marks the start of earning season. It will be important to watch how earnings perform compared to last quarter, but even more important to watch the upcoming guidance. Guidance on earnings will give investors an idea of how companies are taking the threat of US tapering of quantitative easing. Currently the Federal Reserve’s messages about any possible tapering are unclear; however, earnings results from companies will provide the best outlook on the US economy. On top of earnings, the fed will also be releasing minutes Wednesday from its past meeting. Investors will be sure to comb through the minutes which many believe will give a better understanding of the US economic picture that is painted by some economists.