Recap: Week Ending November 1, 2013

November 3, 2013

As interest rates remain at record low rates, US stocks continue to push into new all time highs. This week both the Dow Jones Industrial Average and S&P 500 made fresh all time highs. The Dow has finally caught up to the pace of the S&P which has led the rally from the lows of October to new highs. On the other hand, the NASDAQ 100, representing for the most part the tech sector, stumbled around multiyear highs as it continues to trade in consolidation. For the past 9 trading sessions, the NASDAQ 100 has traded in a tight range. Meanwhile in Canada the Toronto Stock Exchange, TSX, made new year highs mid week but sold off Thursday and Friday. The tumble in the TSX can be attributed to a pullback in the price of gold. As the TSX has a strong presence of commodity securities, the sell off in gold can lead to a pull back in the TSX. Like gold, silver sold off later in the week. This week the German DAX also made new yearly highs. The FTSE London Stock Index pushed higher but was not able to make new all time highs for the year. The move to the downside in both gold and equities can be attributed to a strong upswing in the US Dollar Index. Later in the week the USD caught a bid against the EURO, pushing down equities. The US Dollar Index is an index made up of the largest currencies traded against the USD. As the Index increases, the USD gains strength. The EURO sold off falling to a two week low on expectations that the European Central Bank will ease their monetary policy to encourage more economic growth.

This week the US Federal Reserve announced their bond buying program, Quantitative Easing, will continue at a pace of $85Billion USD a month. Buying bonds pushes the interest rate lower with the intention of spurring economic growth off of cheap money. Ever since the end of May the Fed has been threatening a taper, or reduction in bond purchases. At this announcement, the Fed has stated that it may consider such taper actions in December. Since the end of May US bonds have sold off. After bottoming in mid September, the sell off looks to continue as the Fed further debates a taper.

US corporate earnings continue with one quarter of companies still reporting earnings. According to Thompson Reuters 68.5% of those companies who have reported earnings have beat profit expectations, this figure is above the 63% long term average. It must be noted that only 53.3% of companies have beat revenue forecasts compared to the 61% average. Currently the S&P is up over 23% this year. It is estimated by Bank of America Merrill Lynch that $7.6 billion USD entered US equities in the past week, adding to the $109.7 billion for the entire year.

The upcoming week holds many key North American economic figures. Monday investors will see ISM New York Index. Wednesday Canada will release the Ivey Purchasing Managers Index for October with an expected value of 54.7. Thursday the US will release its GDP for the third quarter, the expected value is an increase of 2%. There will also be a 30yr US bond auction Thursday. Friday will be the most important day with both the Canadian and US unemployment figures being released. Both figures as expected to see an increase over their past releases by 1 basis point to 7% and 7.3% respectively.

DeGroote on Facebook DeGroote on Twitter WMA LinkedIn