Recap: Week Ending November 15, 2013

November 17, 2013

US stocks rallied for the 6th consecutive week with both the S&P500 and Dow Jones Industrial Average closing at all time highs. The rally comes as the NASDSAQ closes at a 13 year high Friday. This record close for the Dow marks the 38th time this year that it has closed in uncharted territory. It must be noted that all three major indices closed at or very close to their weekly highs. Closing at their weekly highs signals that buyers are still strong and active, showing that the potential for upside is still extremely high. This being said, the S&P has not had any profit taking in 5 weeks, making investors question how much longer this rally can be sustained. The rally can only be amplified by comments made by Janet Yellen. Yellen is expected to replace Ben Bernanke as the chairman of the US Federal Reserve. This week Yellen told a Senate Committee that it is too early to end the Federal Reserves bond buying program known as Quantitative Easing, QE. These comments gave some reassurance to investors as both prices of bonds and equities rising following the announcement. Following the announcement, gold caught a bid. As bonds continue to be bought the likelihood of inflation increases as gold is a hedge against inflation, it should increase in value.

Outside of the US, stocks rallied with the exception of the FTSE in London. News from Mark Carey, the head of the Bank of England, BoE, rocked markets as it is now noted that the target unemployment of 7% may be reached by the end of the year. Below 7% unemployment, the BoE has warned of a hike in interest rates will occur. With such news breaking, the FTSE stock index fell as investors feared the cost of borrowing will increase. As the cost of borrowing increases, investment in equities may decreases. Even though rates have not yet risen, UK equities have begun to price in such a risk. It must be noted that a few weeks ago the European Central Bank, ECB, lowered their target rate. This makes many suspicious on the announcement from the BoE as rising the interest rate may be too premature at the time. All other major equity indices followed by DeGroote MarketWatch closed positive on the week, including the German DAX and the TSX which both closed near their weekly highs. The news out the UK has clearly not rattled German investors, this is a possible sign that an overreaction may have occurred in the UK. Meanwhile the TSX caught a nice bid towards the middle to end of the week. The TSX has traded horizontally for over 7 days following the midweek rally. The horizontal trade comes as the TSX had what appeared to be an 11 trading day 5.5% gain in mid October.

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