Market Update for October 26th, 2009

Many companies last week managed to generate enthusiasm by beating earnings estimates--in some cases resoundingly--but new highs for the year also brought out profit-takers. After surpassing the 10,000 mark last week, the Dow zigzagged around that level before finally wilting below it by week's end. Small caps lost the most, while blow-out reports from some Nasdaq bellwethers helped keep it from sliding as much as the other major U.S. indexes.

Market/Index

2008 Close

Prior Week

As of 10/23/09

Week Change

YTD Change

DJIA

8776.39

9995.91

9972.18

-.24%

13.63%

NASDAQ

1577.03

2156.80

2154.47

-.11%

36.62%

S&P 500

903.25

1087.68

1079.60

-.74%

19.52%

Russell 2000

499.45

616.18

600.86

-2.49%

20.30%

Global Dow

1526.21

1940.20

1940.90

.04%

27.17%

Fed. Funds

.25%

.25%

.25%

0 bps

0 bps

10-year Treasuries

2.24%

3.42%

3.48%

6 bps

124 bps

Last Week's Headlines

  • New housing starts rose slightly in September, but permits for new construction fell 1.2%. Both are still roughly 28% below last year's figures.
  • Driven largely by a 2.4% drop in energy prices, inflation at the wholesale level was down 0.6% in September from the previous month. That means wholesale prices have fallen 4.8% in the last year, though core inflation, which excludes food and energy, is up 1.8% since last September.
  • The Conference Board's index of leading economic indicators saw its sixth straight month of improvements, rising 1% in September. The six-month increase is the strongest since 1983. Average workweeks and building permits were the only two negative components of the index.
  • The looming expiration of the first-time homebuyer tax credit helped push sales of existing homes to their highest levels in two years, according to the National Association of Realtors (NAR). Resales rose 9.4% during September after falling in August, and were up 9.2% from last September. And the preliminary results of a separate NAR survey showed that almost half of sales were first-time home buyers. The bad news? Of those transactions, 29% were distressed properties.
  • Oil hit a new one-year high on reports that, despite weak demand, oil inventories were building less rapidly than expected. The euro traded above $1.50 for the first time in 14 months.
  • The federal government took steps to restrict executive compensation at seven large companies that have received taxpayer assistance, and the Federal Reserve Board proposed tighter regulatory supervision of pay packages that might encourage risky banking practices.
  • A tale of two economies: Chinese officials forecast that third-quarter growth figures due Thursday would accelerate to 9% from the previous quarter's 7.9%. However, the UK's economy shrank 0.4% in the third quarter (5.2% from a year ago).

Eye on the Week Ahead

Thursday's U.S. GDP figure will be closely watched to see if it manages to turn the corner and show growth. However, earnings reports will continue to be scrutinized for clues about whether current stock prices have already anticipated potential future good news.

Key data releases: Home prices, consumer confidence (10/27); durable goods, new home sales (10/28); Q3 gross domestic product (10/29); personal income and spending (10/30).

Data source: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

Eddie Patel