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The Markets
Investors did a 180 from the previous week, deciding once again that the risk of global recession and financial contagion was high enough to justify getting rid of equities, commodities, and practically everything else except U.S. Treasuries. A midweek global selloff took the small-cap Russell 2000 to just below its August low; having lost almost 25% since its April 29 high of 865, it has now reentered bear-market territory. The S&P 500 once again dipped below 1,200 and is down almost 17% from its April high, while the Dow is off almost 16% and the Nasdaq almost 14% in the same time period. Gold provided no refuge from the selling as it plummeted almost $150 an ounce, while oil prices turned downward to the $80 per barrel mark. The dollar continued to attract nervous global investors, and 10-year Treasury yields took a 16-basis-point nosedive on Thursday as prices shot up.
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Market/Index
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2010 Close
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Prior Week
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As of 9/23
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Week Change
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YTD Change
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DJIA
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11577.51
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11509.09
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10771.48
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-6.41%
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-6.96%
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NASDAQ
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2652.87
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2622.31
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2483.23
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-5.30%
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-6.39%
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S&P 500
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1257.64
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1216.01
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1136.43
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-6.54%
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-9.64%
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Russell 2000
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783.65
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714.31
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652.43
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-8.66%
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-16.74%
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Global Dow
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2087.44
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1840.92
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1700.42
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-7.63%
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-18.54%
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Fed. Funds
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.25%
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.25%
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.25%
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0 bps
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0 bps
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10-year Treasuries
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3.30%
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2.08%
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1.84%
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-24 bps
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-146 bps
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Last Week's Headlines
- Let's twist again: The Federal Reserve announced it will sell $400 billion worth of short-term bonds in its portfolio and buy an equal amount of longer maturities. The plan, which echoes a 1960s maneuver called Operation Twist, also will involve reinvesting principal payments on the Fed's agency debt holdings in agency mortgage-backed securities. The move is intended to support economic recovery by keeping already low long-term interest rates really low. The Fed cited concerns about "significant downside risks to the economic outlook, including strains in global financial markets."
- Italy's debt challenges worsened when Standard and Poor's cut its credit rating by one notch, to A, and issued a negative outlook, meaning further cuts are possible. Moody's downgraded eight Greek banks and three U.S. banks, citing uncertainty about the level of government support for "too big to fail" banks in the event of a 2008-style financial crisis.
- The International Monetary Fund cut its forecast for U.S. economic growth this year to 1.5%--1% below its estimate of just three months ago--and to 1.8% for 2012. Globally, the 4% annual growth forecast for both this year and next is down from 2010's 5% growth rate. Even China's 2012 forecast was lowered from 2011's 9.5% to 9%, and its factory sector contracted in September for the third straight month. Meanwhile, the Conference Board's index of leading economic indicators rose 0.3% in August, the third straight month of increases. However, it said weak consumer confidence has increased the possibility of reentering recession.
- Despite tight credit and appraisal problems, existing home sales were up 7.7% in August, according to the National Association of Realtors®. The median sales prices was 5.1% lower than last August, which may have helped push home resales up 18.6% from a year earlier. More purchases were made by investors looking for bargains and a hedge against inflation, according to the NAR, and distressed properties represented 31% of sales.
- President Obama laid out his proposal for deficit reduction, which the administration said would cut the deficit by more than $3 trillion over the next 10 years. The proposal anticipates a $1.5 trillion reduction from raising taxes on higher-income taxpayers by letting the so-called Bush-era tax cuts expire in 2013, limiting some deductions for households earning more than $250,000 a year, and closing some tax loopholes. It also calls for a minimum tax rate for individuals making more than $1 million a year--the "Buffett rule" advocated by billionaire Warren Buffett, who has said his secretary shouldn't pay a higher tax rate than he does. The plan would cut an estimated $580 billion in spending, including cuts in Medicare and Medicaid, largely from changes in payments to drug companies and institutional care providers. It also factors in an estimated $1.1 trillion from winding down the wars in Afghanistan and Iraq, and $430 billion saved on interest payments.
Eye on the Week Ahead
As a volatile quarter draws to a close, investors will be watching to see how--and how quickly--world financial leaders follow through on their pledge to coordinate efforts to stave off global financial problems. Germany's governing body is scheduled to vote Thursday on expanded powers and financing for the European Financial Stability Facility. Italian bond auctions will be of interest in the wake of S&P's downgrade, and the final report on Q2 U.S. economic growth is due Thursday.
Key dates and data releases: new home sales (9/26); home prices, consumer confidence (9/27); durable goods orders (9/28); final Q2 GDP, weekly new jobless claims (9/29); personal income/spending, consumer sentiment (9/30).
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. Equities data reflect price change, not total return.
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.
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