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Market Activity for October 27, 2011
|
Index |
Close |
Change |
% Change |
YTD |
1 Yr Rolling % |
|
Dow Jones |
12208.55 |
+339.51 |
+2.86% |
5.45% |
9.85% |
|
S&P 500 - Large Cap |
1284.59 |
+42.59 |
+3.43% |
2.14% |
8.52% |
|
S&P 400 - Mid Cap |
912.99 |
+37.68 |
+4.30% |
0.63% |
10.41% |
|
S&P 600 – Small Cap |
421.21 |
+20.55 |
+5.13% |
1.32% |
13.20% |
|
EAFE - International |
1553.31 |
+75.49 |
+5.11% |
-6.33% |
-3.91% |
|
EM - Emerging Markets |
993.81 |
+33.43 |
+3.48% |
-13.69% |
-9.88% |
|
NASDAQ |
2738.63 |
+87.96 |
+3.32% |
3.23% |
9.22% |
|
REIT |
224.32 |
+9.41 |
+4.38% |
3.35% |
5.49% |
|
Barclays Aggregate Bond |
1736.32 |
-8.14 |
-0.47% |
5.80% |
4.47% |
Sector Activity for October 27, 2011
|
Index |
Day Change |
YTD |
|
Consumer Discretionary |
+2.65% |
6.54% |
|
Consumer Staples |
+1.25% |
6.95% |
|
Energy |
+3.86% |
6.43% |
|
Financials |
+6.16% |
-11.87% |
|
Health Care |
+2.22% |
8.23% |
|
Industrials |
+4.39% |
-1.97% |
|
Information Tech |
+3.13% |
5.87% |
|
Basic Materials |
+5.32% |
-6.13% |
|
Telecoms |
+2.52% |
-2.33% |
|
Utilities |
+2.13% |
12.37% |
Q3 GDP
The Commerce Department reported that third-quarter GDP rose 2.5% at a seasonally-adjusted real annual rate, which was in line with expectations. There were many components of the figure that contributed last quarter as personal consumption, private investment and trade all had a positive effect – very good sources of growth. Government spending (all from the state & local side as the federal government continued to spend more) and inventories dragged on the figure.
The best aspect of the report was the 17.4% increase (at an annual rate) in equipment and software spending – that accounted for half of the increase in GDP. The rest is so-so in my view (as a 2.5% GDP is so-so; only after two quarters of 1% growth does this number look good) Personal spending rose nicely, but inflation continues to erode income (thus one has to assume the consumer will pull back again) and trade is proving to be an inconsistent contributor to GDP.
As an aside, I’ve noticed plenty of people state that the consumer confidence readings do not predict how consumers will actually behave – that is, confidence is extremely weak, yet consumer outlays continue to rise. I’ve made this argument too, for many years in fact. But this time is different, and when consumers are already saddled with debt, they can’t rely on credit to make up for lacking income growth, the confidence numbers become foretelling. But is it even true that consumer confidence has failed to predict consumer behavior during this cycle? Not in terms of GDP as personal consumption has averaged 1.9% at an annual rate during this expansion. The average for the first nine quarters into a recovery (going back to 1958) is 4.4% .
The fact that inventories weighed on GDP is actually a good thing as the number has relied on that component for too long. As a result of GDP increasing even as inventories declined, the real final sales aspect of GDP rose 3.6%. This is a measure of final demand in the economy. Now, I don’t see it having much follow through as real incomes are down and the labor market very weak; nonetheless, it looks good for this quarter and inches us closer to a level that is more normal. Still, this figure has averaged just 1.78% during this nine quarters of recovery. A number closer to 4.0% is normal at this stage in the cycle.
While the 2.5% GDP print looks good after the 0.85% in the first half of the year, it is insufficient to spark a labor-market revival. Indeed, it is sad we’ve been reduced to happiness on a 2.5% print, but that’s the economic environment we’re living in. Over the past four quarters, the economy has grown 1.6% (even as monetary policy is as aggressive as ever); a number over 3.0% for many quarters in succession is needed to get jobs going again. If we escape recession, it will be the first in the postwar era we’ll have done so following such weak activity. That is, every time GDP has averaged less than 2% during any rolling four-quarter period since 1945, a recession has followed.
Jobless Claims
Initial jobless claims fell 2,000 to 402,000 last week (in line with expectations) and the previous week’s number was revised up by only 1,000 so I’d call that a victory – pyrrhic for sure, but a victory as previous revisions have been higher. This marks the 27th of the past 29 weeks in which initials have held at 400K or higher.
The four-week moving average rose 1,750 to 405,500.
The continuing claims data fell 133,000 as the standard issue of claims (those that cover the first 26 weeks of joblessness) slid 96,000 and emergency claims fell 37,000. I hope the October jobs data shows a nice increase, otherwise much of the decline in standard claims are just those rolling into emergency claims that extend out to 99 weeks. We’ll have a better sense of this via next week’s jobless claims report as the emergency claims data is a week delayed. That is, if those claims shoot up then we’ll know the answer as to whether those people found jobs or remained on the dole.
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