November 24, 2014 - Assertive Moves By Major Players

Markets rallied for the fifth week in a row on global and domestic good news, sending the Dow and S&P 500 to new record highs. For the week, the S&P 500 gained 1.15%, the Dow grew 0.99%, and the Nasdaq added 0.52%.[1]

Investors cheered on Friday when China's central bank made its first interest rate cut in more than two years, stepping up its efforts to spur growth in the world's second-largest economy. Slowing factory growth and a stalled housing market - both major factors in China's historical growth - may have been behind the bank's surprise move.[2]

The European Central Bank also jumped on the stimulus bandwagon and began purchasing asset-backed securities in an effort to encourage banks to lend money and boost Eurozone economic growth. While this measure is similar to the bond-buying programs implemented by the Federal Reserve (and pioneered by the Bank of Japan), it falls short of quantitative easing, which would require the ECB to take on the risk of buying the sovereign debt of its member countries. The news caused the euro to tumble; policymakers probably hope further weakness in the euro will lead to export and manufacturing growth.[3]

Why is all this good news for investors? These assertive moves by major players in the global financial scene are a hopeful sign that they are prepared to do what it takes to put the global economy back on track. While the U.S. is making big strides toward a healthy economy, Europe and China are lagging behind and their central banks may need to make further moves to boost growth.

On our side of the pond, last week's unexpectedly low new unemployment claims report showed that the labor market continues to make gains. At this point, weekly claims for new unemployment benefits have been below 300,000 for ten straight weeks, which is a fantastic sign for the job market.[4] Continuing claims also fell to the lowest level since 2000, indicating that many jobless Americans are moving off the unemployment rolls, though there could be some seasonal hiring factors at play.[5]

Looking ahead, the holiday-shortened week is packed with economic data and analysts will be looking closely at the next Q3 Gross Domestic Product estimate as well as some important consumer sentiment indicators. Thursday kicks off the critical holiday shopping season and investors will be watching to see if hopes for the retail sector can turn into reality.

ECONOMIC CALENDAR:

Monday: Dallas Fed Mfg. Survey
Tuesday: GDP, S&P Case-Shiller HPI, Consumer Confidence
Wednesday: Durable Goods Orders, Jobless Claims, Personal Income and Outlays, Consumer Sentiment, New Home Sales, Pending Home Sales Index, EIA Petroleum Status Report
Thursday: U.S. Markets Closed For Thanksgiving Holiday
Friday: Chicago PMI

HEADLINES:

Existing home sales jump in October. Sales of previously owned homes rocketed to their highest level in more than a year, suggesting that the housing market may be on the rebound. Improvements in the labor market and lower mortgage rates may boost further sales activity.[6]

Oil settles higher. Actions by China's central bank and rumors that OPEC could cut oil production sent crude oil slightly higher last week. With prices so low, any bullish sentiment could start an oil rally, though conditions remain optimal for continued low prices.[7]

U.S. factory production falls in October. Cutbacks at U.S. automakers caused industrial production to fall unexpectedly in October, indicating that manufacturing may have gotten off to a slow start in the fourth quarter.[8]

Housing starts fall in October, but building permits surge. Construction on new houses fell unexpectedly last month, continuing its oscillation of the past few months. However, permits for new construction jumped to a 6-1/2 year high, suggesting that builders are optimistic about their future prospects.[9]