JULEX WEEKLY REVIEW 10-21-2012 | Equity Markets Held on to Gains despite Friday’s Drops

Top Stories Last Week

  • Equity Markets Held On to Gains despite Friday’s Drops

Equity markets tanked on Friday, the 25th anniversary of the “Black Monday” in 1987, led by weak earnings reports from GE and McDonald’s and negative outlook from tech giants Google and Microsoft. On the week, Standard & Poor’s 500 Index was up 0.3%, MSCI EAFE index did much better, gaining 1.8% and MSCI emerging market index increased by 0.5%. Gold was down by 1.8% while GSCI commodity index lost 1.3% as oil prices dropped. In the bond markets, Barclays US Treasury index was off 0.8% while US high yield bond gained 0.5%.

  • Banks’ Earnings were Mixed, Tech’s Reports were Disappointed

Disappointing quarterly results were turned last week by Microsoft, Google, Advanced Micro Devices, Intel, and IBM. At Microsoft, revenue and earnings were short of expectations as the company grapples with declining sales of personal computers. Share prices of major tech companies tumbled on Friday. Tech-heavy NASDAQ Index declined 2.2%.

Citigroup, Bank of America, Goldman Sachs and Morgan Stanley beat analysts’ earnings estimates, but some of the results were helped by the releases of loan loss reserves and one-time charges. GE beat the earnings forecast, but missed the revenue estimate.

  • Chinese Economy Showed Signs of Stability

China’s third-quarter GDP grew by 7.4%, the slowest pace since the financial crisis. China’s cooling economy, the second-largest in the world, was a drag on the global growth. However, it appeared to bottom in the third quarter. China’s industrial production rose to 9.2% in September, up from 8.9% in August and more than the analysts’ expectation of 9%. China’s exports also rose 9.9% in September, surprising analysts. The exports growth picked up across a wide range of goods. The furniture exports grew to 46% year over year in September from 28% in August, and hi-tech product exports growth climbed to 9.5% from 1.7%. How sustainable of the exports and industrial production growth remains to be seen.

  • US Retail Sales were Up by 1.1%

American consumers boosted their spending in September on everything from iPhones to restaurant meals in the latest sign that the US consumer economy is gaining strength. Sales have now climbed for three consecutive months after flagging during the spring. The better retail sales numbers provide evidence that rising consumer confidence is translating into actual spending. Rising equity markets and recovering housing markets have boosted consumer confidence.

  • US Housing Markets Showed More Signs of Recovery

More data suggested that US housing markets are on the rebound. Housing Starts jumped 15% in September, the fastest pace since 2008. Building permits also rose 894K in September, more than expected.

Top Stories to Watch This Week

  • FOMC meeting

The Federal Reserve will end its two-day meeting on Wednesday and is expected to keep interest rates unchanged and QE3 in place.

  • US GDP

US will report third-quarter GDP on Friday. Economists expect the GDP growth to improve to 2%.

  • Spanish Debt Auction

The Spanish government will auction 3 to 6 month T-bills. This will provide some indication of Spain’s ability to borrow in the markets.

  • More Earnings

Caterpillar, YAHOO, Nintendo are among the companies reporting quarterly earnings this week.