JULEX WEEKLY REVIEW 10-28-2012 | Disappointed Earnings Reports Drove Equity Markets Lower

Top Stories Last Week

  • Disappointed Earnings Reports Drove Equity Markets Lower

Equity markets declined on disappointed earnings and revenue forecasts from Apple to Caterpillar. On the week, Standard & Poor’s 500 Index was down -1.4%, MSCI EAFE index lost 1.0% and MSCI emerging market index dropped by 0.6%.  Gold lost its lust, down by 0.6% while GSCI commodity index tumbled 2.7% as oil prices continued dropping.  In the bond markets, Barclays US Treasury index gained 0.2% while US high yield bond lost 0.6%.

  • Q3 Earnings Reports Disappointed Investors

Many US bellwether companies such as Apple, Amazon.com and Caterpillar disappointed on earnings reports, while a number of other companies like DuPont and Xerox lowered their outlooks.  So far, about 70% of S&P 500 companies reporting have beat earnings estimates, but an alarming 60% have missed sales estimates.

  • Fed Kept Ultra-low Interest Rates and QE3 in Place

The Federal Open Market Committee ended its two-day policy meeting on Wednesday. The Federal Reserve continued to express concern about the slow-recovering U.S. economy as it maintained its ultra-easy policy. The Fed stated that growth has been moderate. While consumer spending has picked up, business spending has slowed. The Fed also said that inflation has picked up somewhat, due to higher energy prices. The Fed maintained its third round of asset purchases, known as QE3 that consists of $40 billion monthly in mortgage-backed securities.

  • US GDP Grew at a Moderate Rate of 2%

US GDP grew at a better-than-expected 2% pace for the third quarter, compared to 1.3% in Q2. The U.S. economy improved a little as consumers and the federal government boosted spending and home construction picked up. Yet business investment fell by the largest amount in three years, signaling that the fiscal cliff may act as a drag on the economy as business are increasingly worried that sales and investment could plummet unless Washington forestalls big spending cuts and tax increases set to take effect at the beginning of next year.

  • Spanish Unemployment Reached a Record 25%

Spanish economy, the fourth largest in Europe, continued to struggle from a deep recession. Its official unemployment rate climbed in the third quarter, hitting a record of more than 25%. Spain has been suffering from the collapse of a decade-long housing bubble and from deep spending cuts as the government tries to narrow its budget deficit. Spain’s unemployment rate is the highest in the euro zone. The unemployment rate rose to 25.02% in the third quarter, from 24.63% in the second quarter.

Top Stories to Watch This Week

  • US Job Reports

Economists forecast an increase of 120K nonfarm payrolls in October. The unemployment rate will be likely to remain the same at 7.8%.

  • PMI Manufacturing activities

US and China manufacturing activities indices are expected to improve in October.

  • US House Prices

S&P/Case-Shiller 20-city home price index is expected to rise 2.4% in August on a YOY basis.

  • More Earnings

Honda Motor, AMR, Oracle, GM, ExxonMobil, AIG, Newmont Mining and Starbucks are among the companies reporting quarterly earnings this week.