Jeff Voudrie’s Week-In-Review 10/21/2013

Trending Indicators:
                US Stock Market               Trending Up
                Canadian Stk Mkt            Trending Up
                 US Bond Market               Trending Up

In the markets:
Markets worldwide were higher by 1% – 3% for the week.  The world’s markets heaved a collective sigh of relief as the threatened debt default in the US was put off for at least a few months. New all-time highs were set in numerous US indices on Friday. Canada’s S&P/TSX index gained +1.9% for the week and reached a two-year high, although it has not yet bested 2011’s highs.

Developed International markets gained +2.6%, outperforming Emerging International markets at +1.1%. Markets are gamely trying to reach positive territory YTD, and are now only -1.1% YTD, a far cry from the -16% just four months ago.  Germany’s DAX index joined the US at all-time highs, one of very few non-US markets to reach that high-water mark.

In the US, concern over the degree to which the government shutdown would affect 4^th Quarter GDP immediately replaced minute-by-minute breathless reporting on the shutdown and debt ceiling debates.  A couple of Fed reports continued the “modest growth” theme: the Philly Fed report came in at 19.8 vs expectations of 15, and the so-called “Beige Book” report was filled with anecdotal evidence of modest to moderate positive growth.  The 3^rd Quarter profit reports poured in this week, with 99 of the S&P 500 reporting.  61% of them beat profit guidance, but only 38% exceeded revenue estimates – lower on both scores compared to Q2.

In Canada, energy and manufacturing companies gained on news that Canada’s #2 trading partner, China, was increasing imports and on a growth trajectory again. Recovery from recession continues in Northern Europe, led by the UK and Germany.  In Southern Europe, Markit predicts that its Purchasing Managers Index (“PMI”) to be released later this month will show that even Spain has begun the recovery process.  In the UK, employment has risen to a record high, job openings are at their highest level since 2008 and the unemployment claims count is falling at the fastest rate since 1997, according to official data.

In China, PMI reports indicate economic growth in the third quarter picked up, and the government’s modest growth target of 7.5% for 2013 should readily be achieved.  China’s consumer price index jumped to 3.1% year-over-year in September from 2.6% in August due to rising food prices, but observers feel not yet so high as to force government action.

(sources: Barrons, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, ritholtz.com, markit.com, financialpost.com)

Looking Ahead
The nomination of Janet Yellen to replace Federal Reserve Chairman Ben Bernanke is a signal that interest rates may continue to remain low for many more months. Thus the raising interest rate ‘scare’ resulting from Bernanke’s ‘taper’ comments may not continue. If interest rates remain low, then bond funds may do better.

The last few months of the year are historically positive so I continue to increase the equity holdings (slightly increasing targets and putting targeted cash to work). I may also be moving targeted monies back into bonds.

The markets have done very well this year but it belies an underlying fragility, so I will continue to monitor the markets and my client’s accounts closely, taking action as deemed necessary.

Have a wonderful and blessed week!

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