Market Perspective for October 24, 2015

The equity markets turned in another positive week boosted by encouraging earnings, currency and economic news. On Thursday, the S&P 500 rose 1.66 percent and on Friday, the NASDAQ increased 2.27 percent. For the week, the NASDAQ led with a 2.97 percent gain, followed by a 2.50 percent advance in the Dow Jones Industrial Average. The S&P 500 increased 2.07 percent, while Russell 2000 Index saw a modest 0.29 percent gain.

Although high-flying Tesla received some bad press on Tuesday that sent the stock tumbling, the market was more interested in the stellar numbers turned in by Alphabet (GOOG), Amazon (AMZN), McDonald’s (MCD) and Microsoft (MSFT). Stocks were also buoyed when shares of Caterpillar rebounded nicely after it slashed its outlook for 2016. Alphabet, parent of Google, reported large gains in mobile phone searches, tight fiscal controls and the company’s first stock buyback. Shares rose 9 percent afterhours. Amazon posted a surprising per share profit, which sent the stock sharply higher. The cash raining down from its cloud business division lifted Microsoft (MSFT). All-day breakfast is accelerating foot traffic, which should be a good sign for McDonald’s going forward after the company posted strong third quarter earnings.

On the heels of a 25 billion yuan injection by the PBOC via a seven-day reverse repo, on Thursday ECB President Mario Draghi hinted that another round of quantitative easing might be in the cards for December. He spoke about stubbornly low inflation, emerging market weakness and lackluster growth in the euro zone. The euro slumped to 3-week lows against the dollar. On Friday, the People’s Bank of China cut interest rates, sending the dollar higher yet again. While the iShares MSCI EAFE (EFA) rose on the week with optimism about more quantitative easing in Europe, the iShares Emerging Markets ETF (EEM) was relatively flat.

U.S. Treasury yields slipped to their lowest level in a week, but a strong flash manufacturing PMI on Friday pushed rates a little higher as the needle moved back towards rate hikes.

In economic news, existing home sales rose 4.7 percent to the second highest level in 8 years. The rate on a 30-year mortgage fell to 3.79 percent. The National Association of Homebuilders reported that builder confidence is the strongest since 2005. The Labor Department reported that claims for initial unemployment benefits were the lowest level in 40 years. Expectations remain that the Federal Reserve will not raise rates during its next meeting set for late October, but the robust PMI number raised the odds of a December hike. All of this strong news provided further momentum to propel stocks higher for the week.

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