3 Stories in the global economy that should not go un-noticed
After
a delay of several weeks, investors finally got a look at September’s jobs
report and the news was mixed. While the unemployment rate dropped to 7.2%,
hiring appears to have slowed. On a more positive note, third quarter earnings
have been slightly better than expected with earnings growth averaging 6.8%
among the 243 S&P 500 companies that have already reported in.
Markets
extended their post-deal rally for another week, putting up several new
records: The S&P 500 closed out the week at another all-time high, while
the Nasdaq ended at a 13-year high. No records yet for the Dow, but it’s
putting up a good fight, gaining 5.4% over the last 13 trading sessions.
For the week, the S&P 500 gained 0.88%, the Dow increased 1.11%, and the Nasdaq grew 0.74%.
Here are the 3 stories this week that rose above the noise:
Silicon Valley: Feel the Froth
An article from The Wall Street Journal details some signs of excessive speculation beginning to take hold in the technology sector. A number of highly speculative companies with soaring valuations are discussed, an indication that investors’ willingness to take on risk in an effort to generate large gains is reaching potentially concerning levels.
As the authors note, market frothiness remains well below the mania witnessed during the late-1990s, but recent speculative activity could be an early indication that investor psychology has become overly exuberant.
Business Confidence Booms, While Consumer Confidence Slumps
Business confidence is improving among chief financial officers, according to a CNBC survey of CFOs from multinational corporations located in Europe and Asia. Nearly 70 percent of the respondents anticipate an improvement in the global economy over the next six months and only 9 percent foresee a decline in economic growth. Additionally, 56 percent of respondents plan on expanding their workforce and 4 percent plan to implement layoffs within the next six months. The biggest concern over the next six months mentioned in the survey is slowing growth in emerging-market economies. Over 80 percent of respondents mentioned it as a concern.
Meanwhile, consumer confidence slumped according to yesterday’s Conference Board report, which showed a decline in its index to 71.2 from a revised 80.2 last month. It is a disappointing number considering the median forecast in a Bloomberg survey of economists was 75.
The partial government shutdown contributed to negative sentiment in both present conditions and consumer expectations for the next six months. More Americans expect their income to decline over the next six months which coincides with less Americans planning to buy homes and cars. Real-estate sales have begun to ease as higher prices and mortgage rates sideline potential homebuyers.
U.S. Housing Recovery Continues
Home prices in 20 U.S. cities rose in August from a year ago by the most since February 2006 as stronger demand boosted values. The S&P Case-Shiller index of property prices increased 12.8 percent from August 2012, after a 12.3 percent gain in the year ended in July.
The ongoing housing recovery continues to be a source of strength for the U.S. economy especially given the headwinds created by lower government spending due to the sequestration deal struck in Congress late last year. Economists noted that every area reported higher selling prices indicating broad participation in the recovery. As of August, average home prices in the U.S. were back to mid-2004 levels and the 20-city index was up 22.7 percent from its March 2012 low.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.
