Markets were little changed in the past week with stocks pausing from the furious rally that began in mid-October. For some perspective on how relentless the recent rally in equities has been, consider that the S&P 500 has closed above its five-day moving average for 21 consecutive days, the fourth-longest streak in the past 20 years. A number of other indicators also suggest the market is overbought and some further consolidation is likely in the short-term.
A relatively strong earnings season will enter the homestretch this week. With more than 90% of companies in the S&P 500 having reported third-quarter results, a very solid 74% have beaten earnings expectations according to data compiled by S&P Capital IQ. The encouraging earnings results reported by a range of companies have played a major role in boosting investor sentiment in recent weeks and it appears unlikely that there is any broad risk remaining from third-quarter earnings season.
For the week, the S&P 500 rose +0.39%, the Dow Jones Industrial Average added +0.35%, and the MSCI EAFE (developed international) gained +0.88%.
Here are the 3 stories this week that rose above the noise:
Consumer Sentiment in U.S. Increases More Than Forecast
Consumer confidence increased ahead of expectations this month and reached a seven-year high, which bodes well for retailers with the holiday shopping season only a few weeks away. Retailers have already seen a boost from rising consumer sentiment, as retail sales rebounded in October and increased by 0.3 percent compared to September.
Consumer sentiment has been boosted by the strengthening labor market, falling gasoline prices and record high stock prices. Despite stronger economic growth and falling unemployment, consumers appear pessimistic about the outlook for wage growth and inflation.
Mega-Mergers Popular Again on Wall Street
One potential sign of excessive risk taking that warrants close scrutiny is an ongoing surge in mergers and acquisitions. An article from The New York Times DealBook blog details the recent megadeals that have pushed the value of announced transactions in 2014 to the highest level since the dot-com boom. Given the recent history of merger booms preceding economic downturns many analysts are worried about the implications of this year’s surge in deal activity.
The article provides a balanced view of the sustainability and risks associated with
current wave of mergers and acquisitions and some reasons for optimism that the
current boom will prove more sustainable than the past two cycles.
Abe Calls Early Election, Delays Sales Tax Increase
Japanese Prime Minister Shinzo Abe called an early election in a bid to extend his term and salvage his Abenomics policies after the country fell into recession. Abe also delayed for 18 months a second planned sales-tax increase after the first installment in April led consumer spending to stagnate and the economy to contract for two straight quarters.
Although he didn’t give an election date, observers believe he will probably pick December 14 for the election. For U.S. investors, the renewed weakness in Japan and Europe is being watched closely by the U.S. Federal Reserve and may delay its decision to raise interest rates toward the middle of next year.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment
management team. First Allied Asset Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. First Allied Asset Management individuals who provide investment management services are not associated persons with any broker-dealer.
International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.
Abe Calls Early Election, Delays Sales Tax Increase
Japanese Prime Minister Shinzo Abe called an early election in a bid to extend his term and salvage his Abenomics policies after the country fell into recession. Abe also delayed for 18 months a second planned sales-tax increase after the first installment in April led consumer spending to stagnate and the economy to contract for two straight quarters.
Although he didn’t give an election date, observers believe he will probably pick December 14 for the election. For U.S. investors, the renewed weakness in Japan and Europe is being watched closely by the U.S. Federal Reserve and may delay its decision to raise interest rates toward the middle of next year.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment
management team. First Allied Asset Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. First Allied Asset Management individuals who provide investment management services are not associated persons with any broker-dealer.
International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.
