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Economic Data Stokes Volatility

Despite some volatility, the S&P 500 and Dow hit their fifth straight week of gains, boosted by an unexpected jobs report and a rosy Q3 GDP (Gross Domestic Product) estimate. For the week, the S&P 500 gained 0.51%, the Dow gained 0.94%, and the Nasdaq lost 0.07%.[1]

Two major economic reports accounted for a lot of the action last week: a third-quarter GDP estimate and the October jobs report. October employment soundly beat expectations, adding 204,000 new jobs; however, the overall unemployment rate ticked higher from 7.2% to 7.3%. It’s hard to know how accurate the numbers are given the disruption of the government shutdown last month. We’ll know more once November numbers are available.[2]

The first Q3 GDP estimate showed the economy expanding by 2.8%, much higher than expectations. Digging deeper into the numbers, we see that much of the growth came from a build-up in inventories – goods sitting in warehouses and store shelves that consumers aren’t buying. Final sales rose just 2.0%, and overall spending crept up just 1.5% – the smallest gain in two years.[3]

The better-than-expected numbers stoked volatility as investors began to worry again that the Fed may taper its quantitative easing programs as soon as December. Unclear economic data caused the Fed to stand pat at its

Federal Open Market Committee meeting last month, leaving monetary policy unchanged, and analysts had expected tapering to come no sooner than March.

The Treasury Department and the Fed have expressed some very different sentiments about the economy in recent days. While the Fed has been cautious about economic prospects, recent remarks by Treasury officials show a brighter economic picture. This divergence in opinions may complicate future economic policy and will certainly play a role in the confirmation hearings of new Fed chair nominee Janet Yellen, which will begin this week.[4]

Looking ahead, earnings season will wind down this week with reports from major retailers like Wal-Mart, Macy’s, and Nordstrom, which will give investors an idea of what to expect from retailers next quarter.[5] Recent consumer spending data suggests that Americans are spending cautiously, preferring to boost their savings. While this is good news for household debt, tepid spending could negatively affect the holiday shopping season.

ECONOMIC CALENDAR
Monday: Veterans Day Holiday. U.S. Markets Open, Banks closed.
Wednesday: Treasury Budget, Ben Bernanke Speaks 7:00 PM ET
Thursday: International Trade, Jobless Claims, Productivity and Costs, EIA Petroleum Status Report
Friday: Empire State Mfg. Survey, Import and Export Prices, Industrial Production

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov . International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

HEADLINES

S&P cuts France’s debt rating. The ratings agency cut France’s sovereign debt rating from AA+ to AA, citing lack of progress in economic reforms. Analysts believe that a lagging economy and high unemployment will make it politically difficult to institute the structural changes needed to boost economic growth.[6]

China’s inflation rises. China’s annual consumer inflation climbed to an eight-month high of 3.2%, largely driven by seasonally higher food prices. The increase has analysts worrying that the central bank may decide to tighten monetary policy – raising interest rates – before the economy is fully recovered from its recent slump.[7]

Iran talks end without nuclear deal. Despite optimistic reports that the first nuclear deal with Iran in a decade was in sight, talks ended early Sunday without an agreement. Though there appear to be major roadblocks to a deal that would satisfy all major powers, negotiators might resume talks soon.[8]

Consumer sentiment falls in November. U.S. consumer sentiment dipped unexpectedly in November to a near two-year low as lower-income households worried about job prospects and financial situation. Negative views of the government also played a role in the dip.[9]

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[1] http://briefing.com/investor/markets/weekly-wrap/weekly-wrap-for-november-4-2013.htm

[2] http://www.usatoday.com/story/money/business/2013/11/08/october-jobs-report/3468163/

[3] http://www.cnbc.com/id/101179974

[4] http://www.cnbc.com/id/101179930

[5] http://www.cnbc.com/id/101183512

[6] http://finance.yahoo.com/news/p-cuts-frances-sovereign-credit-060025847.html

[7] http://www.cnbc.com/id/101184347

[8] http://www.cnbc.com/id/101184983

[9] http://www.reuters.com/article/2013/11/08/us-usa-economy-sentiment-idUSBRE9A70OO20131108

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