Economic Data: On the Upside
Economic data was relatively positive last week. Consumers were out spending money – last month retail sales rose the most since March (it looks like Apple sales helped to bump up the number). Manufacturing staged a bit of a comeback, rising .4% last month after falling -1.4% previously. Housing showed unexpected improvement, as builders started construction on single family homes and apartments at the fastest pace in four years. Homebuilders also seemed more optimistic as housing permits increased. However, sales of existing homes declined…due in part to the fact that a lower supply of homes for sale is pushing prices up.
On a downbeat note, more people filed for unemployment for the first time last week, but that increase appeared to be a correction from a data “timing” issue the week before.
China’s Economy Slowed…A Bit
China’s economy grew 7.4% in the 3rd quarter…the slowest pace since early 2009…but that was not unexpected. Fears about China’s economy were eased by news that retail sales increased 14.2%, and industrial production picked up 9.2%.
The Cost of a Euro Domino
Yet another European Summit was held last week…this time leaders agreed to get to work on a banking union and allow the European Central Bank to supervise banks next year.
If troubled southern European countries were to exit the euro zone, the cost to the world economy would be steep. According to a new study by German think tank Prognos, if Greece, followed by Spain, Italy and Portugal, were to leave the euro zone, global economic growth would be cut by $22 trillion. The result would be a worldwide recession in addition to “major strains” on “social fabric and political stability”.
Tough Week for Earnings
Earnings came into clearer focus last week, as 27% of the S&P 500 reported their results. There were a number of disappointments – Microsoft, McDonalds, GE…the most glaring being Google. The company’s incomplete earnings report was accidentally released several hours early, and revealed that the company badly missed estimates. The stock tanked -10% before trading was halted while the company finalized the report…but the impact to the market was already felt as Google dragged the tech sector down with it…the Nasdaq lost -1.3% for the week. The S&P 500 ended the week up 0.3% after falling sharply on Friday.
And Friday marked the 25th anniversary of “Black Monday”. On October 19, 1987 the market suffered the worst one-day crash in history. The Dow dropped -23%, and the ensuing panic erased $1 trillion in market value over four days…and it took over a year to restore it.
Black Monday: Dow & S&P 500