Weekly Wrap

Here is the weekly recap from Briefing.com:

It was a modest up week for the major indices. That is a pretty good performance considering the very strong gains the prior week. The underlying tone remains moderately bullish with a dash of speculative excess.

The major news item this week was the release of the September 18 FOMC minutes on Tuesday. The minutes stated that in "their discussion of the economic situation and outlook, meeting participants focused on the potential for recent credit market developments to restrain aggregate demand in coming quarters." Furthermore, due to the "unusual nature of the current financial shock, participants regarded the outlook for economic activity as characterized by particularly high uncertainty, with the risks skewed to the downside."

In short, the Fed felt a need to reduce rates significantly because of downside risks to the economy resulting from financial market turmoil.

This does not imply future rate cuts are certain by any means. If the financial market turmoil has calmed, and the risks to the downside reduced, the rationale for rate cuts is greatly reduced.

Nevertheless, the stock market rallied after the release of the minutes. The market rallied after almost every Fed statement the past year, so the reaction may have been relief as much as anything, but the idea that the minutes note economic weakness as a factor likely to lead to more rate cuts was hard to substantiate.

The minutes certainly did make note of lower inflation rates, which appear sustainable and provide the room for further rate cuts should the Fed chose such action.

It was a light week for economic releases. What releases there were supported forecasts of moderate economic growth.

New claims for unemployment for the week ended October 6 dipped to 308,000 from 320,000 the prior week. Layoffs remain at low levels. The August trade balance dropped to $57.6 billion from $59.0 billion in July. That will help boost the third quarter GDP calculation a bit.

September retail sales rose a slightly stronger than expected 0.6%. And the September core PPI rose a modest 0.1%, bringing the year-over-year increase down to just 2.0%.

There was nothing in this week's data to suggest economic growth is weakening. The inflation news was bullish.

It was also a light week for earnings reports. Alcoa got third quarter reports off to a poor start, as profits were below expectations. Costco and PepsiCo beat Wall Street forecasts, however, and General Electric reported in line with expectations. Chevron, Target, and International Paper lowered profit forecasts. Wal-Mart and McDonald's provided upbeat outlooks.

The earnings reports this week were mixed and provide few clues as to the outlook for the flood of earnings reports that will start next week.

The Nasdaq outpaced the other indices this past week as high-cap tech stocks remain the investment vehicle of choice. This went to the extreme in the case of Google stock, which has been on a rampage. It closed at $637, up from just under $600 a week ago and under $500 in mid-August.

Oil was noteworthy as it closed the week at $83.69 a barrel after reaching a record high above $84. The yield on the 10-year note rose to 4.68% from 4.64% the previous week.

The underlying tone of the market remains moderately bullish entering the heavy period of earnings the next two weeks. The market is still sensitive to all economic releases, but the focus could well be on fourth quarter earnings guidance. There are still doubts that the economy has made it through the credit market turmoil in good enough shape to keep earnings rising in the fourth quarter and beyond.