For the week of Nov. 8, 2010 through the close of the markets on Thursday, the major indices were down across the board with the Standard & Poor’s 500 Index closing down 0.61%, the Dow Jones Industrial Average down 1.33%, the NASDAQ down 0.85% and the Russell 2000 down 0.25%.
Interest rates increased on expectations of the Group of 20 summit talks to resolve what some nations see as a currency war perpetuated by the U.S. Federal Reserve’s QE2 policy. The two-year Treasury yield rose to 0.42%; the five-year Treasury increased to 1.2%; the 10-year Treasury rose to 2.64%, and the 30-year Treasury yield followed suit rising 5% to 4.33%.
As for commodities, we saw the spot price on gold reach a new all-time high on Monday of $1,408.90. Gold ended the week up 1.16% closing on Thursday, just shy of its Monday price. Silver hit a 30-year high of more than $27 an ounce. Oil also increased this week up 1.69%.
Each year we give our predictions as to where the market will end the year, and of course, we revise that number as the year progresses. We have been predicting the S&P 500 would close 2010 at 1,300 since February, based on the earnings cycle momentum. As of Thursday, the S&P was at 1,213.54. We feel the market is in a good position to close at our target price. We have seen solid earnings for third quarter and expect good news for fourth quarter earnings. We also think the holiday season will push retail sales up.
We were also happy to see that weekly initial jobless claims fell more than expected to 435,000, hitting its lowest reading in four months. The four-week moving average dropped to its lowest point since mid-September 2008, just prior to the Lehman Brothers’ collapse. Recent trends support our view that the labor market is continuing to heal, as continuing jobless claims fell to 4.3 million.
Looking at the political landscape, we feel relatively positive that we will see a renewal of all the Bush tax cuts. We feel we are likely to see permanent tax cuts for those making less than $250,000 for at least four years. We would not be surprised to see a sweeping cut of government expenditures, including a 10% pay cut for all federal employees, except for the military. We expect to see a trade agreement with Korea as well.
With much of the week’s news on the G-20 summit, we found it interesting that Ambac Financial Group’s bankruptcy filing received little press. The company’s main subsidiary once sold guarantees on mortgage securities, which soured as homeowners’ loans began to be in arrears. The IRS questioned Ambac’s accounting for $7.3 billion in net operating losses the insurer hoped to use to offset future taxes. But it was the inquiry from the IRS, and the possibility that the IRS could place a lien on the firm to recover more than $700 million in tax refunds, along with the firm’s inability to reach an agreement with some of its senior debt holders, that thrust the bond insurer into bankruptcy court. The bankruptcy filing comes a week after Ambac said its board had voted to skip a $2.8 million interest payment on senior notes due in 2023.