Fed Keeps Bond Purchase Plan Intact

Markets

For the week of Monday, September 13, 2013 through Friday, September 20, 2013:

• Standard & Poor’s 500 Index: 1.32%
• Dow Jones Industrial Average: 0.50%
• NASDAQ Composite: 1.41%

Monday’s markets saw increases in stocks, Treasuries and gold, and a decline in the dollar and gains in European stocks. On Tuesday, investors remained cautious ahead of the Fed’s monetary policy decision, yet stocks continued to advance. The markets reached new highs after a buying spree on Wednesday. The Fed announced it will keep its bond-purchase stimulus plan intact. The benchmark 10-year Treasury bond yield closed at 2.706% on Wednesday, after the biggest one-day rally since November 2011.
Stocks started strong on Thursday, but markets ended mixed. On Friday, stocks closed lower, erasing significant gains from earlier in the week. All 10 sectors closed in the red for the day.

Economic Data

• Industrial Production:
  • Industrial production rose 0.4% in August.
    • The reading was weaker than expected, but manufacturing was stronger than expected, rising 0.7%.
  • Motor vehicle and parts production rose 5.2%, while other manufacturing production rose 0.4%.
  • Utilities production fell 1.5% in August.
  • Mining output rose 0.3%, increasing on July’s gain.
• Chain Store Sales Index:
  • The ICSC chain store sales index fell 1.6%.
  • However, year-over-year growth rose 3.2%.
    • This is more than the year-to-date average.
• Consumer Price Index:
  • The Consumer Price Index rose 0.1% in August.
  • The core CPI rose 0.1%, compared to the average 0.2% pace of the last three months.
• MBA Mortgage Applications Survey:
  • Mortgage applications rebounded, increasing 11.2% over the Labor Day-shortened week.
  • Refinance activity increased 17.9%.
  • Purchase activity rose 2.5%.
  • Mortgage rates declined modestly.
• Housing Starts:
  • Housing starts increased 0.9% to 891,000 annualized units.
  • This was lower than expected, as July’s numbers were also revised down.
• Federal Open Market Committee Meeting:
  • The Federal Open Market Committee (FOMC) went against speculation and left asset purchases and forward guidance unchanged in September.
  • Several economic implications could be derived from the decision:
    • The economy is worse than it appears, and
    • Quantitative easing’s costs are low on the committee’s priority list.
  • Before scaling back asset purchases policymakers want more signs of progress.
• Jobless Claims:
  • Initial claims for unemployment insurance benefits increased 15,000 to 309,000 for the week.
  • The gain was less than expected.
  • The previous week’s decline in new filings was due to two states underreporting claims.
  • Continuing claims fell 28,000 down 481,000 for the year.
• Existing Home Sales:
  • If higher mortgage rates are hurting demand for homes significantly, the sales numbers still fail to reflect it.
  • Sales of existing homes advanced in August to 5.48 million annualized units.
  • The 1.7% gain from July bested expectations.
  • The pace of sales nearly matches the post-recession high that was boosted by the homebuyer tax credits in the fall of 2009.
  • Months of inventory stand at 4.9 months, indicating a tight market.
  • House price appreciation is strong, with the median existing-home price up by 14.7% from last August.

Earnings:

• Adobe Systems Inc. (NASDAQ: ADBE)
  • Adobe’s earnings fell 59%; however, the company continues to add subscribers to its Creative Cloud service.
  • Adobe earned $83 million, or $0.16 a share, compared to $201.4 million, or $0.40 a share, year-over-year.
  • Excluding items, earnings per share were $0.02 less than analysts expected at $0.32 a share.
  • Revenue dropped 8%, to $995.1 million.
  • Analysts expected revenue of $1.01 billion.
  • Subscription revenue rose 73% to $299.4 million.
• FedEx Corporation (NYSE: FDX)
  • FedEx profit rose 7%, and the company announced it will raise rates in January 2014.
  • FedEx earned $489 million, or $1.53 a share, compared to $1.45 a share last year.
  • FedEx beat analysts’ expectation of $1.50 a share.
  • Revenue increased 2% to $11.02 billion, beating analysts’ estimate of $11.00 billion.
• General Mills, Inc. (NYSE: GIS)
  • Higher prices, international sales and acquisitions helped General Mills post better-than-expected quarterly sales.
  • General Mills earned $459.3 million, or $0.70 a share, compared to $548.9 million, or $0.82 a share.
  • Adjusted earnings per share were $0.66.
  • Revenue increased 8% to $4.37 billion, analyst expected $4.3 billion. 
• Oracle Corporation (NYSE: ORCL)
  • Oracle’s net income rose 8%.
  • The tech company earned $2.19 billion, or $0.47 a share, compared to $2.03 billion, or $0.41 a share, last year.
  • Excluding one-time items, Oracle profited $0.59 a share.
  • Revenue increased 2% to $8.37 billion.
  • Software revenue rose 6% to $6.08 billion.
  • Analysts expected $0.56 a share and $8.48 billion in revenue.

Interest Rates

• Rates plunged on the Fed’s decision not to taper.
  • The two-year Treasury rate slipped 12 basis points to 0.32%.
  • The five-year Treasury rate dropped 27 basis points to 1.43%.
  • The 10-year Treasury rate sank 19 basis points to 2.70%.The 30-year Treasury yield fell nine basis points to 3.75%.

Disclosures

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