Market Digest – Week Ending 10/30
Markets struggled to interpret a soft US GDP report and Fed comments stating a rate hike is still on the table for December. The S&P 500 managed a small gain but small cap and international stocks fell. Bonds and gold also declined while oil rose modestly. On the corporate front, Apple posted another strong quarter but earnings overall continue to be mixed. US Stocks finished the month up 7.9%, almost entirely erasing the August correction.
S&P 500: 2,079 (+0.2%)
FTSE All-World ex-US: (-1.9%)
US 10 Year Treasury Yield: 2.15% (+0.06%)
Gold: $1,142 (-1.6%)
USD/EUR: $1.100 (-0.2%)
• Monday – Embattled drug maker and hedge fund favorite Valeant held a conference call to assure investors its accounting and disclosures were sound, but shares would fall almost 20% for the week and are now down more than 60% in the last three months.
• Monday – The US sent warships within 12 miles of one of China’s artificial islands, raising tensions between the two countries.
• Tuesday – Alibaba reported sales growth of 32%, exceeding expectations.
• Tuesday – Under new rules, 5 million more Americans were made eligible for a program to limit student debt bills.
• Tuesday – Apple released quarterly results, exceeding expectations for revenues and earnings. Shares rose modestly.
• Wednesday – Carl Icahn announced an investment in AIG and encouraged the insurance giant to split into three companies.
• Wednesday – Fed minutes explicitly said that there may be a rate increase in December.
• Wednesday – The House passed a budget bill which effectively eliminates the “file and suspend” Social Security strategy for those who are not yet 62.
• Thursday – Pfizer and Allergan confirmed they are in friendly talks about a possible merger, in what could reignite the political debate around corporate taxes and “inversions”.
• Thursday – China announced it will abandon its one child policy and allow all couples to have up to two children.
• Thursday – Preliminary Q3 US GDP growth was reported at a modest 1.5%.
• Thursday – The Treasury cancelled a sale of 2 year debt amid concerns Congress won’t act in time to raise the debt ceiling.
• Friday – The Senate approved a spending bill, removing the threat of US government shutdown or default until at least 2017.
The congressional spending bill passed this week was a positive. Most importantly, it eliminates the risk of another costly showdown or shutdown which could hurt economic activity and reduce confidence in the country’s ability to meet its debt obligations.
Part of the bill involved eliminating the “file and suspend” strategy for Social Security. This approach involved one spouse filing for benefits and then suspending them. Meanwhile, the other spouse could start collecting spousal benefits while both delayed taking their own benefits until later after they had risen. Those who are already at least 62 have been grandfathered and can continue to utilize the approach.
While this change is unfortunate for many who are nearing Social Security age, the reality is there are going to have to be cuts to benefits and increases in taxes for the program to remain solvent. Younger people are going to have to bear most of that burden, and this was one part of it. It is just a small step, but a reasonable one.