J.L. Davis Market Update 10/12/2010

QUOTE OF THE WEEK:
"If we did all the things we are capable of, we would astound ourselves." - Thomas Edison

THE MARKETS:

Stocks have gained in five out of the last six weeks, and the Dow Jones Industrial Average closed above 11,000 for the first time in five months Friday.

Bolstering results last week, Friday’s depressed jobs report lifted expectations that the Federal Reserve will soon step in to stimulate the economy yet again, and earnings season kicked off with a bang. Several companies posted profits that beat Wall Street estimates and raised its outlook for the year. In the coming week, 15 S&P companies are set to report, and according to Thompson Reuters, third-quarter year-over-year results are expected to be up 24%. With such strong numbers anticipated this earnings season, many analysts predict that the market will continue to inch higher.

There isn’t much market-moving activity expected in the early part of the week, but Thursday begins a flood of economic data, including the next batch of U.S inflation figures. The Fed said in its last statement that inflation is lower than it would like, and this led many to predict that they will proceed with another round of quantitative easing – likely pulling the trigger at the next policy-setting meeting in November.

Through “quantitative easing”, the Federal Reserve buys up big chunks of government debt with money it creates from nothing – often colloquially described as "printing money”. Some economists insist that with unemployment stuck near 10% and inflation below target, the Fed cannot sit idly by without taking this action. Others remain vocally opposed due to the side effects of additional pressure on the U.S. dollar and a spike in commodity prices. So, will they? Or won't they? Investors will be alert for further signals.

Friday’s retail sales figures will also be in focus as investors try to gauge the appetite of the American consumer. Since consumer spending accounts for over 70% of economic activity, any sign that wallets are open is a welcome one.

ECONOMIC CALENDAR:
Wednesday – Treasury Budget
Thursday – International Trade, Producer Price Index, Jobless Claims
Friday – Consumer Price Index, Retail Sales, Empire State Manufacturing Survey, Consumer Sentiment, Business Inventories, Federal Reserve Chairman Ben Bernanke speaks to the Boston Fed's conference on Revisiting Monetary Policy in a Low Inflation Environment

HEADLINES:

The federal government ran a deficit of nearly $1.3 trillion in the fiscal year that ended Sept. 30, according to preliminary estimates released Thursday by the Congressional Budget Office. The Treasury Department will deliver the official deficit numbers later this month. According to the CBO, the fiscal year 2010 deficit came in $125 billion below last year – the worst on record since World War II.

President Barack Obama plans to veto a bill whose opponents say would make it harder for homeowners to stop foreclosures. The move marks the Obama administration's most direct intervention so far into a growing debacle tied to how banks foreclose on homes, and the first effective veto of Mr. Obama's presidency. The veto could make it more difficult for banks to complete paperwork and speed the foreclosure process, and could give homeowners more time to rework loans.

U.S. payrolls dropped by 95,000 in September as private employers added 64,000 workers, while governments shed 159,000, half of them temporary Census workers, the Labor Department said Friday. State and local governments shed 83,000 workers. The unemployment rate was unchanged at 9.6%.

The dollar fell against the euro for a fourth week in the longest stretch of losses in almost two years as bigger-than-expected U.S. job cuts spurred speculation that the Federal Reserve will buy more debt.

Sources:
Marketwatch
The Wall Street Journal Online
Barrons
CNN Money
http://money.cnn.com/2010/10/07/news/economy/cbo_preliminary_2010_deficit/index.htm http://online.wsj.com/article/SB10001424052748704696304575538131744705958.html http://online.wsj.com/article/SB10001424052748704657304575539760708117610.html?mod=WSJ_hpp_LEFTWhatsNewsCollectionhttp://www.bloomberg.com/news/2010-10-09/dollar-falls-below-82-yen-for-first-time-since-1995-on-job-cuts-in-u-s-.html

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