Dollars and Sense: Anticipating a reaction

An up week, generally. The week gone by was a pretty good one in the stock markets. The markets drifted a bit on Thursday, but in the five days before that, the Dow rose 500 points. The S&P 500 put together a 7-day streak of gains. Early in the week the NASDAQ 100 rallied to hit its highest level since November 2000. All of which I found interesting given all the uncertainty in the news regarding Syria, the Fed, and the direction of the global economy.

But there are reasons. Of course, every reaction has a reason, so what were some of those reasons? China reported its exports grew by 7.2 percent in August, exceeding analyst expectations for a gain of 6 percent. That news fueled the markets on both Monday and Tuesday. The number of home foreclosures fell, and that is a very good sign. Fewer foreclosures help not only those in the housing industry—the construction trades and real estate professionals—but also anyone who owns a home.

Apple underwhelming. Apple’s announcement of new iPhones was big news because there are always high expectations when Apple makes an announcement. But this week’s announcement—of new colors and new prices but few new capabilities—failed to impress analysts or investors. Analysts fear the reduced prices of some models will cut in to profitability and cost Apple some of its coolness factor. So Apple stock fell sharply on the announcement.

Speaking of underwhelming. Also underwhelming this week was the unemployment report. Weekly jobless claims for last week fell by 31,000 to 292,000, the Labor Department said. That should have been great news. It’s the first time in a while the report has been under 300,000. In fact, economists polled by Thomson Reuters expected claims to rise slightly to 330,000, up from the prior week's 323,000. But then came news that two states failed to report for the week, causing the report to be virtually meaningless. When you add that to the fact that when the August unemployment report came out, the Labor Department had to dramatically re-state the numbers for both June and July, some analysts are starting to doubt the very process the government uses to report unemployment numbers. When you can’t get good, reliable data, that’s a big problem for the markets and for the credibility of our government generally.

The week ahead. But let’s stop looking in the rear-view mirror and put our eyes on the road ahead. What should we expect? I say quite a lot. Congress is now back in session, and though Syria remains a distraction, lawmakers—whether they like it or not—have to turn their attention to the debt ceiling and continuing resolution debates, and the markets will be paying close attention to that conversation. The Fed meets this week, too, and lots of people are expecting some real news when they announce the results of that meeting on Wednesday, including information regarding the end to Quantitative Easing, the bond-buying scheme. I don’t think it will end, but the people listen to say we could see some tapering and a plan to end the program by the end of 2014. If that happens, it will be big news, and—depending on the announcement's details—will cause the markets to react.