Dollars and Sense: Markets drift downward on weak reports, global tensions

Drifting, not dropping. The markets continued their downward drift last week, but it was a drift and not a drop-off. The Dow is down about 3 percentage points in the past two weeks, and we have seen a couple of 200-point-plus drops during that time. But the retreat has been more or less orderly. Volume, with the exception of one or two days, has remained fairly close to the mean. Some sort of pullback is normal when you’re at record highs, which the market has been for months.

Global tensions continue. So while there was no panic on Wall Street, we have seen panic on the streets of Hong Kong, which is perhaps the most important financial city in Asia. Pro-democracy protests in Hong Kong have the Hang Seng market way down, and that has had an impact here. And, of course, U.S. traders were already jittery because of uncertainty in Iraq, Syria and Ukraine. But I should add that most analysts don’t think the protests will have a major long-term economic effect, no matter how disruptive the street protests have been locally. News that a case of Ebola had turned up in America also fed fears. On Tuesday, the latest reading on eurozone manufacturing fell for the fifth straight month, and a key manufacturing index in Germany slipped below 50, which signals contraction, for the first time since June 2013, according to Barclays.

Some weakness in reports. Last Monday I said the week would be a big one for economic reports. It was a big week, and we saw some weakness. The S&P/Case-Shiller index of property prices came in below expectations. The Conference Board’s consumer confidence index fell to 86 in September from a very robust 93.4 the month before. The Conference Board’s Lynn Franco said the lower consumer confidence number suggests more Americans don’t expect summer’s strong growth to continue.

Unemployment report mixed. The big report of the week was the monthly unemployment report, which came out on Friday. The Bureau of Labor Statistics said the unemployment rate fell below 6 percent for the first time since 2008. That number grabbed most of the headlines, and it was definitely a step in the right direction. The number of new jobs created in September, 248,000, was also better than expectations. But the labor force participation rate fell, and wage growth came in less than expected. I would call it a good but not great report.

Earnings season begins. This week, attention will turn toward third quarter earnings season. Last quarter’s earnings were strong, and that’s what fueled much of the August and September rally. Still, analysts and traders remain unsure whether this five-year bull market is based on fundamentals or on Federal Reserve manipulation of interest rates and money supply. If we can get another quarter of strong earnings reports, that will go a long way toward making the case that company fundamentals do indeed support the current record and near-record prices.