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Weekly Advisor Analysis
October 21, 2013
Congress Reaches Deal, Stocks Set Fresh Highs
Although the fear of the U.S. hitting their debt ceiling and potentially not being capable of paying
creditors alarmed many investors over the past several weeks, an agreement was reached that
awarded those who remained invested. The S&P 500 increased 2.42 percent last week, reaching a
new all-time intraday record high of 1745.32, according to CNBC. Last week’s massive rally was
the S&P 500’s largest since the week ending July 12 earlier this year. With the Washington D.C.
distraction now behind investors, at least for the time being, investors are likely to now focus once
again on corporate earnings and economic data.
Source: Yahoo! Finance
All Clear until February
Investors cheered a government deal last week that averted catastrophe and extended the U.S. debt
ceiling until February 7, 2014. According to The New York Times, there will actually be no limit to
the amount of debt the U.S. Treasury can issue until that date early next year. Starting last week,
the Treasury Department can issue as much debt as they can sell throughout this time period.
President Obama now has the ability to authorize any amount of debt issuance before this new
deadline, and it would take a supermajority of two-thirds of both the House of Representatives and
the Senate to interfere. However, once February 7, 2014 hits, we will be back to requiring
Congress to vote and approve any raising of the debt ceiling each time we approach whatever limit
is set from that point forward. The debt ceiling before this deal stood at approximately $16.7
trillion and has roughly doubled since 2005, as depicted below. While this deal most certainly
doesn’t solve any long-term structural issues that nearly resulted in a U.S. default, it does once
again kick the can down the road allowing investors to focus on other issues such as corporate and
economic fundamentals to determine the price at which securities should trade.
Source: Congressional Research Service, U.S. Treasury Credit: Alyson Hurt/NPR
September Jobs Report
The government shutdown didn’t affect the majority of the U.S. federal government departments.
However, one of the most watched economic indicators, the Labor Department’s monthly
employment report, was affected. The Labor Department said they will issue the delayed
September jobs report data on Tuesday, October 22. Also, the October report, which was
previously scheduled to be released on November 1, will now be delayed one week to November
8. If the private employment report issued by ADP each month is any indicator, it appears
September will be yet another month of lackluster growth in job creation. Furthermore, CNBC
stated last week the 16-day government shutdown delayed about a dozen economic reports.
However, now that all government departments are back to work following last week’s deal to end
the shutdown, investors will be busy digesting this delayed information in upcoming weeks.
China’s Economy Regaining Momentum
The National Bureau of Statistics in Beijing said last week that China’s economy, as measured by
gross domestic product, increased 7.8 percent during the July-September time period this year.
According to Bloomberg, this marks the first time in three quarters that China’s economic growth
has accelerated from the prior quarter. Highlights from the report included industrial production
gaining 10.2 percent and retail sales increasing an impressive 13.3 percent.
Corporate Earnings
We are entering the thick of corporate earnings season as more than 260 companies in the S&P
500 are scheduled to release their latest quarterly results over the next two weeks. According to
Thomson Reuters, 85 S&P 500 companies have already reported results and earnings have so far
exceeded expectations by an average of 4.2 percent. If this trend continues throughout the
remainder of earnings season, it should help continue supporting an S&P 500 index that has rallied
over 4.7 percent over the last seven days. This is the highest seven-day return for the index since
December 2011, according to Bloomberg.
Best regards,
UDB Financial
Securities offered through LPL Financial, Member FINRA/SIPC.
* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the
named broker/dealer.
* Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced
within a country’s borders in a specific time period, through GDP is usually calculated on an annual basis.
It includes all of private and public consumption, government outlays, investments and exports less imports
that occur within a defined territory.
* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be
representative of the stock market in general.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the
U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark
for the long-term bond market.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific
periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to
predict future performance.
* Past performance does not guarantee future results.
* You cannot invest directly in an index.
* Consult your financial professional before making any investment decision.
Sources:
http://www.cnbc.com/id/101124285
http://chart.finance.yahoo.com/z?s=%5eGSPC&t=5d&q=&l=&z=l&a=v&p=s&lang=en-US&region=US
(Chart)
http://www.nbcnews.com/business/stocks-mixed-sp-500-hits-high-strong-earnings-8C11417894
http://www.thestreet.com/story/12074147/1/stocks-gain-on-prospects-fed-to-maintain-stimulus.html
http://www.npr.org/2013/10/14/231636943/how-the-debt-limit-became-a-nuclear-tipped-leverage-point
http://www.nytimes.com/2013/10/18/business/economy/lingering-confusion-in-debt-ceiling-dealstemporary-fix.html?_r=0
http://npr.org/news/graphics/2013/10/gr-debt-ceiling-300.gif (Chart)
http://www.cnbc.com/id/101122568
http://www.bloomberg.com/news/2013-10-20/employers-probably-increased-hiring-u-s-economypreview.html
http://www.bloomberg.com/news/2013-10-18/fed-qe-taper-seen-delayed-to-march-as-shutdown-bites.html
http://static3.businessinsider.com/image/524c0fd969beddac38dc4098-480/adp.jpg (Chart)
http://www.bloomberg.com/news/2013-10-18/china-s-economy-grew-7-8-in-third-quarter-matchingestimates.html
http://qzprod.files.wordpress.com/2013/10/china-s-gdp_chartbuilder.png?w=1024&h=576 (Chart)