Download Weekly Advisor Analysis 11-11-13 PAA

Weekly Advisor Analysis
November 11, 2013
Surprisingly Strong Economic Data Lifts Stocks
Investors struggled to find a consistent direction last week following the release of economic data
which showed the U.S. economy chugged along in recent months at a pace faster than most
experts had predicted. Despite the uncertainty on how to interpret this data, stocks finished higher
for the fifth consecutive week, as evidenced by the S&P 500 gaining 0.5 percent last week,
according to CNBC. While under normal circumstances robust and better than expected economic
data would be positive for stocks, this time around many investors are concerned about what this
data means for the future of the Federal Reserve’s quantitative easing program and the effect any
changes to their current asset purchasing plans may have on financial markets.
Source: Yahoo! Finance
U.S. Economic Growth Exceeds Expectations
The financial markets were caught off guard last week when the Commerce Department
announced the U.S. economy grew at a 2.8 percent annualized rate in the third quarter, well above
economists’ expectations for only 2 percent growth, according to Bloomberg. Many experts,
however, were quick to dismiss the report from being considered a validation that the U.S.
economy is fully healed, citing a majority of the increase was due to businesses stockpiling
inventories and growth in personal consumption actually was the weakest we’ve witnessed since
2011, increasing by only 1.5 percent, according to Bloomberg. Furthermore, the third quarter
report didn’t include the month of October which featured the U.S. government shutdown.
* 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.
Jobs Report Offers Optimism
While economists and the investment media had an easy time poking holes in the third quarter
economic growth rate, the net 204,000 new jobs added last month, as reported by the Labor
Department, was more difficult to critique. Economists had expected the report to only show
125,000 net new jobs in October partially due to weakness and uncertainty caused by the
government shutdown and default fears. Adding to the stronger than expected October data, the
September report was revised higher to show that 163,000 new jobs were created, more than the
148,000 originally reported.
Focus Returns to Fed
Corporate earnings season has nearly concluded as approximately three-fourths of companies have
reported their most recent quarterly results of which 74 percent have surpassed expectations,
according to Bloomberg. Considering corporate profits are improving, and economic data could
potentially be showing signs the U.S. economy is strengthening, the debate can resume on when
the Federal Reserve will begin to taper their asset purchasing program and/or raise interest rates.
Although the Fed has consistently stated they won’t commence repealing their quantitative easing
program until the U.S. economy has shown clear signs of self-sufficient growth, nobody is quite
sure what that will look like exactly. Furthermore, nobody is certain how a reversal in Fed policy
will affect corporate profits, demand for stocks, and overall economic activity. However, what
does seem more certain is that each time investors begin to speculate the likelihood of Fed
tapering is near, interest rates have increased a significant amount in a short period of time as last
week’s spike in the yield on the 10-year Treasury note depicts below. Historically, a rising interest
rate environment pressures prices of fixed income investments lower considering the two factors
are by nature inversely related.
Source: Yahoo! Finance
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.
* 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.
* Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of
principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
* Quantitative easing is a government monetary policy occasionally used to increase the money supply by
buying government securities or other securities from the market. Quantitative easing increases the money
supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.
* 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/101182578
http://finance.yahoo.com/q/bc?s=^GSPC+Basic+Chart&t=5d (Chart)
http://theweek.com/article/index/252500/dont-be-fooled-by-gdp-growth-the-us-economy-is-still-struggling
http://www.bloomberg.com/news/2013-11-07/u-s-stock-index-futures-fall-before-gdp-report.html
http://www.bloomberg.com/news/2013-11-08/fed-anxiety-rises-as-qe-raises-risk-of-loss-with-politicalcost.html
http://gdb.voanews.com/46C4C478-696D-4126-A041-5EAEE75187B9_w640_r1_s.png (Chart)
http://www.bloomberg.com/news/2013-11-08/u-s-stock-index-futures-advance-before-payrolls-report.html
http://s.wsj.net/public/resources/images/OG-AA381_JOBS_E_20131108083804.jpg (Chart)
http://www.marketwatch.com/story/treasury-yields-jolt-higher-on-jobs-report-2013-11-08
http://chart.finance.yahoo.com/z?s=%5eTNX&t=5d&q=l&l=on&z=l&a=v&p=s&lang=en-US&region=US
(Chart)