Selling Continues In Markets With Nasdaq and Small Caps Hit Hardest
By Chris Puplava, October 12, 2005
The selling continued in the markets today as the tech-laden Nasdaq continued its decent toward the 2000 level after troubling news of Intel being downgraded by Prudential, falling 1.15%. Prudential analysts said that Intel could face disappointing revenues and margins possibly all the way into next year. Small caps also took a hit as the S&P 600 fell 1.33%, while the S&P 400 mid cap index fell 1.3%, both falling more than the S&P 500, which dropped 0.61% for the day. Oil ended slightly higher today at $64.18 and the dollar slightly lower at 83.14 cents against the euro, while gold fell $5.60 to $470.50.
As last week saw the markets reacting strongly to the Institute of Supply and Management's report on business (see 10/05/05 wrap up), more of the same is shaping up this week.
Several pieces of economic news were released today pointing to a weakening economy and slowdown in the housing bubble. The Mortgage Bankers' Association (MBA) released today the MBA purchase index for the October 7th week, which fell 0.9% to 469.5. The release today marks the fourth straight decline, no doubt reflecting the hurricane impacts.
The purchase applications index measures applications at mortgage lenders, which is a leading indicator for single-family home sales and housing construction. Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once a home is sold, it generates revenues for the home builder and the realtor, bringing a host of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic "ripple effect" can be substantial, which is why four straight weeks of the MBA purchasing index falling might lessen Greenspan's concerns of the housing bubble.
The MBA refinancing index fell 4.9% to 2004.9, reflecting rising interest rates that were up for a fourth week: 30-year fixed at 5.98%, 15-year fixed 5.55%, and one-year adjustable, at 5.26%, now up 44 basis points over the last three weeks.
The U.S. Treasury auctioned off $10 billion in 4-week U.S. T-bills at a discount rate of 3.46%, up more than 16 basis points from last week. This has led bond investors to believe that the Fed stands ready to tighten further this year and next because bond investors are sensitive to Federal Reserve policy, and thus market rates will mirror policy expectations. Typically, bond market players are forward-looking and this means that interest rates on Treasury securities will move in the direction of Fed policy with a lead.
Other key economic data that will be released this week is the trade report for August being released tomorrow, with forecasts of a $59.6 billion deficit, up from July's deficit of $57.9 billion. This is not good news for the economy as imports typically act as a drag on domestic growth while exports boost domestic production. The trade balance is a valuable gauge of economic trends here and abroad, and the data can directly impact all the financial markets and in particular the foreign exchange value of the dollar, since this trade imbalance creates greater demand for foreign currencies. As such, investors should watch the markets closely after the report is released tomorrow.
The weekly jobless claims report will be released tomorrow as well with a consensus of 350,000 new claims, which would be down 50,000 from last week's new jobless claims level of 390,000, which rose 21,000 in the week ending October 1st. Labor Department officials estimate that about 74,000 new claims were related to Katrina and Rita. The release of Thursday's jobless claims report will shed some light on whether the initial labor impact of Katrina is easing.
Also to be released tomorrow is the Energy Information Administration (EIA) petroleum status. The report tomorrow will tell whether or not the refining crisis is improving, where the refining capacity stood at 69.8% last week, down from 86.7% from the prior week.
On Friday the Consumer Price Index (CPI) report will be released for September, with the consensus of the CPI rising 0.9% over August, and up 0.3% when food and energy are excluded. The CPI was up 0.5% in August and the consensus of an increase of 0.9% for September reflects the affects Katrina and Rita had on oil, as energy and food account for two-thirds of the estimated 0.9% increase for September.
Another key report to be released on Friday is the report on retail sales, which measures the total receipts at stores that sell durable and nondurable goods, a key element of economic growth, as consumer spending accounts for two-thirds of GDP. Retail sales consensus forecast for September is an increase of 0.3%, with the retail sales excluding autos consensus forecast at 0.5%. Investors should tread cautiously in the wake of likely negative economic reports after the markets reaction to last week's ISM report on business and likely Fed rate hikes in the future.
Market Summary
| Index Summary | |||
| Equity Indices | Last | Change | % Change |
| Dow Jones 30 Industrial Average | 10,216.91 | -36.26 | -0.35%< |
| S&P 100 Index | 547.39 | -1.92 | -0.35% |
| S&P 500 Index | 1,177.68 | -7.19 | -0.61% |
| NASDAQ Composite Index | 2,037.47 | -23.62 | -1.15% |
| AMEX Composite Index | 1,622.87 | -30.10 | -1.82% |
| Russell 200 Index | 621.57 | -8.51 | -1.35% |
Sector Summary
| Description |
Last Price |
Price Change |
Today's % Price Change |
Week To Date % Price Change |
1 Month % Price Change |
| Basic Materials | 1,175,482 | -17,489 | -1.5% | -1.5% | -2.1% |
| Capital Goods | 652,706 | -4,901 | -0.7% | -2.3% | -5.4% |
| Conglomerates | 766,619 | -1,508 | -0.2% | -1.4% | -3.1% |
| Consumer Cyclical | 763,554 | -5,849 | -0.8% | -1.8% | -3.3% |
| Consumer/Non-Cyclical | 1,285,878 | -6,935 | -0.5% | -1.2% | -2.2% |
| Energy | 2,681,279 | -43,445 | -1.6% | -0.9% | -3.1% |
| Financial | 4,492,664 | -32,651 | -0.7% | -1.6% | -2.2% |
| Healthcare | 2,227,752 | -3,141 | -0.1% | -1.7% | -3.9% |
| Services | 4,390,319 | -56,364 | -1.3% | -2.1% | -4.6% |
| Technology | 2,882,757 | -26,930 | -0.9% | -2.3% | -5.9% |
| Transportation | 349,173 | -4,273 | -1.2% | -1.0% | 1.9% |
| Utilities | 872,145 | -13,437 | -1.5% | -2.9% | -4.1% |
Have a pleasant weekend,
Chris Puplava
© 2005 Chris Puplava
Contact Information
Christopher M. Puplava
PFS Group
PO Box 503147
San Diego, CA 92150-3147
(888) 486-3939 Toll Free
(858) 487-3939 Tel
(858) 487-3969 Fax
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