Week in brief: October 2

October 5, 2015

Last week put to rest a quarter that most investors just assume forget. The S&P 500 dipped nine percent. And global stocks fell over 10 percent. $11 trillion of global equity value was eradicated in three months. Yet, don't be too spooked. The drop looks like a classic market correction. Steep and dramatic. With the blathering punditocracy pushing fear and loathing to a weary public along the way. All of which means that, while there may be continuing volatility ahead, there looms a recovery on the horizon.
Markets appeared ready to hit the skids Friday following a poor jobs report. Alas, buyers stepped in en masse at 11 am. Pushing indexes higher. Why? After having been disappointed by the Fed's decision not to raise last month, investors now appear to expect more cheap money stimulus as the economy slows. Yes, that's what it comes down to. No real growth. Lots of debt. No vision for doing anything about either. U.S. economic leadership resembles a slow burning tire fire. More smoke than fire.
The good news? Last Monday's 2.5 percent plunge came very close to the August lows. Which may qualify as the retest we've awaited. So setting the stage for a possible Q4 rally. With the S&P 500 at 1,982, don't get too excited until the S&P 500 climbs back above its 200-day moving average, currently 2,041, and holds it through month end. Should that happen, the stage is set for a Q4 to remember.
While there has been little reason to cheer recent U.S. foreign or economic policies, we'll credit the Federal government for avoiding another shutdown. The president signed a bill extending Federal funding till December 11th. The House and Senate passed a stopgap measure. Leaving everyone with ten weeks to agree upon a longer-term budget.
Economically, the data remains mixed. However, analyzing the big four economic indicators, the aggregate trends continue to rise. Moreover, they certainly do not portend the looming recession forecast by much of the blathering punditocracy.
U.S. negotiators continue to work with counterparts in Canada, Japan and a raft of developing Asian nations (not named China) on the Trans-Pacific Partnership (TPP). The deal represents the most significant trade deal since NAFTA. Providing a mechanism for freer movement of goods and the maintenance of influence in a region where China continues to assume power. Moreover, deals like this may help the U.S. to remain among the most competitive nations on earth. With the World Economic Forum having recently ranked the U.S. as third most competitive, overall.
Overseas, Russia continues its incursions into Eastern Europe and the Middle East. Stepping up air attacks on anti-Assad rebels. And fomenting unrest in Eastern Ukraine. Nor has the foreign policy establishment been surprised.
Looking back, one recalls the president's famous line in which he ridiculed candidate Romney's response to a foreign policy question. When Romney stated that Russia remained America's main geopolitical foe, Obama sardonically replied, "The 1980s are calling to ask for their foreign policy back."
Well, three years later, Romney looks absolutely prescient. While the president's "leading from behind" has put Putin in the catbird's seat.
The U.S. administration began to its campaign of mixed signals in August of 2011. When President Obama issued a statement saying that it was time for Assad to go. A year later, the president appeared in the White House briefing room where he drew a line in the sand. Specifically, he discussed a "red" line concerning Syria's use of chemical weapons.
A year later, news leaked that Assad had unleashed a brutal chemical weapons attack on civilians. Killing more than 1,400. Assad had crossed the line. The administration appeared ready to act. Until it softened and changed course. Stating that Assad could avoid U.S. action if he'd turn over his chemical weapons. Whereupon Putin saw opportunity.
Sensing the administration's waning resolve, Putin proposed that his country take control of Assad's chemical weapons. So offering Obama an out, if he wanted one. He did. Taking Russia's offer. And offering Russia a direct path towards long-term Middle Eastern influence.
Which leads to today. The international community has proof of Assad's continuing use of barrel bombs and other banned weapons against his own populace. Russia has essentially established a military base in Syria. There, it's working with Assad and the Iranian clerics to extend the triad's influence throughout the region. Which will soon become markedly easier as Iran's economy comes back online due to the recently forged nuclear pact. Signed by the administration even as Iran was fomenting against American interests in Iraq, Libya and Syria. All of which makes the Palestinian conflict look like algebra by comparison to the calculus of Russia, Syria and Iran.
The Good
A government shutdown was averted... Auto sales were excellent... Construction spending beat expectations... ADP employment showed a gain of 200k private jobs... PCE inflation remained low...
The Bad
Chinese industrial profits declined by 8.8% -- the lowest on record... Pending home sales decreased 1.4%... Personal income remained positive at 0.3% growth but was lower than expectations... ISM manufacturing was weaker than expected and barely in positive territory at 50.1... September payroll report was disappointing, missing expectations by more than 50k...
The Ugly
The situation in Syria. When the West refused to lead, Putin's Russia filled the void. Though many question whether Russian air strikes are targeting ISIS or Assad's domestic enemies.
Weekly Results
Major markets finished mixed last week. The DJIA gained 0.97%, the S&P 500 added 1.04%, and the Nasdaq climbed 0.45%. Small cap stocks lost 0.77%. And the 10-year Treasury bond yield fell 17 basis points to 1.99%. Gold lost $7.58 per ounce, or -0.66%.

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