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Markets Slightly Stronger as European Fears Ease


Written Commentary:

For the week of October 3, 2011 through Friday, October 7, 2011

  • Standard & Poor’s 500 Index: 2.12%
  • Dow Jones Industrial Average: 1.74%
  • NASDAQ Composite: 2.65%

It appears that the pressure of the European debt crisis has eased a little, as the European Central Bank has pledged to lend European banks as much as needed for one year loans, giving banks access to cash through January 2013. The support of Europe has become a global effort. It was only last Thursday after G20 talks in Washington, the 17-nation euro zone said it would implement "actions to increase the flexibility of the European Financial Stability Fund and to maximize its impact" by mid-October.

We believe Europe is patterning their bailout solutions after ours in the United States, by simply opening the spigot and providing the banks liquidity. It seems very clear that there are no intentions of letting any banks fail in Europe.

Economic Data

  • ISM Manufacturing Index
    • The Manufacturing Index came in stronger than expected, rising from 50.6 to 51.6 for September.
    • While manufacturing isn’t booming, it isn't collapsing.
    • The leading indicator suggests positive GDP growth for third quarter.
  • ISM Services Index
    • The nonmanufacturing index held up fairly well in September, falling from 53.3 to 53.
    • This reading is still in the positive range.
  • Jobless Claims
    • Jobless claims continue to be a drag on the economy, with initial claims increasing to 401,000 for the week.
    • The prior week’s initial claims were revised higher by 4,000, while continuing claims fell.

Company News

  • Yum! Brands, Inc. (NYSE: YUM)
    • Yum’s third-quarter profit rose 7.3%, as a result of more traffic in their restaurants in China.
      • Same-store-sales in China soared 19% for third quarter.
      • However, Yum’s U.S. same-store-sales fell 3%, slightly more than analysts’ estimate of a 2.9% decline.
    • Net income was reported at $383 million, or $0.80 per share. 
    • Yum’s management reaffirmed its forecast for profit growth of at least 12% for 2011.
  • Costco Wholesale Corp. (NASDAQ: COST)
    • Costco reported its fiscal-fourth quarter earnings of 11%, as the wholesaler made more money on membership fees.
    • The operator of the membership warehouses also said it will raise annual membership fees to $55 for individuals and $110 for businesses for both its American and Canadian members.
      • The company, however, will raise the reward tied to the executive membership from $500 to $750.
    • The company’s net income rose to $478 million, or $1.08 per share.
    • For the year, Costco’s earnings climbed 12% to $1.46 billion, or $3.30 a share.
  • Apple, Inc. (NASDAQ: AAPL)
    • New CEO Tim Cook introduced the iPhone 4S on Tuesday.
      • The iPhone 4S features a better processor and camera, and introduces Siri, the voice-command service.
    • Sprint Nextel Corporation (NYSE: S) bet big on the iPhone, committing to buy at least 30.5 million iPhones  to the tune of $20 billion.
    • Apple founder and visionary, Steve Jobs, passed on Wednesday, October 5th.

Interest Rates

  • The two-year Treasury rates edged up to 0.26%, a 0.11% gain since mid-September’s all-time low.
  • The five-year Treasury yield rose to 0.99%, bringing its two-week increase to 0.21% above its low.
  • The 10-year Treasury rate only increased 0.03% to 1.94%.
  • The 30-year Treasury yield is 2.90, staying close to the 3% range for a few weeks.
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