Economic WeeklyOctober 4, 1999

Week in Review

Last week’s trading was characterized by nervous markets awaiting the Oct. 5 FOMC meeting. The S&P 500 Index edged up 5.5 points or 0.5%, while the long bond yield rose 0.2% to 6.15%. Although the most averages ended the week barely changed, key economic reports led to wild intra-day swings, as investors reacted to key numbers that may influence the Fed’s next move.

The Conference Board on last Tuesday said its monthly measure of consumer confidence fell to 134.2 in September, down slightly from 136 in August. Economists had expected the index to be unchanged. S&P 500 was down over 25 points in the early afternoon before rebounding to close down 1.1 points.

On Thursday, the S&P 500 rallied 14.3 points due to indications of a slowing economy that may cause the Fed to leave rates unchanged on Oct. 5. The Commerce Department revised 2nd quarter GDP growth to 1.6%, down from the preliminary 1.8% reported earlier. This was the slowest growth in four years. The downward revision delighted investors because it reduces the need for an interest rate hike to slow the economy.

However, the stock rally was short-lived. The National Association of Purchasing Management renewed fears on Friday of an overheating economy. Its Purchasing Managers’ Index surged to 57.8 in September, up from 54.2 in August. The Street had expected a drop to 54. Any reading over 50 indicates economic strength.

Other notable events affecting the markets last week included a greater than expected 0.9% gain in consumer spending in August, end-of-quarter portfolio re-balancing and Ralph Acampora’s warning of a possible market drop. The widely followed Acampora, the technical analyst for Prudential Securities, is famous for his bearish call in August 1998, just prior to the market’s steep September decline.

Market Strategy Preview

  • Continued deterioration in U.S. trade accounts is leading to increased fears about future dollar weakness. Some believe the trade balance is likely to worsen, citing factors such as higher oil prices, robust domestic demand, and precautionary inventory building related to Y2K fears.
  • Consensus estimates are that Fed officials will leave monetary policy unchanged at the October 5 FOMC meeting. The Fed’s own reports suggest a vibrant economy with little inflationary pressure.

Key imbalances in the economy to watch over the near term include:
  • Unusually low household savings rates
  • Unusually large current account deficits.
  • Key statistics scheduled to be released this week include:
  • US housing completions
  • FOMC rate decisions
  • Index of leading indicators
  • NAPM index update (non-manufacturing)
  • US factory orders
  • US initial jobless claims

MPSIF

This material has been issued by The Michael Price Student Investment Fund. It is for the internal use only

Key US Economic Data

Aug 99Jul 99Nonfarm Payroll

(chg. Thousands) 124 338

Unemployment(%) 4.2 4.3

PPI (% chg) 0.5 0.2

CPI (% chg) 0.3 0.3

Retail Sales (% chg) 1.2 1.0

Industrial Prod. (% chg) 0.3 0.7

Cap. Utilization (%) 80.8 80.7

Housing Start

(annual rate, thousand) 1676 1670

Trade Balance

(billion Monthly) N/A -25.2

Purchasing Mag. Index (%) 54.2 53.4

Market Movement

Value%1Mon

Stock Market

Dow Jones10273-7.27

S&P5001282.81-5.48

NASDAQ2736.85-3.74

FTSE1005970.70-5.71

DAX5124.55-3.97

NIKKEI17712.56+0.47

Hang Seng12733.24-3.38

CurrencyValue%10day

GBP/USD1.6465-1.32

USD/JPY106.810.03

EUR/USD0.9395-2.12

Commodity Value%10day

Gold29916

Brent Oil23.583.81

Silver5.589.11

Copper

MPSIF

This material has been issued by The Michael Price Student Investment Fund. It is for the internal use only