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Corporate Finance Week: A Treat for Equity Investors

  • By Brian Kalish
  • Published: 11/3/2014
This article appears in the latest edition of AFP EconWatch. Read the full issue.

Well, the market was certainly in the Halloween spirit this week as it gave equity investors quite the treat with a significant rally to wrap up October before heading into the last two months of the year. A slew of positive data helped fuel equities prices; while at the same time put quite a damper on fixed income and commodity prices.

In the U.S. Treasury market, over the past two weeks, the two-year note yield is up 13bps to 50bps (pushing up the expectations of a Fed tightening by mid-2015); the five-year note yield is up 19bps to 1.61 percent; the 10-year note yield is up 14bps to 2.34 percent; and the 30-year bond yield is up 8bps to 3.06 percent.

In the U.S., the Dow touched a new all-time high of 17,395.54 (up 11.72 percent over the past year). The S&P is fractionally lower than its all-time high of 2,019.26 (reached back in September) but is up 14.77 percent over the past 12 months. The NASDAQ climbed to a 14 1/2-year high (think Destiny’s Child’s “Say My Name”) of 4,641.51 (up +8.10 percent over the past 365 days).

In Japan, the Nikkei soared to a seven-year high of 16,533.91 (up 14.56 percent over the past year). Part of the reason for the rally in Japan was the unexpected announcement that the Bank of Japan (BOJ) would be picking up the pace at which it is increasing the money base. In China, the Shanghai Composite attained its high of the year of 2,423.60 (up 13.01 percent over the past 12 months).

The weakness in the price of oil continues to make headlines around the world. WTI crude dipped under $80/barrel to close at its cheapest level in two-and-a-half years. U.S. crude has lost 25 percent of its value since it peaked at $107.73/barrel back in June. Brent crude is at four-and-a-half-year lows, as it has lost almost 27 percent since it peaked at $113.19/barrel, also back in June.

Gold fell to its 52-week low at $1,160/oz and is now down 11.87 percent over the past year; while silver touched a four-year low of $15.64/oz, down 27.12 percent over the past 12 months.

While the Nikkei touched a seven-year high, the yen fell to a seven-year low against the U.S. dollar, falling to 112.47 yen. The euro fell to its 52-week low against the U.S. dollar at 1.2487, while the British pound is trading only slightly better than its 12-month low of 1.5882.

There was plenty of good economic news released this week: 3Q GDP came in at +3.5 percent, giving the U.S. its best growth for a six-month period since 2003; weekly initial unemployment claims continue to be under 300k, while the four-week moving average is at its lowest level since May 2000; and consumer sentiment is at its highest level since 2007.

The FOMC wrapped up its QE3 program this week, as expected, leading to much conjecture regarding the timing of the Fed making its first move to raise interest rates since July 2006.
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