WEEK IN REVIEW "The Market Recovers"

Up against the debt-ceiling deadline of October 17th, the US Congress ended its 16-day government shutdown and extended the country’s ability to borrow. However, the standoff hurt millions of people and was costly to businesses and the economy in general. Fitch placed the US credit rating on a negative watch, and Standard & Poor’s reported that the overall economic slowdown lowered the country’s fourth-quarter gross domestic product by an estimated 0.6%, or $24 billion. Economic uncertainty is expected to persist, as the US government will be financed only until January 15th, with the debt ceiling issue to be revisited on February 7th.

Although markets rallied with relief on Wednesday in anticipation of a deal, attention quickly turned to corporate earnings reports. Earnings among S&P 500 Index companies so far this quarter have been below par, with just over half of the companies beating profit expectations, below the historical average of 63%.

China’s economy grew 7.8% in the third quarter from a year earlier. Eurozone economic output grew in August. Global stocks rallied broadly. The S&P 500 closed at 1733 Thursday, a new all-time high. Short-term Treasury yields spiked early in the week on fear of a debt default. Once Congress struck a deal, the yield on the 10-year Treasury note fell and the price of gold rose. The US Federal Reserve is now expected to extend its bond-buying program because of the government shutdown’s economic drag. The price of oil fell to near $100 per barrel as US oil stockpiles rose and demand subsided as a result of the government shutdown.

Credit rating agency Fitch placed the United States on a negative rating watch on Tuesday, just a day before the US Congress passed a bill to end the government shutdown and lift the country’s debt ceiling beyond $16.7 trillion. Fitch reaffirmed the country’s AAA credit rating but warned that the gridlock has put the full faith and credit of the government at risk.

While it could take months to tally the economic toll of the government shutdown, early data show a broad erosion of confidence, adding to the estimated $24 billion in lost economic output. Gallup’s Economic Confidence Index fell to -39 from -22 in two weeks. The monthly Bloomberg Consumer Comfort Index expectations gauge fell to -31, the lowest level since that of November 2011, from -9 in September. The National Association of Home Builders reported that its housing market index fell to 55 in October from 57 in September. Levels above 50 indicate expansion for the homebuilding industry.

China’s economy grew at its quickest pace this year, expanding by 7.8% in the third quarter from a year earlier. GDP growth accelerated slightly from the 7.7% and 7.5% pace of the first and second quarter, respectively. Economists expect China’s economic growth to subside in the fourth quarter, as export data in September indicated a decline in global demand. The Chinese government continues to focus its economy on domestic consumption rather than a reliance on exports and investment in infrastructure and real estate.

The eurozone showed more signs of having emerged from recession, with stronger-than-expected industrial production in August. Output grew 1.0% in August after a 1.0% drop in July. Economists had forecast a 0.8% growth in output for the month. Output grew in four of the region’s five largest economies. However, industrial production declined 2.1% from a year earlier.

The major averages ended higher in the session. The Dow Jones Industrial Average added 28 points to 15,399, the S&P 500 gained 11 points to settle at 1744, just below its all-time intraday high of 1745 set earlier in the day. The NASDAQ was up 51 points bringing the index to 3914. For the week, the Dow advanced nearly 1.1%, the S&P 500 was higher by 2.4% and the NASDAQ rose 3.2%.

Stocks edged higher throughout the session as investors responded to a batch of positive corporate earnings. Nine of the 10 sectors on the S&P ended higher, led by a rally in tech stocks. Google gained 13.8% to close at $1011.40 following a better-than-expected profit tally. General Electric also moved higher, adding 3.5% to $25.55 after topping analysts’ expectations in the third-quarter. In other news, Amazon.com advanced 5.8% to $328.93 following an analyst upgrade.

Composite volume on the NYSE was more than 3.6 billion shares with advancing issues besting decliners by a 13-5 margin. The NASDAQ was 2-1 positive on issues.

Turning to fixed income markets, Treasuries were little changed along the curve. The benchmark 10-year note was up 1/32 to yield 2.59% and the 30-year bond added 3/32 to yield 3.66%.