The stock market ended on a high on Friday despite a disappointing start to the trading day. The S&P 500 turned a 30-point loss into a 28-point gain to end higher by 1.4% while the NASDAQ was up 1.7%, outperforming. For the week, the S&P 500 advanced 1.0% while the NASDAQ added 0.5%.
On the week, the Dow Jones Industrial Average was up 200.36 points to close at 16,472.37, the NASDAQ advanced 80.69 points to close at 4,707.77 while the S&P 500 was up 27.54 points to close at 1,951.35.
By Friday morning, things didn’t seem much better. The opening decline on Friday occurred after the release of the Nonfarm Payrolls report for September, which disappointed on all fronts. According to the report, only 142,000 jobs were added, which was a lot lower than analyst expectations which were at 205,000. The prior month's job growth was revised down to 136,000 from 173,000 and hourly earnings showed no growth. In summary, the weak nature of the report caused the market to reconsider its rate-hike expectations. Bond traders were quick to show their doubt about the likelihood of a rate hike before 2016, evidenced by a surge in Treasuries.
Nine of ten sectors ended on the up with the energy sector up 4.0%, finishing well ahead of other groups. The sector received a boost from crude oil, which climbed 1.8% to $45.55/barrel. Thanks to Friday’s increase, the energy sector gained 2.8% for the week while only two other groups – health care and materials – added more than 2.0% since last Friday. Although the energy sector was a clear standout, the outperformance in the health care sector (up 2.1%) was more notable since biotechnology powered that move.
Biotechnology's outperformance helped the NASDAQ finish in the lead while large cap technology listings like Apple and Google also contributed to the NASDAQ’s strength. For its part, the technology sector gained 1.5%. On the downside, the financial sector experienced a loss of 0.1% after showing a 2.0% decline in early trading in response to the disappointing jobs report.
The unemployment rate held at 5.1%, which is what the consensus expected. The U6 unemployment rate, which accounts for the total unemployed plus persons marginally attached to the labor force and the underemployed, slipped to 10.0% from 10.3% in August.
Factory orders declined 1.7% in August after increasing a downwardly revised 0.2% (from 0.4%) while analysts expected a 1.0% drop. That was the largest decline since a 3.7% drop was registered in December 2014. The weakness in the manufacturing sector comes as a strong U.S. dollar has restricted export demand and low oil prices have reduced demand for drilling equipment.
This past week, Deutsche Bank was in the headlines for a range of news – some positive and some negative.
Women currently account for 14% of the first of those two levels, which is comprised of managing directors and directors who report to board members, and 18% of the second, which includes managing directors and directors who report to the first group, according to the company.
There are currently no women on Deutsche Bank’s eight-member management board. The last female member was Ellen Ruth Schneider-Lenne, who sat on the board from 1988 until her death in 1996. Schneider-Lenne, who was responsible for risk, also was the first woman to become a top executive at a major German bank.
The share of women in managing director and director roles at Deutsche Bank rose to 19.4% in 2014 from 18.7% in 2013. Women account for 35% of the company’s supervisory board, according to the statement on Wednesday.
Then, on Friday, it was announced that Deutsche Bank agreed to a $2.5 million fine over swap reporting. Deutsche Bank was penalized by the U.S. Commodity Futures Trading Commission (CFTC) for falling short of adequately reporting its swaps transactions from in or about January 2013 until July 2015.
The bank did not appropriately report cancellations of swap transactions in all asset classes during that period of time. The reporting violations and errors and omissions in its swap reporting resulted in the spreading of misinformation to the market through the real time public tape and the regulator.
According to the CTFC, Deutsche Bank violated the CTFC regulations, which requires having a proper swaps supervisory system in place. Moreover, though the bank was aware of the deficiencies in its swaps-reporting, it failed to provide a timely notice to its swap data repository and correct the reporting errors until the bank was notified of the investigation.
This is the CFTC's first action enforcing the new Dodd-Frank prerequisites, which require real-time public reporting of swap transactions and the reporting of swap data to repositories. Deutsche Bank neither admitted nor denied wrongdoing.
The CFTC noted that the reporting failures were in part the result of Deutsche Bank’s swaps supervisory system. The bank did not have an adequate system in place until April 2014, which was well after its reporting obligations went into effect in December 2012.
On the week, Deutsche Bank’s stock reached a weekly high of €24.67 on Monday before it traded at a weekly low of €22.97 on Tuesday.
In the week ahead, we will start seeing some quarterly earnings trickle in from the third quarter. However, before earnings season is in full swing, a number of other economic data will be released in the week ahead that is sure to make an impact on the markets. First of all, on Tuesday, October 6th, international trade data will be released. If international trade is on the rise, this could be a positive sign of growth in the U.S. economy. As a result, a higher degree of international trade could cause a rise in the value of U.S. indices such as the Dow Jones Industrial Average. On Wednesday, October 7th, consumer credit figures will be released. Then, on Thursday, October 8th, chain store sales and U.S. jobless claims will be announced. If chain store sales are on the decline, for example, this could cause a drop in the value of chain store stocks such as Abercrombie & Fitch Co. Additionally, if U.S. jobless claims are on the rise, this is a sign of greater unemployment in the U.S. which could subsequently cause a decline in market indices such as the S&P 500 and NASDAQ.
After a difficult September in the global markets, October has started off on a fairly positive note. This has helped to create some positive sentiment about growth in the U.S. economy. It has also created more speculation about the potential for interest rate increases in the U.S. and in other parts of the world such as the U.K. and Japan. Many economies are on the road to recovery and as the year comes to a close, it is now time to see how these economies have performed in 2015.
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