Central Banks coaxed the equity markets higher yet again this week. Hints of more easing from the European Central Bank (ECB) and a surprise rate cut by the Bank of China pushed stocks higher in the back half of the week. It also didn’t hurt that earnings reports from large technology companies beat expectations. The S&P 500 finished last week 2.1 percent higher, its fourth consecutive weekly gain. The Dow Jones Industrial Average rose 2.5 percent, and the technology heavy NASDAQ Composite jumped 3 percent.
Central Banks to the Rescue Again
A pair of central banks boosted equity markets this past week. First, the ECB President, Mario Draghi, hinted that more stimulus could be coming when that central bank reexamines its current policy in December. The ECB is currently purchasing 60 billion euros worth of bonds each month. This sent European equity markets to their highest point since August and pushed yields on the German ten-year note below 50 basis points. The euro also sank nearly 2 percent to $1.11 on the news. Then, on Friday the Central Bank of China announced a quarter-point cut in its benchmark interest rate as well as a 50 basis point reduction in reserve requirement ratios for banks. This was the sixth time since November 2014 that the Chinese central bank cut interest rates.
Existing Home Sales Surge
The National Association of Realtors recently announced existing home sales rose 4.7 percent for the month of September to an annual rate of 5.5 million. The September figure puts us on pace for the best year for existing home sales since the housing crisis. The increased activity appears to be driven by job growth, low rates, and pent-up demand given years of low new household formations. However, the robust report did show some cracks. Primarily, the reduction in the percentage of first-time home buyers. First-time buyers represented just 29 percent of purchases in the month, down from 32 percent in August. A reduction in this source of new demand could foreshadow a slowdown in the coming months. This is largely the result of home prices rising faster than incomes. The median home price for September rose more than 6 percent year-over-year, compared to just 2 percent income growth.
Gas Drops to Six-Year Low
Gasoline futures have dipped 10 percent so far in October capping off a collapse to a six-year low. The decline stems from further increases in supply. According to the Energy Information Administration, gasoline inventories stood at 221 million barrels at the end of the first week of October. This is the highest level for this time of year since 1990. On top of the increased supply is the seasonal effect where refineries begin ramping production of heating oil, which produces gasoline as a byproduct. This is causing some forecasters to call for gasoline prices to fall below $2 per gallon this winter. However, domestic demand is expected to remain strong, which may keep prices elevated. The United States now uses more than nine million barrels of gasoline a day, the highest level for this time of year since 2009.
Fun Story of the Week
For most people, completing a marathon is, in and of itself, a major accomplishment. However, Steve Bergstrom went above and beyond during this year’s Chicago marathon by finishing in less than four hours and receiving twelve date requests in the process. The recently-single marketing professional decided to run the marathon shirtless with a simple message, written with a marker, onto his back: SINGLE/on Facebook/Steve Bergstrom. The runner thought he would have a better time finding a suitable mate during the marathon since he spends hours a week training. Even in a world of social media and online banner ads, some of the best marketing can still be done with a little creativity and pen.