Investors took advantage of a data-heavy week as the major averages rallied strongly, raising the Dow and the S&P 500 to new records. Upbeat economic reports and fresh hope for the global economy contributed to the market’s optimism. For the week, the S&P 500 gained 2.72%, the Dow gained 3.48%, and the Nasdaq gained 3.28%.1
Market surged Friday after Japan’s central bank announced an unexpected expansion of its enormous quantitative easing program. The move came after economic reports indicated inflation (and demand) was weakening in Japan. Economists hope that pumping trillions more into the aging country’s economy will be enough to stoke economic activity.2
On the domestic side, investors got a first look at Q3 economic growth and found that gross domestic product (GDP) grew a whopping 3.5% for the quarter.3 Though GDP growth decelerated from its 4.6% pace in the second quarter, it was the fourth quarter out of the last five that the economy has grown more than 3.5%.4 Keep in mind that this is only the first GDP growth estimate, and it will definitely see revisions as more reports come in.
The Federal Reserve’s Open Market Committee met last week and announced the end of its quantitative easing programs, meaning that after October, the Fed will no longer purchase new bonds to prop up the economy.5 Though the news was widely expected, analysts are reading a bit of a hawkish tone to the Fed’s announcement. Because the Fed feels optimistic about the country’s economic outlook, some analysts think that rate hikes might come as early as Spring 2015.6 Either way, we’re confident that the Fed will look closely at all the data available before making any big decisions.
Looking ahead, analysts will be watching the European Central Bank’s meeting to see whether Europe will follow where Japan is leading. Although demand is also weakening in Europe, it’s unlikely that the ECB will take on significant asset purchases. Investors will also be watching to see whether the October jobs report supports opinions that the labor market is improving rapidly.7
Overall, investors’ fears that led to the selloff in mid-month turned out to be unfounded. Is there more room for upside after a turbulent month? If October has taught us anything, it’s that markets can turn on a dime. Though investors are feeling better about the global economic picture, fresh worries could lead to further turbulence going forward. As always, we’re continuously monitoring markets and making prudent changes where warranted.
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