Wednesday, November 01, 2000

October Market Update

The market took us on another roller coaster ride during the month of October. The market started down in the beginning of the month on the typical concern that we will have another crash, such as the one's in 1929, 1987, & 1998. Adding to the downdraft was Intel's earnings report. Intel reported earnings that were two cents lower than expectations, caused by lower average selling prices of its chips. Dell warned that its quarter would miss as a result of higher DRAM prices, due to the Taiwan earthquake, making Wall Street wonder about the true extent of the earthquake. IBM stated that its 4th quarter wouldn't meet expectations due to Y2K spending slowdown, which brought the Y2K issue back to the forefront of concern. The Producer Price Index (the "PPI") came in at 1.1%, sending the market spiraling down, rejuvenating concern that inflation is bearing its ugly head, and sending the 30-year bond close to the 6.4% level.

The market did an about face around the middle of the month when the Consumer Price index (the "CPI") failed to confirm the inflation picture that the PPI portrayed. It became evident that the PPI's spike was caused mainly by the increase in oil and cigarette prices. Intel, after dropping the earnings bomb on the market early on, had an upbeat meeting with analysts, introducing the new family of chips, stating that their 4th quarter will be strong, and that they don't see any Y2K slowdowns in their business. To top it off, the final economic indicators, the GDP, came in at a strong 4.8%, and the two inflationary indicators, GDP chain deflator and employment cost index, came in below expectations, confirming that the economy continues to experience good growth with low inflation. The good economic news sent the long bond yield down to 6.2%, adding the third component that the stock market likes, lower interest rates.

The month ahead will be a challenging one. Y2K is still a major issue on the minds of investors, and any hint that it may cause disruptions could cause another market downturn. The Employment Payroll Report, which shows job growth and increases in hourly wages, will be an important one on the 5th of November. The PPI on the 10th and the CPI on the 17th will be closely watched, especially after the 1.1% spike by the PPI in October. The Federal Reserve Committee meeting on the 16th is the all-important date. We will find out the Fed's plans for interest rates going forward. The consensus seems to be that the Fed will raise rates by 25 basis points. And of course some more earnings, but they'll be secondary drivers.
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