Tech Stock Rally Sparks Stock Indices; Bonds Down, But Tax Free Munis Reverse Trend

The Dow (+0.7%), NASDAQ (+2.4%) and S&P 500 (+1.3%) were up last week, while bonds were mixed.  Taxable bonds fell about 0.3%, but tax-fee municipal bonds bucked their recent trend by gaining over 1%.  The 10-year Treasury yield jumped 0.09% to finish the week at 4.61%.

There wasn’t much economic data reported last week, so investors’ focus of attention continued to be on predicting the Fed’s moves for raising, cutting, or leaving interest rates the same.  The stock market rally was rather narrow, as the seven market leaders collectively gained about 5%, driving the NASDAQ and S&P 500 higher.  The interesting “news” last week was a weak Treasury auction, as investors were less interested in buying 30-year Treasuries.  While seemingly unrelated, this is being perceived as investors’ expressing concern and sending a message to Congress regarding our budget deficit and mounting national debt.

In the week ahead, there will be three economic reports that are direct measures of or have direct impacts on inflation, and they are the Consumer Price Index (CPI), Producer Price Index (PPI), and the retail sales numbers for October.  Further, Congress is in session trying to pull together a budget deal, or else there may be another continued resolution to kick that can down the road again and to prevent a government shutdown.  I’m sure I can’t be the only one disappointed with the stalemate in Congress and their seeming inability to get things done.  In fact, Moody’s recently stated that they are considering downgrading US debt because of the mounting debt issues and our increasing government spending.  That would be a real problem for all the markets if US government debt was downgraded, which should also send a strong message to our legislators.  The US debt issue, as expressed as a net interest percent of GDP (shown below) shows that our net interest is projected to reach all time highs.

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^{The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.}