Investors have been mostly upbeat in September as concerns surrounding the Federal Reserve’s potential tapering of their current asset purchase program have been muted and tensions in Syria seem to have eased.
Investors have been keeping tabs on a batch of economic reports this week. Jobless claims fell to a 7 – year low and retail sales rose 0.2 percent in August, the smallest increase in four months and below the 0.5 percent advance expected in a Bloomberg survey.
Approximately 292,000 people filed initial claims for unemployment benefits in the week ending September 7, the Labor Department reported. That’s a drop of 31,000 to the lowest level since April 2006. However, these results may be skewed as the DOL noted that two states reported incomplete results, possibly due to complications as they updated their computer systems.
The 4 –week moving average, a more reliable gauge on the overall labor market, fell to 321,250. Yet, this only tells one side of the story (the job loss side). The underlying employment picture appears to be improving at a modest pace, but hiring for new jobs remains far too slow to aid the 11.3 million workers who are unemployed. There are about three unemployed people for every current job opening.
The next market moving event will most likely be the Fed’s announcement next week. Many economists are expecting the Fed to begin tapering their bond purchasing program by $10 billion, reducing the monthly purchases to $75 billion from the current $85 billion. This slight reduction should have very little impact on interest rates and the overall bond market. A larger than anticipated reduction could cause a shock throughout bond markets, similar to the shock in June when the Fed made their initial announcement.
Tensions in Syria have eased as Secretary of State; John Kerry reported a “constructive” start to talks with his Russian counterpart over bringing Syria’s chemical weapons under international oversight. Although the option for a U.S. military strike remains on the table, it now appears very unlikely that this will lead to a prolonged military campaign.
Investors are also keeping tabs on the renewed political squabbling surrounding the limit on federal spending. Government funding expires on October 1 and the Treasury is expected to exhaust its ability to borrow funds in mid-October, when it will hit the statutory debt limit.
Twitter made headlines this week when the social networking site revealed after the closing bell on Thursday that it had issued a confidential filing with the Securities and Exchange Commission for a planned IPO. Investors are waiting on more details on the offering, and Goldman Sachs has been leaked as the primary underwriter. It has not been confirmed if the shares will be listed on the Nasdaq or the New York Stock Exchange.
Twitter’s IPO announcement comes at a time when social media stocks are red hot. Facebook (FB) and LinkedIn (LNKD) are near all-time highs. Groupon (GRPN) has more than doubled this year and Yelp (YELP) has more than tripled.
We do not typically recommend investing in initial public offerings as the risks typically outweigh the results for many of our clients. However, the results of Twitter’s IPO should shed some light on investor sentiment going forward.