Equity investors crave optimism
Apart from a meager improvement in the University of Michigan's consumer sentiment index, economic news was generally devastating. Yet, equity investors found reasons for hope. On some days they focused on better-than-expected earnings announcement; on other days they focused on comments made by government officials regarding defense issues. Equity investors are also hopeful that the economic stimulus coming from monetary and fiscal policy will indeed boost activity after the New Year. After all was said and done, stock prices were generally stronger this week than last.

Bond yields drop on weak economy
This was not a week loaded with economic indicators but those that were reported generally did not offer a picture of health. In particular, durable goods orders plunged and new jobless claims rose to an extent that they portend a rather significant uptick in the unemployment rate. Market expectations have not yet gelled on a federal funds rate cut of 25 or 50 basis points, but the weak economic figures may support the larger cut for the November 6 FOMC meeting. All in all, this helped to depress bond yields and lift bond prices.