Weekly Recap - Week ending 30-Oct-09Last week we discussed the volatility in U.S. equity markets, and that not only continued this week it became more aggressive.  But unlike the prior week's modest moves, the major averages closed sharply lower this week as the dollar rebounded against the other major currencies.  The S&P 500 lost 4%.

Once again the declines were broad-based as all ten sectors in the index ended lower, led by Materials (-7.1%) and Financials (-6.9%). 

The dollar was the biggest, if not the only, catalyst this week.  In fact, the charts of the major indices are almost exact inverses of the U.S. Dollar Index (DXY).  A weak dollar benefits the economy as it boosts exports, and investors are trading stocks based on the moves in the currency.

For example, equities attempted to rebound at the open Monday, but the attempt stalled and a spike higher in the DXY late that morning led to a spike lower in the major indices.  

The volatility really came through in the last three sessions of the week.

A third day of gains in the DXY on Wednesday led to sharp declines in equities.

Then a reversal in the greenback and modestly better-than-expected GDP figure on Thursday helped equities regain the prior day's declines.  The Advance reading for third quarter GDP came in at 3.5%, its first gain in four quarters, slightly better than the 3.2% consensus.

But those gains were short-lived as a resumption in the dollar rally on Friday led to the major indices making fresh week lows.

Third quarter earnings season did continue this week, but there were fewer big names so they took a backseat.  For the most part companies continued to beat on the bottom lines, but top line figures and guidance were mixed.

Another rounds of longer-term Treasury auctions also took a back seat -- $123 billion in 5-year TIPS and 2-, 5- and 7-year Notes -- as they no longer seem to have as direct an influence on the equity markets.

Looking ahead to next week, third quarter earnings season will wind down with even fewer big names on the calendar.  The dollar will most likely remain in focus until the end of the week, when the always highly-anticipated Nonfarm Payrolls figure is released for October.

Index	Started Week	Ended Week	Change	% Change	YTD %
DJIA	9972.18	9712.73	-259.45	-2.6	10.7
Nasdaq	2154.47	2045.11	-109.36	-5.1	29.7
S&P 500	1079.60	1036.19	-43.41	-4.0	14.7
Russell 2000	600.86	562.77	-38.09	-6.3	12.7