Debt Ceiling Deal, Equifax Data Breach and Hurricane Irma -- Week in Review
This week brought relief over the U.S. debt ceiling, but the approach of a potentially historic and catastrophic hurricane kept trading nervous. Here's where markets stand at the end of the week.
How Wall Street Ended the Week
It was a shaky kind of week with stocks flitting from gains to losses, often several times a day. The Dow Jones Industrial Average ended with a loss of 0.86%, its first week in the red in three.
It wasn't quite as bad a week for the S&P 500, which ended with a loss of 0.61%, also its first in three. The benchmark index spent three of the four days this week in the red.
The Nasdaq dropped by 1.17% for the week.
Last Week Hurricane Harvey, This Week Hurricane Irma
Category 4 hurricane Irma barreled toward the U.S. mainland, set to make landfall on Saturday evening, Sept. 9, after tearing a path of destruction through the Caribbean and Puerto Rico earlier in the week. The U.S. National Hurricane Center cautioned that it is"extremely dangerous" and possibly "life-threatening." The NHC expects Irma to continue to move through the Bahamas, reaching the north Cuba coast before heading toward southern Florida.
Florida Gov. Rick Scott issued orders late Thursday, Sept. 7, to close all school colleges and universities in the state until at least Tuesday, Sept. 12, while all of the state's professional sports teams, as well as its major university athletic programs, cancelled weekend competitions.
The storm has killed 14 people on its path across the Caribbean, according to various local officials, and caused the evacuation of tens of thousands of island residents.
Recovery from Hurricane Harvey continued in Texas and Louisiana. The bulk of those efforts have centered on Houston, the nation's fourth-largest city, which was beset with record-setting flooding in late August. Moody's said total losses from Hurricane Harvey could come in between $45 billion and $65 billion, though Texas Governor Greg Abbott has said the damage could reach as high as $150 billion to $180 billion.
Some of that damage is already being reflected in economic data. Weekly jobless claims in the U.S. posted their largest increase in years as Harvey derailed thousands' ability to work. The number of new claims for unemployment benefits increased by 62,000 to 298,000 in the past week, the largest gain since Hurricane Sandy in November 2012 and the highest level since April 2015.
Harvey's flooding also disrupted operations at a number of refineries in the region. In the wake of the hurricane, at least 4.4 million barrels per day of refining capacity was offline. Texas accounts for roughly 30% of the U.S. refining capacity and Louisiana around 18%.
Refineries' limited ability to process crude oil caused U.S. stockpiles to balloon. Crude inventories in the week ended Sept. 1 rose by 4.6 million barrels, according to the Energy Information Administration. Analysts expected an increase of 4 million barrels after a drop of 5.4 million in the previous week. Gasoline and distillates stockpiles both decreased.
The Debt Ceiling Deal
The likelihood of a government funded through to the end of the year looked more likely, just one less thing for Congress to worry about after being tasked with a lengthy to-do list.
On Wednesday afternoon, Trump agreed to raise the debt limit through to mid-December, approving of a three-month extension deal offered by Senate Democratic Leader Chuck Schumer and House Minority Leader Nancy Pelosi.
On Friday, the House approved the legislation package that included a debt ceiling extension and emergency funding for hurricane relief. The bill now heads to the White House for the president's signature.
Trump continued to surprise political pundits on Thursday after agreeing that there "a lot of good reasons" to eliminate the ceiling limit altogether, a position championed by Senate Minority Leader Chuck Schumer.
Any plan to eliminate regular votes to raise the debt ceiling would still need to be passed by Congress. Republicans will likely oppose any legislation backing the removal of the ceiling after having used it as a bargaining chip in recent years.
Another big political moment this week was the Department of Justice's decision to drop an Obama-era program that shields immigrants who were brought to the country as minors and allows them to remain in the U.S.
The Deferred Action for Childhood Arrivals (DACA) program is being rescinded, U.S. Attorney General Jeff Sessions said. In a press conference on Tuesday, Sessions called DACA unconstitutional and claimed some of those children have stolen American jobs, without presenting any evidence. Sessions did not answer reporters' questions.
Trump later said that the decision would force Congress to act on immigration reform quickly. Should they not come to a solution by six months, Trump said he would revisit the DACA issue.
North Korea Again
Geopolitical worries over North Korea have yet to die down with no clear resolution in sight. New developments in the North Korea-U.S. conflict over the weekend sent the Dow tumbling more than 200 points on Tuesday, Sept. 5.
The threat of military action from North Korea spiked over the weekend break after the ready-to-strike authoritarian nation successfully conducted its sixth nuclear test on Sunday, Sept. 3. South Korea's defense ministry said that North Korea is preparing the launch of another intercontinental ballistic missile, one that could be fitted with a nuclear warhead. North Korea launched its first two ICBM tests in July.
The threat of conflict with North Korea dominated market action at the beginning of August after Trump warned of severe retribution should the authoritarian state proceed with any more missile tests or threats. Trump said that further threats would be met with "fire and fury like the world has never seen."
Even with Tuesday's selloff, markets have generally been resistant to the North Korea threat and other geopolitical risks. Since July 28 when North Korea tested its second intercontinental ballistic missile, the S&P 500 has fallen just 0.3%.
"We're all just scared to be out of this market," said Jason Thomas, chief economist at AssetMark, in a call. "Despite all of the things we could talk about on the horizon -- North Korea, the debt ceiling, tax reform -- it's hard to get the courage to be out of this market given how it's reacted in the past and the dry powder that the central banks, first and foremost the Fed, now have as a result of raising rates."
United Tech and Rockwell Collins Make a Deal
On Monday, United Technologies Corp. undefined agreed to buy airplane parts maker Rockwell Collins Inc. (COL) . The defense company agreed to purchase Rockwell Collins for $23 billion, or $140 a share, in the biggest deal in the history of aerospace. Rockwell shareholders will receive $93.33 a share in cash and the remaining $46.67 in shares of United Technologies. The deal is expected to close in the third quarter of 2018.
"This acquisition adds tremendous capabilities to our aerospace businesses and strengthens our complementary offerings of technologically advanced aerospace systems," said United Technologies Chairman and CEO Greg Hayes.
The deal comes after a report recently suggested that a large activist hedge fund manager, possibly Third Point LLC's Dan Loeb, has been accumulating a big United Technologies stake and has put the avionics and industrial company on the defensive in an effort to have it spin off non-core businesses.
A Massive Breach at Equifax
On Thursday evening, Equifax Inc. (EFX) - Get Report disclosed that a massive security breach had compromised millions of people's private data. The credit reporting agency estimates that more than 143 million people had their names, Social Security numbers, birth dates and drivers license numbers exposed in the cyber attack.
Equifax said Thursday that criminals gained access to the information through its website in breaches between May and July. The company said it learned of the attack on July 29. The information accessed wasn't from Equifax's consumer and commercial credit databases, meaning that credit scores don't appear to have been exposed. However, the credit card numbers of 209,000 U.S. consumers and dispute documents belonging to an additional 182,000 people were accessed, according to Equifax.
No Growth for Disney
Walt Disney contributed a large chunk of the Dow's losses on Thursday after CEO Bob Iger warned of weaker profit this year. The world's largest entertainment company expects earnings per share "roughly in line" with fiscal 2016. Disney reported $5.72 a share in profit in 2016. Analysts had expected $5.89 a share this year.
Film franchises Star Wars and Marvel movies will be included on its planned streaming service, Iger said at an investor day on Thursday. In comments at the Bank of America Merrill Lynch conference, Iger said the service will also include four to five original films as well as the Disney studio library.
The European Central Bank Makes a Decision
The European Central Bank said Thursday that it would leave interest rates unchanged and that it anticipates they will remain at the current level for an "extended period." The move was as economists expected. The bank's main refinancing operations rate held at 0% and the rate on deposits at minus 0.4%.
The central bank also said it would continue to repurchase assets through December and possibly beyond that date if needed. The bank currently repurchases 60 billion euros in bonds per month, though has left a possible increase to that amount open-ended should the economic outlook worsen.
"If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration," the ECB said in a statement.
Economists anticipate the program will begin winding down next year.
In a press conference Thursday, ECB President Mario Draghi said further monetary stimulus is needed to support inflation trends, though said the central bank had held early talks on how long to maintain its quantitative easing program. The ECB will further discuss easing plans at its October and December meetings.