Economic releases were softer this week in contrast to the stronger releases the week before. Nonetheless, the equity reacted positively to the testimony of Janet Yellen in her nomination hearings before the Senate Banking, Housing and Urban Affairs Committee. Professor Yellen is currently vice chair of the Board of Governors of the Federal Reserve and has been nominated by President Barack Obama to serve as chair when current Chairman Ben Bernanke retires. The equity markets rallied in a sign of support for her re-assurance that she would continue the accommodative monetary policies. Bond yields fell, but riskier credit spreads widened. The dollar rose against the Yen, but fell against the Euro, Pound and Looney. The spread between oil prices in the U.S. and Europe widened as WTI fell and Brent crude oil prices rose on the week. Gold inched higher, but silver fell on the week.

Perspective:

This week Factset weighed in on the question, ‘Is the S&P 500 overvalued?’ (Click for links to the website and to read the full article.) Factset's article stated that the S&P 500 closed the week at 15 times analysts' forward earnings estimates, the highest level in more than four years. (The Wall Street Journal, using Birinyi Associates earnings estimates, stated that the S&P closed at 16 times forward earnings estimates). Factset's article compares its 15 P/E ratio to the 13 times five-year average, 14 times 10-year average and 16.2 times 15-year average. Possibly justifiying current high valuation, Factset adds that of the 460 companies that have reported third quarter earnings, 73% have beaten mean earnings estimates and 53% have beaten mean sales estimates. On the other hand, Factset points out that the aggregate reported earnings are only 1.8% above the mean estimate, well below the 6.5% over-achievement of the last four years. On an anecdotal basis, the fact that people are questioning whether or not equity markets are overvalued may add credence to the argument that they are at least approaching that level.

Economic Releases:

The U.S. economic releases were softer this week, possibly reflecting the lingering impact of the government shutdown. Industrial Production (blue in chart1 ) for October fell -0.1% and Capacity Utilization (red in chart 1) slipped two ticks to 78.1%; both releases were on the low end of the range of expectations. Chart 1 also shows that Industrial Production has not yet risen to pre-Great Recession levels after four years into the recovery.

The weekly Jobless Claims fell 2,000 to 339,000 the week of Nov. 9. The four-week average of Claims (blue in chart 2) fell to 344,000. Continuing Claims (red in chart 2) were unchanged at 2.874. Chart 2 shows that neither data series have fallen to the pre-Great Recession levels.

Other Economic Releases

In the U.S., third quarter Non Productivity rose a tick to 1.9%; second quarter Productivity was revised five ticks lower from 2.3% to 1.8%. Unit Labor Costs for the second quarter were revised to up +0.5%; third quarter Unit Labor Costs fell -0.6%

The European Union flash GDP for the third quarter rose +0.1% as expected. EU Industrial Production fell -0.5% in September. Germany's third quarter GDP rose +0.3%; France's fell -0.1%. In the UK, Unemployment fell a tick to 7.6% in October; Retail Sales fell -0.7%.

Japan's GDP rose +0.5% in the 3rd quarter,1.9% SAAR (Seasonally Adjusted Annual Rate)

Equities Markets:

Equity markets across the globe bounced back this week on the reassuring testimony by Janet Yellen in her nomination hearing. Impressive double digit YTD gains have raised the question of whether or not stocks are overvalued. In the meantime, the quarter is off to a solid mid-single digit start.

Bond Markets:

Government bond yields slipped lower across the globe. Only the Japanese yields were higher. Credit spreads widened for higher risk emerging market and high yield securities on the week.

Currencies & Commodities:

The U.S. dollar rose against the Yen, but fell against the Pound, Euro and Looney. The spread between U.S. and European oil prices widened as WTI prices fell and Brent Crude prices rose on the week and QTD. Gold prices inched higher, but silver commodity prices fell.

Who is John Davidson?

John W. Davidson, CFA, started writing these Comments more than a decade ago as a personal discipline when he was promoted to from portfolio manager to chief investment officer and CEO.

Most recently, he was the president of PartnerRe Asset Management Corporation, responsible for the management of PartnerRe's invested assets, which grew from $4 billion to $12 billion during his tenure. After joining PartnerRe in the fall of 2001, he hired the staff, built the trading floor and created the infrastructure to manage both fixed income and equity assets internally. He retired from PartnerRe at the end of 2008 and moved to Maine, where he focused on board work.

He has more than 35 years of industry experience, including positions with investment management responsibility for separate institutional accounts, mutual funds, trusts and insurance assets. Prior to joining PartnerRe, he served as president and chief executive officer of two other investment management companies. For various companies he has held positions as chief investment officer, chief economist, head of fixed income and portfolio manager. As a portfolio manager, Davidson managed and traded U.S. Government Securities as well as futures and options on fixed income instruments.

His real world experience is backed by a strong academic foundation, which includes earning a Master of Business Administration in finance and a Master of Arts in mathematics from Boston College, as well as a Bachelor of Arts, cum laude, in economics from Amherst College. He holds the professional designation of chartered financial analyst.

His experiences and credentials have brought him to the public as a television commentator and conference speaker. In addition to his frequent past appearances on CNBC, CNNfn, Bloomberg TV and Yahoo FinanceVision, he appeared as a special guest on Wall $treet Week with Louis Rukeyser. Reuters, Bloomberg and other business press services have quoted his views on the market. He has taught CFA preparation programs, as well as other courses offered by the Stamford and Boston CFA Societies, and the National Graduate Trust Officers' School.

Davidson is a natural leader in both his professional and personal life, having developed those skills early in his career as a naval officer. He spent three years on active duty, which included a year on the rivers of Vietnam, and 24 years in the Naval Reserve, from which he retired as a captain in 1994.

Davidson is treasurer and board member of the Camden Conference. He is also on the investment committee of the Pen Bay Health Foundation. He serves as an independent trustee for mutual funds.

In his leisure time, he is an active sailor, tennis player and skier. With his wife, Barbara, he renovated a 100+-year-old home in Camden, where they enjoy spending time with their two golden retrievers and having visits from their five children. He can be reached at jwdbond@me.com.