- Stocks up alongside oil. U.S. equities are higher this morning in tandem with a 1.3% bounce in WTI crude oil ($44.17/barrel) due to renewed hopes that next week’s OPEC meeting will yield production caps. The major indexes closed lower on Friday, led down by energy and financials, which both slipped 0.9%; utilities and healthcare were the only sectors to finish in the green. Traders are also eagerly awaiting the Federal Reserve Bank (Fed) and Bank of Japan central bank meetings this week. No change in rates is expected from the Fed as market expectations for a rate hike have moderated over the past few weeks; the Bank of Japan (BOJ) should shed some light on the specific monetary stimulus measures that it will employ going forward. In Asia, the Shanghai Composite gained 0.8% while the Nikkei Index was closed for a holiday. Equities are up across the board in Europe, led by over 1% gains in France and the Netherlands. Meanwhile, COMEX gold ($1318/oz.) is up half a percent and the yield on the 10-year Treasury is up slightly to 1.70%.
- Welcome to the worst week of the year. This week is the 38th week of the year, which is also historically the worst week of the year. As we noted on the blog last week, the second half of September tends to see seasonal weakness and this week is a big reason why. Since 1950, this week is down 0.61% on average and higher only 38% of the time. Although week 19 is red more often and is higher 36% of the time, no week has a worse average return than week 38–and it isn’t even close. In fact, week 19 is the next closest, at -0.34% on average. Looking at more recent action, this week has been down for the past five years and seven of the past eight years. Today on the LPL Research blog, we will take a closer look at this phenomenon.
- Tech leads again. The S&P 500 managed to squeak out a gain last week, adding 0.5% after dropping 2.4% the week before. The big winner was technology, as it gained 2.7% for the week to continue its recent outperformance. Energy and materials lagged, while telecom and utilities both bounced after big drops in the past few weeks on expectations of higher interest rates.
- No news is good news. U.S. earnings estimates have held fairly steady in recent weeks as the end of the third quarter of 2016 approaches. Estimates for S&P 500 earnings for the third quarter are near flat, while consensus is calling for an 8% earnings gain in the fourth quarter. Pre-announcements for the third quarter have been better than average, at a negative-to-positive ratio of 2.2 to 1 (long-term average is 2.7 to 1), a sign of earnings stability. Earnings growth estimates for the first half of 2017 have remained unchanged at 15% and 13% gains for the first and second quarters, respectively. The potential earnings ramp-up in the coming quarters may be enough to support stocks, at valuations near 17 times forward estimates for the S&P 500, all else equal.
- EM earnings are beginning to emerge. Earnings growth across emerging market (EM) equities has been positive, in contrast to the decline in earnings and earnings expectations in developed international markets. In addition, valuations in EM have not increased at the same pace as developed international or U.S. markets, creating a more attractive entry point for the asset class in our view. In today’s Weekly Market Commentary, due out later today, we take a look at the opportunity in EM across fundamentals, valuations, and technicals.
- FOMC in focus this week. Although there are key reports due out this week on housing (starts, homebuilder sentiment, and existing home sales) and manufacturing (September Purchasing Managers’ Index), markets will be focused on the Fed. The Federal Open Market Committee (FOMC) will release a statement, a new set of “dot plots,” and a new economic forecast at 2 p.m. ET on Wednesday, September 21, and Fed Chair Janet Yellen will hold a press conference at 2:30 p.m. ET. We don’t expect the Fed to raise rates at this week’s meeting, but we do expect them to begin preparing markets for a hike in December. The BOJ also meets this week. Overseas, aside from the BOJ meeting and a speech by European Central Bank President Mario Draghi, it’s shaping up to be a quiet week for data and events.
- Housing Starts and Building Permits (Aug)
- FOMC Statement
- Dot Plot and Economic Forecast
- Yellen Press Conference
- Japan: Bank of Japan Meeting (No Change Expected)
- Markit Mfg. PMI (Sep)
- Mester (Hawk)
- Harker (Hawk)
- Lockhart (Dove)
- Eurozone: Markit Mfg. PMI (Sep)
- Japan: Nikkei Japan Mfg. PMI (Sep)