Market Update: Wednesday, October 5, 2016


  • U.S. higher, overseas mixed on central bank chatter. U.S. equities are up this morning as investors evaluate hawkish comments from Federal Reserve Bank (Fed) member Jeffrey Lacker and a potential slowing in quantitative easing from the European Central Bank (ECB). A slightly weak employment reading from ADP is also under consideration ahead of the Bureau of Labor Statistics Employment Situation report on Friday. Yesterday, the utilities sector (-2.2%) was the worst performer for the third day in a row while financials was the only sector to close higher. The ECB news is weighing on overseas indexes, though stocks in the U.K. are moving higher as the pound continues to slide. In Asia, the Nikkei Index advanced half a percent while the Hang Seng posted a 0.4% gain; the Shanghai Composite remains closed for the week. WTI crude oil ($49.50/barrel) is making gains today on a favorable inventory report and continued speculation that OPEC will lower output. Meanwhile, there is a modest rally in COMEX gold ($1272/oz.) after yesterday’s 3% plunge, and the yield on the 10-year Treasury has risen to 1.72%.


  • Signs of deceleration in the labor market per ADP, but still strong enough for a Fed rate hike in December. The ADP employment report indicated the private sector created 154,000 net new jobs in September, falling short of raised expectations (+165,000) and decelerating from the 175,000 reading in August. Year to date through September 2016, the ADP employment data show average job growth at 181,000 per month, a slowdown from 2014’s 234,000 per month average and 2015’s 207,000, but still enough to keep the Fed on track to tighten later this year. Fed officials have said job gains in the range of 80,000-150,000 per month are sufficient to tighten the labor market and push up wages, suggesting this report gets them a bit closer to a rate hike later this fall. The U.S. Bureau of Labor Statistics will release its September 2016 Employment Situation report on Friday, October 7, 2016. The consensus is expecting a 174,000 increase in jobs, a 4.9% unemployment rate, and a 2.6% year-over-year increase in average hourly earnings.
  • The 50-day moving average continues to cap the S&P 500. Once again, the S&P 500 found resistance from its flat 50-day moving average yesterday. This trend line has capped the S&P 500 since early September. Technically, the S&P 500 continues to trade in a relatively tight range since mid-July. Although some volatility has picked up, overall the S&P 500 continues to digest the big July surge. Internals remain strong, which should support equities in the near term.
  • Gold takes a big hit. Precious metals were the big underperformers yesterday, as gold dropped 3.3% for its largest one-day drop in more than three years. Meanwhile, silver fell nearly 6% for its largest one-day drop since January 2015. Sparking the weakness in metals was a jump in the U.S. dollar on potentially higher interest rates coming.
  • Earnings season fast approaching. We will preview the upcoming third quarter 2016 earnings season in our Weekly Market Commentary next week, but for those looking to get ahead of the game (Alcoa unofficially kicks us off on October 11), Thomson-tracked consensus earnings estimates for the S&P 500 are calling for a slight 0.5% dip year over year. With the typical historical pattern of upside, a final result in the 2-3% range is likely, ending the earnings recession. Although estimates for subsequent quarters appear too high (+8-15%), we expect shrinking energy declines, a more stable U.S. dollar, and better economic growth to contribute to better–and positive–earnings growth over the next year.



  • ADP Employment (Sep)
  • ISM Non-Mfg. (Sep)


  • Challenger Job Cut Announcements (Sep)



  • IMF/World Bank Fall meetings in Washington, DC


  • IMF/World Bank Fall meetings in Washington, DC

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