Market Update: Monday, October 10, 2016

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  • Global markets move up to start week. U.S. equities are trading higher this morning amid gains overseas following a lackluster session on Friday which saw the S&P 500 shed 0.3% as traders digested the nonfarm payrolls report; materials and industrials led to the downside while only healthcare and financials managed slight gains. Overseas, both Europe and Asia are higher, with China’s Shanghai Composite (+1.5%) setting the tone overnight as it posted its largest gain in two months following a week-long holiday and a move by the country’s central bank to reset the renminbi’s peg to the dollar at its lowest point since 2010. Germany’s DAX (+1.1%) and France’s CAC (+0.9) indexes are leading widespread gains in Europe following better-than-expected trade data. Elsewhere, WTI crude oil is adding more than 2%, moving above $51/barrel, after comments out of Russia supporting a global supply cut. COMEX gold is up 0.8%, and the yield on 10-year Treasury notes is down modestly at 1.72%.

 

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  • Week ahead. As financial markets begin to digest the first few earnings reports for Q3 2016, highlights of the week’s economic calendar include the release of the minutes from the Fed’s September policy meeting on Wednesday, October 12, 2016 and the September retail sales data on Friday, October 14. Reports on small business sentiment on Tuesday, labor market conditions on Wednesday with the Job Opening and Labor Turnover Survey (JOLTS), and the University of Michigan’s Consumer Sentiment survey on Friday will also draw plenty of attention from market participants . There’s a full lineup of Fed speakers throughout the week, highlighted by Fed Chair Janet Yellen’s keynote address at the Boston Fed on Friday, October 14. International data include loan growth and trade data from China, business sentiment in Germany, and retail sales and machinery orders from Japan.
  • Third quarter earnings season gets underway this week with Alcoa’s results on Tuesday. In this week’s Weekly Market Commentary due out later today, we preview third quarter earnings season and discuss prospects for always important management guidance. Thomson-tracked consensus estimates are calling for a 0.7% year-over-year decline in S&P 500 earnings (FactSet and Bloomberg consensus figures are 0.5-1.5% lower). Based on the quarterly upside of about 3% that companies have historically delivered, a 2-3% earnings gain and the end of the earnings recession are reasonable expectations even including an expected 3.4% energy drag. We expect solid upside to third quarter estimates as drags from sharp energy declines and a strong U.S. dollar continue to abate and economic growth picks up.
  • Broad-based earnings gains expected. Earnings gains are expected to be broad based, per Thomson Reuters consensus, with potentially nine of 10 sectors (excluding energy) in position to produce earnings growth in the third quarter. Among widely-held sectors, healthcare is expected to deliver the strongest earnings growth (+5.5% year over year), followed by technology (+4.5% year over year). These sectors may be positioned well to not only to produce solid growth, but also deliver among the best upside given recent earnings performance. Recall technology was a second quarter earnings season standout, while both healthcare and technology have seen above-average estimate revisions. The drug price controversy is unlikely to have a material impact on third quarter healthcare results.
  • Which party do stocks do better under? After the second debate last night, the presidential election continues to heat up. The question we’ve heard many times is, “Under which party do stocks perform better?” Going back to 1900, the Dow has performed slightly better under a Democratic president. The catch though: the best time for stocks is ‘gridlock’ – which means a split Congress or a President from the party opposite the one in control of both houses of Congress. Today on the LPL Research blog we will take a closer look at how the S&P 500 has done under various presidents.
  • Fear the inside week? The S&P 500 has had back-to-back inside weeks the past two weeks. An inside week is when the high and low for the week are inside the range of the previous week. In other words, the coil is tightening and a big move could be coming soon. To see back-to-back inside weeks is extremely rare. In fact, the last time it happened was February 2008, and June 2007 and January 2000 before that. In other words, this rare event has taken place before the past two bear markets. Is this another warning sign for equity markets today? Well, if you go out further it isn’t the same warning, as the S&P 500 gained more than 20% after a signal in late 1990 and 33% a year later after a signal in the summer of 1985. Although this is getting a good deal of attention, we wouldn’t consider this phenomenon to be a signal of a coming bear market.

 

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Monday

Tuesday

  • Small Business Sentiment (Sep)
  • Monthly Budget and Statement (Sep and Fiscal Year 2016)
  • Germany: ZEW (Oct)
  • Japan: Economy Watchers Survey (Sep)

Wednesday

  • JOLTS (Aug)
  • FOMC Minutes
  • George (Hawk)
  • China: Imports and Exports (Sep)

Thursday

  • Singapore: GDP (Q3)
  • China: CPI (Sep)

Friday

  • Retail Sales (Sep)
  • Consumer Sentiment and Inflation Expectations (Oct)
  • Yellen (Dove)

Click Here for our detailed Weekly Economic Calendar

Important Disclosures

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

Stock investing involves risk including loss of principal.

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