Market Update: Monday, October 17, 2016

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  • Markets mostly lower as pace of earnings reports picks up. U.S. stocks have lost a little ground this morning as earnings season kicks into high gear. The S&P 500 closed flat on Friday, logging a second straight weekly decline, as a 0.5% rise in the heavily-weighted financials and technology sectors was offset by healthcare (-0.7%) and utilities (-0.6%). Overseas, Japan’s Nikkei Index climbed 0.3% overnight, bucking the regional trend following upbeat manufacturer sentiment and yen weakness; the Shanghai Composite lost 0.7%. Europe is lower across the board, led by marked weakness in the U.K.’s FTSE 100 (-0.6%).  Meanwhile, WTI crude oil ($50.50/barrel) is lower and COMEX gold ($1255/oz.) is near flat while a modest rebound in Treasuries has lowered the yield on the 10-year Note to 1.78% after closing at 1.80% Friday for the first time since early June.

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  • First peak week of earnings season on tap. About 20% of the S&P 500 reports third quarter 2016 results this week, adding to the 5% that reported last week. We expect results and guidance this week to go a long way toward determining the stock market’s near-term direction even though results may be overshadowed by politics with Election Day just three weeks away. Look for our first weekly earnings dashboard on October 24.
  • Earnings season off to a decent start. As we noted last week in our earnings preview, we expect there may be marginally positive earnings growth for the S&P 500 in the third quarter, bringing an end to the earnings recession (based on Thomson data). Results from the first 34 companies to report have earnings tracking to a 0.4% decline, and revenue to a 2.5% increase, thanks to solid earnings and revenue beat rates (79% and 62%) compared with recent trends. Meanwhile, estimates have held up well with Q4 estimates down a negligible 0.2%, and Q1 2017 down just 0.6%.
  • Checking in on technicals and sentiment. This week in our Weekly Market Commentary, due out later today, we take a closer look at market technicals and sentiment. Although there has been some near-term volatitly and equity weakness, the longer-term technicals on equities continue to look very strong. We will show this by examining four different technical indicators that combined show the potential for positive longer-term signals for equities. Turning to overall market sentiment, the overwhelming evidence suggests there is still a significant amount of worry about future price returns. From money leaving equity funds, to sentiment polls showing an unusually high level of worry this close to all-time highs, to the cost of buying insurance to hedge a portfolio historically high – sentiment could be a nice contrarian reason to remain bullish.
  • Housing, manufacturing, the Fed’s Beige Book and China’s Q3 GDP on tap this week as earnings reporting season heats up. Readings on the health of the housing market as Q3 ended and Q4 began are due out this week (we checked in on housing in last week’s Weekly Economic Commentary), along with the Fed’s Beige Book ahead of the early November Federal Open Market Committee (FOMC) meeting. Overseas, the European Central Bank, the Bank of Canada and Brazil’s central bank meet this week, with Brazil expected to cut rates. China will release its Q3 gross domestic product (GDP) data early in the week, as investors begin to digest the heart of the Q3 earnings reporting season for S&P 500 companies.
  • Bob’s Beige Book. In this week’s Weekly Economic Commentary, we’ll examine the economic, political and market landscape through the lyrics of Bob Dylan, who won the Nobel Prize for Literature last week. Don’t worry, we don’t use the harmonica.

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Monday

Tuesday

Wednesday

  • Housing Starts and Building Permits (Sep)
  • Presidential Debate in Las Vegas
  • Beige Book
  • Dudley (Dove)
  • Brazil: Central Bank Meeting (Rate Cut Expected)

Thursday

  • Initial Claims (10/15)
  • Philadelphia Fed Mfg. Report (Oct)
  • Leading Indicators (Sep)
  • Eurozone: European Central Bank Meeting (No Change Expected)

Friday

Click Here for our detailed Weekly Economic Calendar

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

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