Market Update: Wednesday, October 19, 2016

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  • Stocks seek direction as oil, gold advance. U.S. equities are little changed this morning as investors evaluate mixed housing data for September. This follows yesterday’s session in which all eleven sectors gained ground, led by healthcare (+1.1%) and materials (+0.9%). Overseas, China reported Q3 gross domestic product (GDP) growth in line with expectations; the Shanghai Composite barely budged, closing 3 basis points higher. In other parts of the region, Hong Kong’s Hang Seng shed 0.4% while the Nikkei gained just 0.2%. European exchanges are near flat as earnings results continue to pour in. WTI crude oil ($51.40) has moved up over 1% and is within striking distance of a new high for 2016. Meanwhile, COMEX gold ($1270/oz.) has found a bid the last couple of days, and the yield on the 10-year Treasury note is up 0.02% to 1.75%.

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  • Q3 earnings turn positive. With only about 10% of S&P 500 companies having reported third quarter results, earnings are now tracking to a year-over-year increase of 0.2%, about 1% above October 1 estimates thanks to a strong 81% beat rate. Financials are tracking 5% above the prior estimate and are the biggest driver of the upside. Despite the meager growth rate, ending the earnings recession may positively impact investor sentiment.
  • Despite weak headline, housing market remains on solid ground as Q3 ended. Housing starts fell a startling 9% between August and September, but all of the decline was in the multifamily area which saw a 38% drop. Starts of single family homes-a much more economically sensitive, stable and reliable indicator of the health of the housing market-rose 8% in September and were up a solid 5% from a year ago. In addition, building permits, a good leading indicator of future housing activity, posted a 6% gain in September and are up 9% from a year ago. Our view remains that housing will add to GDP growth this year as it has every year since 2011. See the Weekly Economic Commentary from October 10, 2016 on housing for more details.
  • Big shock, Chinese GDP as expected at 6.7%. To the surprise of no one, China reported annualized GDP through the end of the third quarter of 6.7%, exactly in line with expectations. Even though the final numbers are “massaged” there is value looking at the composition of the economy. Consumer spending was strong at 10.7% – this is a statistic that can be confirmed through the private sector. Fixed asset investing (basically infrastructure and construction) also increased 8.2% as expected. Regardless of whether you take the numbers at face value, the data suggest that the Chinese government believes there is enough strength in the economy to take more aggressive actions to deal with China’s debt dependence. Asian markets were mixed and did not seem influenced by the news in either direction.
  • Remembering Black Monday. 29 years ago today the Dow had its largest one-day drop ever of 22.6% (the S&P was down 20.5%). As we noted on the blog yesterday, there are some growing concerns that another big drop could be in the cards as 2016 is somewhat similar to the path stocks took in 1987. It is worth noting though the S&P 500 was 16% off its highs before the big drop in 1987. Compare that with today, as the S&P 500 is only 2.3% off the highs. Remember, big drops tend to take place in bear markets – not near highs. Today on the LPL Research blog we take a trip down memory lane and see what various members of the team were doing on that fateful day.

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Wednesday

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

Thursday

Friday

Click Here for our detailed Weekly Economic Calendar

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