Market Update: Monday, October 24, 2016

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  • Markets higher following weekend of mergers and acquisitions activity. U.S. stocks are moving higher to start the busiest week of earnings season, boosted by a number of high profile deals announced over the weekend, including AT&T agreeing to acquire Time Warner, and TD Ameritrade and Toronto-Dominion Bank agreeing to purchase Scottrade. Friday’s session finished on a flat note; most sectors were little changed with the exception of telecom, which fell more than 2% on early reports of the AT&T deal. Asian markets began the week mostly positive, led higher by the Shanghai Composite (+1.2%), while the Nikkei edged up 0.3% following mixed trade and manufacturing data. European equities are also higher in afternoon trading, as country purchasing managers’ index (PMI) reports came in better than expected, and corporate earnings were generally well received. Meanwhile, COMEX gold is flat near $1,265/oz., the yield on the 10-year note is higher at 1.76%, and WTI crude oil is dropping 1.2% ($50.25/barrel) to begin the week.

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  • More than 170 S&P 500 companies will report Q3 results this week, which is the busiest of the season. The energy sector will see the biggest portion of its constituents report while we also get a heavy dose of healthcare, consumer staples, and technology results. Overall, with just one quarter of reports in the books, results have been good and point to the end of the earnings recession. Beat rates have been solid at 79% and 66% for earnings and revenue respectively and earnings are tracking nearly 2% ahead of prior estimates (see our latest earnings dashboard); financials and technology have generated solid upside to prior estimates; and forward estimates have held steady, a positive development that suggests corporate management teams are relatively sanguine on the near-term outlook.

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  • Global manufacturing improves. PMI for both the European Union and Japan were strong relative to expectations and on an absolute basis. Eurozone manufacturing PMI for October was 53.3, an increase over last month and above expectations of 52.7. Japanese manufacturing PMI rose to 51.7, a solid number given the strength in the yen over the past few months. The strength of both numbers may allow central banks to delay any further changes to monetary policy.
  • The week ahead: More than just earnings.  More than 170 S&P 500 firms will report Q3 earnings this week and provide guidance for Q4, 2017 and beyond in the week before the Federal Reserve Bank’s (Fed) 7th policy meeting of the year on November 1-2, 2016.  U.S. data for August, September, and October on durable goods orders and shipments, new home sales, and pending home sales early in the week provide the lead-in to the key releases of the week on Q3 gross domestic product (GDP) and Q3 Employment Costs on Friday. The Federal Reserve’s  “quiet period” ahead of the Federal Open Market Committee (FOMC) meeting kicks in this Tuesday afternoon, but not before several appearances by Fed officials on Monday and early Tuesday. Overseas, the German IFO report for October, a speech by ECB president Draghi, the September reading on bank lending and money supply in Europe along with Q3 GDP readings in South Korea, France and the U.K. will keep market participants busy.
  • This week’s Weekly Economic Commentary: Energy Policy and Politics. Both major party candidates have made statements about energy independence during the campaign. But how realistic, or even desirable, would true energy independence be? Our Weekly Economic Commentary looks at the reality of U.S. energy consumption and the changing economics of energy production.
  • This week’s Weekly Market Commentary: Our Election Playbook. With the election fast approaching, we present our election playbook in the latest Weekly Market Commentary due out at the end of today. Investors want to know what the upcoming change in power in Washington might mean for their portfolios. In the commentary, we discuss some potential investments that could receive an election boost depending on the outcome.
  • Another slow week. Last week continued the recent trend of light volume and relatively small intra-day ranges for equities. Considering last week was earnings season and derivatives expiration week (which usually brings heavier volume), volume was considerably lighter than expected. Turning to the action, the S&P 500 had another inside week. An inside week is when the high and low of the current week fit ‘inside’ the high and low from the previous week. It means the coil is tightening and more volatility could be coming as three of the past four weeks have been inside weeks. You have to go back to December 1999 for the last time that happened.
  • Where did the October volatility go? The S&P 500 hasn’t had a 1% up day for 22 straight sessions, the third such streak over 20 days in 2016. It closed lower by 1% once during the past 22 days. In other words, this is historically one of the most volatile times of the year, yet there have not been big daily moves this month . In fact, so far this October, the S&P 500 has closed higher or lower by one percent just once. Yes, there are six days to go in the month – but this would be the least number of one percent moves during the historically volatile month of October in 10 years.

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Monday

  • Markit Mfg. PMI (Oct)
  • Dudley (Dove)
  • Bullard (Hawk)
  • Eurozone: Markit PMI (Oct)
  • South Korea: GDP (Q3)

Tuesday

  • S&P CoreLogic Home Price Index (Aug)
  • Germany: Ifo (Oct)
  • European Central Bank’s Mario Draghi speaks in Berlin

Wednesday

  • Advance Goods Trade Balance (Sep)
  • New Home Sales (Sep)
  • Fed quiet period begins

Thursday

  • Durable Goods Orders and Shipments (Sep)
  • U.K. GDP (Q3)
  • Eurozone: Money Supply and Bank Lending (Sep)
  • Japan: Consumer Price Index (CPI) (Sep)
  • Japan: Tokyo CPI (Oct)

Friday

  • Employment Cost Index (Q3)
  • GDP (Q3)
  • Germany: CPI (Oct)

 

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.

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