Market Update: Wednesday, October 26, 2016

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  • Stocks lower as traders turn cautious. The S&P 500 is weighed down this morning by Apple, its top-weighted component, as market participants expressed disappointment with the company’s outlook. Stocks moved lower in yesterday’s session as well; consumer discretionary (-1.2%) led to the downside, while defensive sectors utilities and consumer staples gained on the day. Overnight in Asia, markets lost ground as the Hang Seng fell 1%, its worst session in two weeks, and China’s Shanghai Composite shed 0.5%; although Japan’s Nikkei managed to inch higher by 0.2%. A below-consensus sentiment survey from Germany added pressure to European stocks, which are broadly lower in afternoon trading. Meanwhile WTI crude oil (-1.9%) has fallen back below $49/barrel, COMEX gold is little changed near near $1,270/oz., and the yield on the 10-year Treasury has increased to 1.79%.

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  • Your tax dollars at work!! Starting a few months ago, the Bureau of Economic Analysis (BEA)- the U.S. government agency that compiles the data on gross domestic product (GDP)-began releasing more timely monthly data on wholesale and retail sales and inventories, and on imports and exports of merchandise (goods). In the past, these reports were released at a point in the quarter where they were much less useful to gauge how GDP was tracking for a particular quarter. The data released today for September suggest that net exports will be less of a drag than previously thought on Q3 GDP and that inventory building in wholesale and retail sectors will also add to growth. The Q3 GDP data is due out on Friday, and today’s data suggests that Q3 GDP is tracking close to 3.0%. View the data here.
  • Defense lends support to industrials. Results and guidance from defense companies have stood out in what continues to be a solid overall earnings season relative to consensus expectations. Although commodity weakness has impacted some industrial stocks (notably Caterpillar) and the sector has not produced upside to Q3 2016 estimates as of yet, the positive defense commentary, coupled with election-related optimism, suggests this segment of the sector may present an attractive investment opportunity. We maintain a cautiously optimistic view of the industrials sector overall and continue to expect a pickup in capital spending over the next several quarters off of low levels.
  • Major buy signal for the U.S. dollar? The U.S. dollar has been very strong so far in October, moving to its highest level since February. Technically, it just completed a Golden Cross formation – which is when the faster 50-day moving average moves above the 200-day moving average. This is considered a bullish technical formation. The U.S. dollar also had a Golden Cross also in July 2014, right before a huge 21% gain the next 12 months. Could this happen again? Of course anything is possible, but looking at the previous 11 times this happened dating back to 2001, the U.S. dollar has been lower six months later six of those times, with a modest 0.3% average return and median return of -1.3%. So this event might get a lot of press and excitement, but it might not be the bullish signal many make it out to be.

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Wednesday

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

Thursday

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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