Market Update: Monday, November 7, 2016

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  • Stocks poised to break losing streak ahead of Election Day. U.S. equities are markedly higher as Americans prepare to head to the polls tomorrow. Looking back at Friday, the S&P 500, Dow, and Nasdaq all lost 0.2%. This was the ninth consecutive decline for the S&P as the consumer staples sector (-1.0%) led the shallow retreat; healthcare (+0.8%) outperformed, while no other sector moved more than half a point. Overseas on Monday, the Nikkei gained 1.6% on a weaker yen, the Shanghai Composite tacked on 0.3%, and most major European indexes are between 1.5 to 2% higher in the risk-on environment. Accordingly, the dollar is up and COMEX gold ($1282/oz.) is down, WTI crude oil ($44.30/barrel) has found a bid after touching six-week lows overnight, and the yield on the 10-year Treasury note is up five basis points to 1.82%.

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  • It’s all about the election this week, as the domestic economic data calendar is quiet after the busy week last week, that included the FOMC meeting, the October ISM report and the October jobs report. There are a few Federal Reserve Bank speakers this week, and a number of second-tier central bank meetings. China will release its dataset for October this week, and Japan will release its Q3 GDP data, as will Malaysia and the Philippines.
  • Market revealing election preference. As if there was any doubt that markets favored the relative continuity and predictability of a Hillary Clinton White House, it has been become a bit clearer this morning. The market has interpreted the news over the weekend that the FBI would not pursue legal action against Mrs. Clinton as increasing her odds of victory and has sent stock futures up over 1% overnight (the Mexican peso is also expressing its preference this morning with its surge). Also likely helpful for markets, the odds that the Republicans maintain the House appear close to 100% while the odds that Republicans hold the Senate have risen in recent days to a 50/50 toss-up. For those looking for election-related content, in addition to our “Election Playbook” in the Weekly Market Commentary on October 24, 2016, look for a client letter on Wednesday immediately following the election and election recaps in next week’s weekly commentaries.
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  • Cubs not the only drought that ended. It was not quite as long as the Cubs’ World Series drought, but corporate America has ended its long earnings drought in style. S&P 500 earnings for the third quarter of 2016 are tracking to a 4% year-over-year increase, marking the end the year-long earnings recession. Thankfully, the earnings growth drought was not quite as long as the Cubs’ championship drought, but we-like Cubs fans-are glad it’s over. In this week’s Weekly Market Commentary, we share our thoughts on the end of the earnings recession and discuss prospects for earnings acceleration in the coming quarters.
  • Solid week of corporate results. S&P 500 earnings for the third quarter are now tracking to near 4% year-over-year growth, nearly 5% above October 1 estimates and above the 3.0% reported last week. Financials and technology continue to power much of the upside. Revenue growth is tracking to a solid 2.6% year-over-year growth, the first gain since the fourth quarter of 2014. Note that energy is a more than 3% drag on earnings and roughly 2% drag on revenue.
  • Estimates dipped last week but have still held up well. Earnings estimates for the S&P 500 over the next four quarters dipped 0.3% over the past week but have still held up well, losing only about 1% since October 1, 2016. For the fourth quarter alone, estimates have fallen by the smallest margin (1.2%) during any earnings season since the second quarter of 2014.
  • Taiwan export growth suggests global pickup in consumer technology. There was a time when Taiwan was the emerging market on the forefront of people’s minds. While not as dominant as it once was, Taiwan is still an exporter of technology components that often are assembled elsewhere (often China) and sent as finished products across the globe. Exports hit a two year high in October and were much higher than expected. Good for Taiwanese companies, but also indicative of an increase in global technology spending.
  • Down nine in a row. The S&P 500 dropped again on Friday, closing in the red for the ninth consecutive day. It hasn’t closed down nine straight days since December 1980. The current nine-day losing streak has lost only 3.1% though, which is the smallest loss during such a streak since February 1966 at -2.7%. Since 1950, the S&P 500 has been down nine days in a row nine times before; it closed higher on the tenth day five times.
  • What happens after the election day? Last week we took a look at whether there could be a big sell-off after the election here. Today on the LPL Research blog we will look at how the S&P 500 has performed from the election until the inauguration. Historically, this timeframe has been strong, with the S&P 500 up 69% of the time and higher a median 3.0%. Of course, it did drop 19.9% after the 2008 election – which was more driven by the recession than anything else. Be sure to take a look at the blog later today, as we take a closer look at this phenomenon.

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Monday

  • China: Imports and Exports (Oct)

Tuesday

  • Election Day
  • EU Finance Ministers Meeting
  • China: CPI (Oct)
  • China: PPI (Oct)

Wednesday

  • Kashkari (Dove)
  • New Zealand: Reserve Bank of New Zealand Meeting (Rate Cut Expected)
  • China: Money Supply, Bank Loans and Aggregate Financing (Oct)

Thursday

  • Monthly Budget Statement (Oct)
  • Bullard (Hawk)
  • Malaysia : GDP (Q3)

Friday

  • Consumer Sentiment and Inflation Expectations (Nov)

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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