- Domestic equities inched higher as Federal Reserve (Fed) minutes proved uneventful, earnings season kicked off. S&P 500 Index +0.2%, Dow +0.2%, Nasdaq +0.3%.
- Technology, utilities, energy led; telecommunications, financials weighed slightly on performance.
- Positive breadth on NYSE (1.5:1) while posting another low-volume day (~88% of 30-day avg.).
- 10-year Treasury yield dipped slightly, -2 basis points (0.02%) to 2.34%.
- Commodities – WTI crude oil pushed higher (+0.8%) to $51.30/bbl.; COMEX gold held near flat (+0.1% to $1295/oz.) as U.S. dollar weakness continued.
Overnight & This Morning
- U.S. stocks opened slightly lower (-0.1%); earnings season, Fed policy, tax debate in focus.
- European stocks little changed despite bank weakness. Strong European factory output; gains in mining, leisure stocks providing support. Spanish bonds fell while most sovereigns rose.
- Asia-Pacific markets mostly higher, Nikkei (+0.4%) extending gains after fresh 20-year highs this week; Shanghai Composite -0.1%, Hang Seng +0.2%, ASX 200 +0.4%.
- Treasuries getting a bid after Fed minutes cited lower inflation, pushing 10-year yield down to 2.33%.
- Oil is lower, falling 0.8% to $50.87/bbl. on unexpected build in weekly inventories and in response to International Energy Administration’s (IEA) statement that global stockpiles unlikely to fall much further.
- Weaker dollar supporting gold (+0.3%). Supply risk supporting copper (+0.5%). Today’s global agriculture report (WASDE) may support grain prices. Most dollar weakness overnight vs. yen (112.30 USD/JPY).
- Today’s economic calendar includes weekly jobless claims (+243K vs. 250K expected), producer prices (+0.4% month over month, headline and core, as expected). Fed Chief contender Jerome Powell speaks in Washington.
- Big banks kick off earnings season. As we noted in our earnings preview in this week’s Weekly Market Commentary, there are several reasons to be optimistic about third quarter earnings season, including healthy manufacturing activity globally, resilient estimates, the relatively low proportion of negative pre-announcements, and U.S. dollar weakness. But financials are a big factor pushing in the other direction, in large part due to the impacts of the hurricanes. Consensus is now calling for a 9% year-over-year drop in financials sector earnings for the quarter, making this week’s big bank results particularly important. We continue to like financials based on the potential for a better interest rate and regulatory environment, despite what is likely to be a mixed earnings season.
- September FOMC minutes show few surprises. The Fed released the minutes of its September Federal Open Market Committee (FOMC) meeting yesterday. The minutes showed a continued debate among members on below-target inflation, but the majority opinion continues to be that with unemployment so low, it may be more dangerous to wait to hike rates–risking a surprise uptick in inflation–than it would be to hike in December. Markets showed little reaction to the minutes given the lack of new information, and market-based rate hike expectations remain elevated for December.
- Structural concerns keep us cautious toward international developed markets on a tactical basis. We have been impressed with the improving macro backdrop in Europe and, to a lesser extent, Japan; the earnings rebound has been particularly impressive. However, as the political challenges in Spain highlight, the Eurozone continues to face daunting challenges to further its political and economic integration efforts.
- 2018 picture for emerging markets remains stronger than international developed. Economic and earnings surprises have been robust outside the U.S. in 2017, but it’s time to start looking ahead to 2018. According to IMF forecasts, growth in developed economies outside the U.S. is expected to slow in 2018 while emerging market growth is expected to continue to accelerate. Consensus expectations for international earnings growth points to considerable slowing, but less so for emerging markets, whose 2018 earnings growth is expected to top the U.S.
- Tight credit spreads: A double-edged sword? Credit spreads are currently at historically low levels, but are there still opportunities? We take a look at what this means for investors on the LPL Research blog.
- PPI (Sept)
- Initial Jobless Claims (Oct 7)
- Powell (Dove)
- Brainard (Dove)
- Continuing Claims (Sept 30)
- Monthly Budget Statement (Sept)
- France: CPI (Sept)
- Eurozone: Industrial Production (Aug)
- ECB: Draghi
- Bank of England: Credit Conditions & Bank Liabilities Survey
- China: Trade Balance (Sept)
- China Imports & Exports (Sept)
- CPI (Sept)
- Core CPI (Sept)
- Real Average Weekly & Hourly Earnings (Sept)
- Retail Sales (Sept)
- Evans (Dove)
- Kaplan (Hawk)
- Powell (Dove)
- Germany: CPI (Sept)
- Germany: Wholesale Price Index (Sept)
- Italy: CPI (Sept)
- China: Foreign Reserves (Sept)
- Business Inventories (Aug)
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.
Stock investing involves risk including loss of principal.
Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.
Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.
Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.
Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.
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