Market Update: Monday, October 23, 2017

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Market Recap

  • Stocks rally on tax reform hopes after Senate agreed on a budget resolution, a needed step to achieve tax reform. S&P 500 Index (+0.5%) rose for the sixth straight week. Dow +0.7%, Nasdaq +0.4%.
  • Financials, industrials led. So-called Trump (or reflation) trades in favor; defensive sectors lagged.
  • Strong breadth. NYSE breadth positive (1.5:1) with volume (120%) solidly above recent averages.
  • Yields higher on policy optimism. 10-year yield +6 basis points (0.06%) to 2.38%. Dollar higher vs. euro, yen (DXY Index +0.5%).
  • Commodities – WTI crude oil +0.7% to $51.66/bbl., COMEX gold slipped (-0.6%) to $1282/oz.

Overnight & This Morning 

  • S&P 500 flat as busiest earnings season starts. Tax reform, next Federal Reserve (Fed) Chair speculation (Powell vs. Taylor?), Japan, Catalonia remain in focus.
  • European markets up; STOXX Europe 600 +0.3%, holding up well after Spain (-0.4%) strips power from Catalonia.
  • Japanese stocks rise, yen lower after Abe’s ruling coalition secured election victory over the weekend: Nikkei (+1.1%) up for 15th consecutive session. China stocks mixed with Shanghai Composite +0.1%, Hang Seng -0.6%.
  • Treasuries are lower despite muted stock market, 10-year yield +4 basis points (+0.04%) to 2.39%; U.S. dollar up slightly vs. euro, yen.
  • Commodities – Oil +0.6% to $52.15/bbl., copper +0.4%, gold -0.4% to $1276/oz.
  • Today’s economic data includes Chicago Fed National Activity Index.

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Key Insights

  • After a 15-day win streak for the Nikkei, Japan’s stock market has our attention. In this week’s Weekly Market Commentary, we highlight five reasons why we think Japan is worth a look: The Japanese economy is improving, Prime Minister Abe has a mandate for more stimulus after his latest election victory, corporate governance is improving, valuations are attractive, and technical analysis reveals favorable chart patterns.

Macro Notes

  • Good guidance, slow growth. With nearly 20% of the S&P 500 having reported third quarter results, earnings are on track for a 4.2% year-over-year increase, below the 5.9% expected on September 30, 2017. Hurricane impacts have led to slower growth and limited upside to prior estimates. However, estimates for S&P 500 earnings for the next four quarters have impressively increased 0.3% during that time, a rare occurrence and reason to call the season a success thus far. This week (October 23-27), 183 S&P 500 companies will report results, by far the busiest week of the season.

  • Weekly economic data releases are headlined by the initial release of third quarter GDP on Friday. Bloomberg consensus is calling for an annualized 2.3% increase in real gross domestic product (GDP), a dip from 3.1% in the second quarter but still–despite hurricane impacts–above the expansion trend. Consensus reflects a pickup in the fourth quarter, to 2.7%, as more rebuilding efforts take place. Other U.S. data of note include regional manufacturing surveys (Chicago and Richmond), and durable goods orders. Globally, preliminary October manufacturing PMIs (purchasing manager’s indexes), U.K. GDP, German retail sales, Japan CPI, and the ECB meeting are worth noting. Finally, earnings season will kick into high gear with the busiest week of the season and nearly 40% of the S&P 500 market cap slated to report.
  • The latest Beige Book suggests a steady economy. The Fed released its latest Beige Book last week ahead of the October 31 – November 1, 2017 Federal Open Market Committee meeting. Our Beige Book Barometer (strong words minus weak words) rose to +77 in October, tying its previous high of +77 in April 2017, indicating continued steady economic growth in late 2017 with some signs of potential acceleration. This beige book was also the first to include the impacts of Hurricanes Harvey and Irma. The word “disrupt” and its variants were used 11 times in relation to the hurricanes, though comments indicated that recovery efforts were progressing steadily.
  • That’s a lot of sixes. The S&P 500 is up 6 days in a row, 6 weeks in a row, and 6 months in a row. If it’s up today it would mark the 4th seven-day win streak of the year, the most since 2013 and 1980 before that. The S&P 500 was up six straight weeks earlier this year and hasn’t been up seven consecutive weeks since late 2014. The S&P hasn’t had a seven-month win streak since 2013 and hasn’t made it to eight in a row since 2007.
  • Today sets yet another amazing record. The S&P 500 could go 242 consecutive days (approximately 11.5 months) without a 3% correction after today, officially the longest streak in the history of the S&P 500 without a 3% correction. Our latest LPL Research blog post takes a look at this incredible feat and what it could mean.

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Click Here for our detailed Weekly Economic Calendar

Monday

Tuesday

  • Markit Manufacturing & Services PMI (Oct)
  • France: Markit France Manufacturing & Services PMI (Oct)
  • Germany: Markit Germany Manufacturing & Services PMI (Oct)
  • Eurozone: Markit Eurozone Manufacturing & Services PMI (Oct)
  • BOJ: Outright Bond Purchase
  • ECB: Bank Lending Survey
  • Japan: Cabinet Office Monthly Economic Report for October

Wednesday

  • MBA Mortgage Applications (Oct 20)
  • Durable Goods Orders (Sept)
  • Federal Housing Finance Agency House Price Index (Aug)
  • New Home Sales (Sept)
  • UK: GDP (Q3)
  • Eurozone: European Commission Economic Forecasts
  • Germany: IFO (Oct)
  • Italy: Industrial Orders (Aug)
  • South Korea: GDP (Q3)
  • Japan: PPI Services (Sept)

Thursday

  • Wholesale Inventories (Sept)
  • Weekly Jobless Claims (Oct 21)
  • Advance Report on Goods Trade Balance (Sept)
  • Retail Inventories (Sept)
  • Kansas City Fed Manufacturing Index (Oct)
  • Germany: Consumer Confidence (Nov)
  • Eurozone: Money Supply (Sept)
  • Italy: Consumer Confidence (Oct)
  • BOJ: Outright Bond Purchase
  • Japan: CPI (Sept)

Friday

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

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