- Stocks dip on profit taking amid earnings lull. Major indexes failed to hold early gains as traders jockeyed ahead of another busy earnings week. Small caps posted biggest loss since August (Russell 2000 -1.2%). S&P 500 Index -0.3%, Dow -0.4%, Nasdaq flat.
- Negative breadth on NYSE (1.6:1), Nasdaq (2.0:1) amid above avg. volume (~113% of 30-day avg.).
- REITs, technology outperformed; telecommunications, healthcare fell >1%.
- Treasuries higher across the curve; 10-year note -4 basis points (0.04%) to 2.37%.
- Commodities – WTI crude oil +0.5% to $54.14/bbl., COMEX gold +0.4% to $1277/oz., industrial metals mostly higher.
- Consumer spending rose at its fastest pace in eight years this September (+1.1% vs. 0.8% consensus, +0.1% in August).
Overnight & This Morning
- S&P 500 higher in early trading with earnings, the next Federal Reserve (Fed) chair, and tax reform time tables in the news.
- European stocks are mostly higher after stronger than expected Q3 Eurozone gross domestic product (GDP) and higher inflation. Euro STOXX 50 +0.3%, FTSE 100 +0.1%, French CAC 40 +0.2%.
- Asian markets mixed as Bank of Japan left rates unchanged and lowered inflation expectations as expected. Nikkei flat, Shanghai Composite +0.1%, Hang Seng -0.32%, South Korea made another new all-time high KOSPI +0.9%.
- Treasury yields flat to higher as the U.S. dollar is up, 10-year yield up to 2.38%. Reports say President Trump will announce Jerome Powell for Fed chair this Thursday–some volatility in bond markets is possible.
- Oil prices little changed near $54/bbl. with crude on pace for its first back-to-back monthly win since last year. Gold -0.3% to $1273/oz., copper -0.1%; aluminum, nickel both +1.1%.
- Today’s economic calendar includes Case-Shiller Home Price Index, Chicago PMI, and October Consumer Confidence Index.
- Now that’s a win streak. Should the S&P 500 Index close higher on the month (it is up more than 2% with less than a day to go), it would be the longest monthly total return win streak ever going back to 1950. That’s right, the S&P 500 would be higher an incredible 12 consecutive months on a total return basis, which would top the streaks of 11 in 1954 and 1959. Here’s the catch, the S&P 500 is up 23% over the past 12 months, which is a lot, but by no means extremely stretched. In fact, going back since 1950, this would rank in the top 76% for all 12-month returns. Again, this has been a solid 12 months, but when putting things in perspective, the past 12 months haven’t been what we’d classify as an extreme blow off move; it has been more like slow and steady. It is important to remember that markets don’t peak when things are calm, we tend to see more volatility near ultimate market peaks.
 Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.
- 10-year dips below 2.4% once again. Despite holding above the important 2.4% level for four days last week, the yield fell closing yesterday’s trading day at 2.37%. Still near the center of our 2.25-2.75% target for year end, we think that rates could move slightly higher into year end, absent any major equity volatility, on gradually rising growth and inflation. The 10-year Treasury yield is once again near the copper/gold ratio, which has been a good indicator of direction for longer-term yields, as copper/gold can be seen as a proxy for global growth prospects relative to perceived global risks.
- Yield curve quiet on the week. Longer-term rates moved slightly higher last week, due to the passage of the Senate’s budget resolution, solid tech sector earnings, a strong Q3 GDP reading, and strengthening oil prices. Shorter-term yields were nearly unchanged, as markets largely expect a rate hike in December and are awaiting details on the next Fed chair, a decision which is slated to be announced this week.
- Inflation expectations near top of recent range. Inflation expectations spent most of last week creeping higher, closing the week at 1.89%; the highest level since early May. Oil–a major input into the CPI calculation that TIPS use to adjust principal and interest payments for inflation–was a major factor in the rise given that WTI Crude gained nearly 5% on the week on talk of an extension to a production cut agreement. Expectations have remained in the current range since mid-September, but have so far been unable to break above the 1.9% range. We discuss breakeven inflation expectations and their impact on Treasury Inflation-Protected Securities (TIPS) in this week’s Bond Market Perspectives, due out later today.
- Little chance of rate hike at November Fed meeting. The Fed’s October 31-November 1 meeting starts today, but markets are pricing in just a 1% chance of a rate hike at the meeting, according to Bloomberg calculations. Markets are, however, expecting a rate hike in December (83% chance according to Bloomberg). Fed fund futures markets are pricing in 1.4 rate hikes in 2018 (versus a Fed projection of 3), which is a small drop from the prior week. However, expectations for 2019 rate hikes have moved higher in recent weeks, with the market currently pricing in 0.7 hikes for the full year (versus a projection of 2.3 from the Fed). Market expectations continue to trail those of the Fed by a significant margin. Trump is expected to announce his pick for the next Fed chair later this week, and this announcement could have a significant immediate impact on the market’s expectations of the future path of rate hikes, though we will have to wait longer to see how the Fed’s own projections will change.
- Another way to show how rare 2017 has been. We’ve noted many times how the action so far this year is like nothing we’ve seen for decades, as it is a bull market amid historically low volatility. Well, here’s another way to show that. The Dow has officially gone 51 consecutive trading days without a 1% intraday move–the longest such streak using data back to the 1930s. Additionally, the S&P 500 hasn’t closed down so much as 0.5% for 39 trading sessions, the longest since 44 in 1995. Couple that with the usually volatile months of September and October that were historically dull in 2017 and this year continues to rewrite the history books.
- Employment Cost Index (Q3)
- Chicago Area Purchasing Managers Index (Oct)
- Consumer Confidence Index (Oct)
- Case-Schiller Home Price Index (Oct)
- Eurozone: GDP (Q3)
- Eurozone: Unemployment Rate (Sept)
- Eurozone: CPI (Oct)
- France: GDP (Q3)
- France: CPI (Oct)
- France: PPI (Sept)
- Italy: CPI (Oct)
- Italy: PPI (Sept)
- Mexico: GDP (Q3)
- Canada: GDP (Aug)
- Japan: Vehicle Production (Sept)
- Japan: Nikkei Japan Manufacturing PMI (Oct)
- China: Caixin China Manufacturing PMI (Oct)
- MBA Mortgage Applications (Oct 27)
- ADP Employment Change (Oct)
- Wards Vehicle Sales (Oct)
- Markit Manufacturing PMI (Oct)
- ISM Manufacturing Index (Oct)
- Construction Spending (Sept)
- FOMC Rate Decision
- UK: Markit UK Manufacturing PMI (Oct)
- Japan: Vehicle Sales (Oct)
- Japan: Monetary Base (Oct)
- Challenger Job Cuts (Oct)
- Weekly Jobless Claims (Oct 28)
- Nonfarm Production and Unit Labor Costs (Q3)
- Bostic (Dove)
- Italy: Markit ADACI Manufacturing PMI (Oct)
- France: Markit France Manufacturing PMI (Oct)
- Germany: Markit Germany Manufacturing PMI (Oct)
- Germany: Unemployment Change (Oct)
- Eurozone: Markit Eurozone Manufacturing PMI (Oct)
- Bank of England: Bank Rate
- Japan: Consumer Confidence (Oct)
- China: Caixin China Services PMI (Oct)
- Change in Nonfarm, Private & Manufacturing Payrolls (Oct)
- Unemployment Rate (Oct)
- Average Hourly Earnings (Oct)
- Average Weekly Hours (Oct)
- Labor Force Participation & Underemployment Rates (Oct)
- Trade Balance (Sept)
- ISM Non-Manufacturing Index (Oct)
- Factory Orders (Sept)
- Durable Goods Orders (Sept)
- Cap Goods Shipments & Orders (Sept)
- Markit Services PMI (Oct)
- Kashkari* (Dove)
- UK: Markit UK Services PMI (Oct)
- ECB: Coeure