Market Update: Monday, October 29, 2018

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Daily Insights

  • Earnings results better than headlines suggest. With nearly half of the S&P 500 Index constituents having reported third quarter results, the numbers have been excellent overall. According to Thomson Reuters, 78% of companies have exceeded consensus earnings estimates, putting the index on track for a 25.2% year-over-year increase in earnings, 3.6% above estimates as of September 30. Also impressive, estimates for the next four quarters have only been reduced by 0.2% during October, lower than the average earnings period reduction historically of over 2%. Resilient earnings estimates amid the stock market decline have left the S&P 500 valued at roughly 15 times next 12 months estimates, similar to the attractive levels reached during the late 2015-early 2016 market correction.Earnings Dashboard 10.29.18
  • Fed’s preferred inflation gauge ticks lower. The Core Personal Consumption Expenditures Index, which excludes the more volatile energy and food components, came in at an annualized 2.0% for September after trending slightly higher over the past few months. The month-over-month declines were seen mostly in services, though spending on clothing also was lower. On the upside, consumer spending on motor vehicles and parts increased 3.1%, which is particularly positive for an industry that’s been struggling recently. Overall, the data may provide a brief respite for investors that have grown anxious about the Federal Reserve’s (Fed) rate-hike intentions going into 2019, which we believe could be less aggressive than what investors are currently expecting.

  • Another tough week for stocks. The S&P 500 Index was down just shy of 4% last week, briefly dipping into correction territory on Wednesday on an intraday basis and putting October on track to be the weakest month for stocks since the financial crisis. Concerns about an earnings slowdown and a potentially overly aggressive Fed seemed to be the primary drivers but market participants saw little, if anything, encouraging out of the other “bricks” in the stock market’s wall of worry. These include the U.S.-China trade dispute, Italy’s deficit spending, Brexit uncertainty, Saudi tensions, and policy uncertainty ahead of the midterm elections. An exhaustive list for sure, though the S&P 500 has managed to avoid a 10% decline from the record high on September 20 based on closing prices. In this week’s Weekly Market Commentary, due out later today, we take a look at several market positives that give us confidence that stocks may soon stabilize before making another run higher.

  • Focus on U.S. economic fundamentals. While financial markets endure their roughest October in years, we encourage investors to focus on the fundamentals. Third-quarter gross domestic product and the Federal Reserve’s Beige Book, both released last week, confirmed that the U.S. economy is on solid footing. In this week’s Weekly Economic Commentary, we’ll highlight our takeaways from both reports.

  • Week ahead. Another busy week of earnings announcements are set to be released, with an additional ~140 S&P 500 companies slated to report. Turning to economic data, it’s mostly quiet on the Asian front, but a swath of inflation data will be released out of Europe. Looking at the U.S., the monthly nonfarm payrolls report highlights the docket with investors likely to focus on wage growth for signs of inflationary pressures. Track these and other important events on our Weekly Global Economic & Policy Calendar.

  • A silver lining. It has been a rough October for equities, but there is a piece of good news for investors: During midterm years, the S&P 500 has gained from the October lows until the end of the year every single year since World War II. That is 18 out of 18 years, with an average gain of 10.6%. Later today on the LPL Research blog we will take a closer look at this potentially bullish phenomena.

  • LPL Market Signals Podcast. In the latest episode of the Market Signals Podcast, listen to Portfolio Manager Jeff Buchbinder and Chief Investment Strategist John Lynch discuss the signs pointing to economic growth in the third quarter and into 2019. Market Signals by LPL Financial is now available on iTunes, Google Play and Spotify. Please join our discussion on social via #LPLMarketSignals.

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Click Here for our detailed Weekly Economic Calendar

Monday

  • Personal Income (Sep)
  • Personal Spending (Sep)
  • Core PCE (MoM, Sep)

Tuesday

Wednesday

Thursday

  • Nonfarm Productivity (Preliminary, QoQ, Q3)
  • Markit US Manufacturing PMI (Oct)
  • ISM Manufacturing (Oct)

Friday

  • Nonfarm Payrolls (Oct)
  • Durable Goods Orders (Sep)
  • Markit Germany Manufacturing PMI (Oct)
  • Markit Eurozone Manufacturing PMI (Oct)


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