Remember market volatility? From September 19 to October 15, the S&P 500 tumbled 9.8%.
However, the S&P has since climbed by 7.9%, with last week being the market’s best week of the year.
By no means does that mean we’re in the clear. We’re still far from the all-time high, and there’s always the risk that selling will resume.
This week, we hear from the Federal Reserve. Everyone’s expecting them to finally announce the end of quantitative easing. Anything unexpected could always rattle the markets again.
Here’s your Monday Scouting Report:
Top Stories
- Here Comes The Fed…: The Fed wraps up its two-day Federal Open Market Committee. The benchmark rate is expected to stay unchanged at near-zero, and 30 out 31 economists surveyed by Bloomberg expects quantitative easing to be wound down to zero (BNP Paribas expects the Fed to continue purchasing $5 billion worth of bonds monthly).
- Here’s Goldman Sachs’ Kris Dawsey: “Our analysis suggests that recent developments should have a limited effect on the Fed’s baseline expectation for growth in the near-term, although downside risks to inflation are more pronounced. The FOMC will probably acknowledge recent foreign developments in the October statement, but an explicit shift in the balance of risks for the US outlook to the downside would be a dovish surprise. Other changes to the statement will likely include a slight upgrade to the language on the labor market.”Bank of America Merrill Lynch thinks its worth watching the dissenters. From their preview: “Perhaps most notable at this meeting may be the number and nature of dissents. We see a high probability of hawkish dissents from Dallas’s Fisher and Philadelphia’s Plosser. In our view, there is some chance the FOMC statement will note a bit more concern about downside risks to inflation — a reflection of recent data, the drop in breakevens, the strong US dollar, and disinflationary forces abroad. Should the Committee opt not to add such language, a dovish dissent from Minneapolis’s Kocherlakota becomes a risk. As the Fed gets closer to beginning the policy normalization process, a larger number of dissents becomes more likely for a time. We continue to recommend focusing on the statement language and prepared remarks from Chair Yellen and other key Fed officials to understand the views of the majority of voters, who favor a patient and gradual exit process.”
Economic Calendar
- US Services PMI (Mon): Economists estimate this services index fell to 57.8 in October from 58.9 in September.
- Pending Home Sales (Mon): Economists estimate sales climbed 1.0% in September. ” Pending home sales, which track signed contracts, are a good leading indicator of existing sales, but are much more noisy,” Bank of America Merrill Lynch economists said. “In general, the recent trend has been one of improvement after the setback in the second half of last year.”
- Dallas Fed Manufacturing Activity (Mon): Economists estimate this regional activity index climbed to 11.0 in October from 10.8 in September.
- Durable Good Orders (Tues): Economists estimate orders climbed 0.5% in September. Nondefense capital goods orders excluding aircraft is estimated to have increased by 0.6%. “Durable goods orders fell 18.2% in August due to a payback from transportation orders,” Nomura economists noted. “Incoming production data for September suggests that orders grew at a steady pace in September.”
- S&P/Case-Shiller Home Price Index (Tues): Economists estimate US home prices climbed by 0.15% month-over-month in August or 5.70% year-over-year. “The bottom line is that home price appreciation is slowing, but is still positive,” Bank of America Merrill Lynch economists said.
- Consumer Confidence Index (Tues): Economists estimate the Conference Board’s sentiment index climbed to 87.0 in October from 86.0 in September. “Increased stock market volatility may weigh on the September index, but the downside should be more than offset by continued gas price declines and generally positive news on job prospects,” Credit Suisse economists said.
- FOMC Meeting (Wed): The Federal Reserve will publish its Federal Open Market Committee meeting statement at 2:00 p.m. ET. Economists expect the Fed’s benchmark rate to be unchanged at 0.00% to 0.25% and its quantitative easing to be tapered down to zero.
- Initial Jobless Claims (Thurs): Economists estimate the pace of weekly claims were unchanged at 283,000. “Initial claims have been below 300k for six consecutive weeks and continuing claims have been steadily trending lower, suggesting solid improvement in labor market performance,” Nomura economists said.
- GDP (Thurs): Economists estimate GDP grew at a 3% rate in Q3 with personal consumption climbing at a 1.9% rate. “Real GDP growth is expected to rise at about a 3% annualized pace in Q3 and will likely average about that same rate over the next two years,” Wells Fargo’s John Silvia said. “Consistent with figures reported in the second quarter, gains should be fairly broad-based. Based on the trend, consumer spending is expected to stay on track despite the disappointing headline retail sales reading in September. Core retail sales on a three-month annualized basis posted another solid reading. Stronger job growth helped boost personal income, and lower retail gasoline prices are giving consumers a reprieve at the pump. Business spending and homebuilding continue to firm and should make another positive contribution to the headline. On the back of improving state and local tax receipts, government outlays are also positioned to strengthen. “
- Personal Income And Spending (Fri): Economists estimate income jumped 0.3% in September while spending rose by 0.1%.
- Chicago Purchasing Managers Index (Fri): Economists estimate this regional activity index fell to 60.0 in October from 60.5 in September. ” A modest decline would be in line with October readings from other regional gauges of manufacturing activity, including the Empire State and Philadelphia Fed manufacturing indices,” Barclays economists said.
- Univ. Of Michigan Confidence (Fri): Economists estimate the University of Michigan’s sentiment index was unchanged from its preliminary level of 86.4. “Large – and largely offsetting – influences on consumer attitudes should leave the final October University of Michigan consumer sentiment index close to its preliminary level,” Credit Suisse economists said. “The equity market volatility seen over the past few weeks normally would depress sentiment. But continued improvement in the job outlook and significant declines in gasoline prices should be expected to work the other way.”
Market Commentary
Wall Street’s equity strategists largely remain confident that the stock market will continue its march higher. Goldman Sachs David Kostin expects to see a new all-time high before the year’s over.
“As investors recognize the durability of US growth despite faltering global activity, we expect S&P 500 will climb to 2050 by year-end and rise by 10% to 2150 in 12 months,” Kostin said.
Kostin acknowledges this would come even as earnings growth expectations are deteriorating.
For more insight about the middle market, visit mid-marketpulse.com.
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