Last week brought back the extremely non volatile market! Nary a move of >0.2% up or down on the S&P 500 in any of the 5 sessions. After some rallying the prior few weeks this is exactly what the doctor ordered for bulls; this was especially necessary for the Russell 2000. For the week both the S&P 500 and NASDAQ gained 0.2%.
“Investors are following the tax-reform debate, as well as clues as to who will be nominated as the next Federal Reserve chairman. Currently, Fed Gov. Powell appears to be the favorite. He would offer continuity in terms of monetary policy, but his comments suggest a more favorable position with regard to regulatory reform,” said Quincy Krosby, chief market strategist, at Prudential Financial.
Geez is this a great quote….
“There’s no reason to sell. Just sit and watch your stuff go up and that’s why trading volumes are low,” said Randy Frederick, managing director at Schwab Center for Financial Research, referring to measures of volatility, notably the CBOE Volatility Index hanging around historic lows, below 10, as stocks test records.
Minutes from the Federal Reserve’s September meeting suggested caution among policy makers on the next interest rate hike which the market had widely expected in December.
Several Fed officials said that they now believed it would be longer than they had previously thought to get inflation back to the central bank’s 2% target. As a result, many noted that “some patience” was warranted in hiking interest rates in order to assess trends in inflation, the minutes said. Hawks on the committee, like Kansas City Fed President Esther George, want the central bank to continue to hike, warning that delaying rate hikes could spark asset bubbles. Doves, like Minnesota Fed President Neel Kashkari, have argued for no more rate hikes are warranted until inflation was clearly on the path toward 2% or higher.
Earnings (led by some financials) are kicking off:
According to FactSet earnings for S&P 500 companies are seen coming in at $32.34 a share in the third quarter, which represents growth of 2.81% from a year ago. Sales are seen rising 4.79% compared with the third quarter of 2016.
Morgan Stanley said the consensus forecast for earnings was “too low.” While results in the quarter could be impacted by Harvey and Irma —that factor won’t be enough to meaningfully limit profits. A mix of conservative guidance and a strong [first half of the year], continued economic growth, and positive incremental margins set the quarter up for an easy beat,” the investment bank wrote in a note to clients. “We think companies will once again deliver versus consensus expectations.”
J.P. Morgan Chase & Co. was similarly bullish on the coming season, indicating that the overall earnings per share growth rate could be more than three times that of current consensus expectations. “Most of the activity variables we follow suggest EPS growth rate of 10% or more should be achievable in Q3,” it wrote, referring to earnings per share. “Economic activity was robust during [the third quarter], with strong global PMI prints, U.S. [Citigroup Economic Surprise Index] moving above zero, and ISM reaching the highest levels since 2004.”
On the economic front, the consumer-price index rose 0.5% in September, the second increase in a row and the largest in eight months. However, economists had forecast a 0.6%. Stripping out volatile food and energy costs, core CPI rose at a much smaller 0.1% rate. A reading on retail sales showed a rise of 1.6% in September, reflecting the largest increase in 2½ years, coming in line with Wall Street expectations.
The boost came from new autos and trucks. Excluding autos, sales rose 1%. And sales excluding autos and gasoline climbed a smaller but still robust 0.5%. Part of the auto rebound reflected the purchase of replacement vehicles after many were damaged by hurricane-related flooding in Texas and Florida. Home-supply stores also got a bump in the cleanup that followed the storms.
Emerging markets had a strong week.
Interesting IPO of the week “CarGurus” (CARG) which soared 72% on its Nasdaq debut after pricing shares of its initial public offering above an expected range. The company helps buyers find deals on new and used cars.
The search company uses algorithms and data analytics to find its users deals on new and used cars. The company reported full-year revenue of $198.1 million and a per-share loss of 58 cents a share in 2016.
Here is the 5 day weekly “intraday” chart of the S&P 500 .. via Jill Mislinski.
The week ahead…
Earnings of major S&P 500 companies will dominate this week. Economic news is not of the market moving variety. Obviously if Trump announces a new Federal Reserve head that will cause some heads to swivel.
Short term: The 2 major indexes entered last week quite overextended. This consolidation helped work some of that off.
The Russell 2000 was the most extended of the major markets and needed some rest which it got.
The NYSE McClellan Oscillator remains in all systems go but a bit of weakness earlier in the week.
Long term: The 5 year charts remain in unicorns and butterflies mode for bulls.
Charts of interest / Big Movers:
Walmart (WMT) surged Tuesday, and that move continued all week after the company at an investor meeting said it would continue its strategy of focusing on domestic existing stores and e-commerce growth to boost sales. It also announced a $20 billion share repurchase program.
Kalvista Pharma (KALV) surged 39% Tuesday after Merck & Co (MRK) bought a 9.9% ownership stake in the company, paying $8.50 a share.
Barracuda Networks (CUDA) were down 12% Wednesday after the cloud-computing company late Tuesday matched estimates for earnings and topped those for revenue and billings.
It was a week. Therefore, a brick & mortar retailer had to implode. This week it was J. Jill’s (JILL) turn after the women’s apparel retailer cut its outlook for the third quarter because of lower-than-expected sales. The company forecast adjusted earnings of 8 cents to 10 cents a share for the third quarter, down from a previous forecast of 18 cents to 20 cents a share. J.Jill also expects third-quarter same-store sales to decline by 3% to 5%.
Friday, Applied Optoelectronics (AAOI) fell about 20%. The fiber-optic networking company warned investors about lower-than-expected third-quarter profit and revenue late Thursday.
Have a great week and we’ll see you back here Sunday!