Market Update: Darkest Before Dawn

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Daily Insights

  • LPL Market Signals Podcast. On the latest episode of the LPL Market Signals Podcast, listen to LPL Financial Chief Investment Strategist John Lynch and Senior Market Strategist Ryan Detrick review the S&P 500 Index’s worst month so far this year, European economic concerns, U.S./China trade issues, and Federal Reserve (Fed) policy. Market Signals by LPL Financial is now available on iTunes, Google Play and Spotify. Please join our discussion on social via #LPLMarketSignals.
  • Earnings growth surpasses prior two quarters. With about 75% of S&P 500 companies having reported, earnings growth is tracking to a 27.1% year-over-year increase, up from 25.2% last week and highest since Q4 2010. Meanwhile earnings expectations have held up well. Despite tariffs, S&P 500 earnings estimates for the next 12 months have only been reduced by 0.4% since October 1, less than the average earnings season decline.

Earnings-Dashboard-11.5.18

  • Data continue to show Chinese economy feeling tariff heat, U.S. taking tensions in stride. After official government reports last week showed growth in China’s economy is weakening, non-government services sector data released overnight continued the trend. The Caixin Purchasing Managers’ Index showed activity in October fell to 50.1, hovering just above the threshold (50.0) that distinguishes an expansion in activity from a contraction. Of particular interest was the sub-index of new business, which fell to its lowest level since 2008, though it too remains (barely) expansionary at 50.3. The data come just as Chinese President Xi Jinping pledged to lower import tariffs and continue to broaden market access at the opening of a week-long trade expo seen as an attempt by Beijing to counter mounting criticism of its trade and business practices. And while more U.S. firms have been citing tariffs as headwinds in conference calls this earnings season, many have also noted that they are able to cushion the impact via price increases and/or reorganizing their supply chains. All of which suggest the U.S. may have the upper hand as negotiations between the countries’ leaders are poised to officially begin at the G20 summit later this month.
  • Darkest before the dawn. October was a rough month for U.S. equities. However, the S&P 500 may be positioned for a nice year-end rally. In this week’s Weekly Market Commentary due out today on lpl.com, we highlight the “bright side” of U.S. stocks, including bullish seasonal patterns during midterm years and signs of extreme buying strength last week.
  • Why last week could be a bullish sign. The S&P 500 gained 1% on three consecutive days last week (Tuesday – Thursday) and this is quite rare, as it hasn’t happened since right after the Brexit vote in June 2016 and February 2016 before that. Even more worthwhile is the S&P 500 closed at a new 5-month low before these three strong days. The good news? Since 1950, the S&P 500 has never been lower three months after this rare event. Today on the LPL Research blog we take a look at this potentially bullish phenomena.
  • The current state of wages. U.S. wage growth has been one of the most highly scrutinized economic trends recently. Wage pressure has been well contained so far, but recent reports show wage pressures are rising. In this week’s Weekly Economic Commentary due out today at lpl.com, we examine the current state of wages and the factors driving compensation growth for U.S. workers, and we highlight our case for why wage growth is (and will continue to be) manageable.
  • The week ahead. Earnings season begins to wind down for S&P 500 companies, though 78 are still set to report. Looking at the economic calendar, much of the focus will be on producers, as Markit PMI data and Producer Price Index (PPI) data is slated to be released next week. It’s a quiet week for economic releases in Europe, although the U.K. will be releasing headline GDP figures for the third quarter. In China, the attention will be on consumer and producer pricing data, as well as trade reports. Track these and other important events on our Weekly Global Economic & Policy Calendar.

LPLResearch-Monitoring-the-Week-Ahead

Click Here for our detailed Weekly Economic Calendar

Monday

  • Markit US Services PMI (Oct); LP: 54.7
  • ISM Non-Manufacturing (Services) Index (Oct)
  • Nikkei Japan Services PMI (Oct)

Tuesday

  • JOLTS Job Openings (Sep); LP: 7136
  • Markit Germany Services PMI (Oct)
  • Markit Eurozone Services PMI (Oct)
  • Eurozone PPI Report (Sep)
  • China Foreign Reserves (Oct)

Wednesday

Thursday

  • Initial Jobless Claims (Nov. 3); LP: 215K
  • Federal Reserve Rate Decision (November Meeting)
  • European Commission Updates Its Economic Forecasts (N/A)
  • China PPI (Oct)
  • China CPI (Oct)

Friday

  • PPI Report (MoM, Oct)
  • Wholesale Inventories (MoM, Sep)
  • UK GDP Report (Q3)
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2018-11-05T12:25:25+00:00By |Categories: Economy, Market Update|