/perspectives/weekly-viewpoint/fed-meeting-on-deck
Fed Meeting on Deck
The major market indices finished the week solidly higher with the S&P 500 advancing for a fourth straight week. The catalysts for last week’s gains included further signs China’s economy is beginning to stabilize, growing speculation the Federal Reserve could keep interest rates at current levels until next year, and hints from European Central Bank (ECB) President Mario Draghi that the ECB could ramp up its stimulus efforts at their December meeting.
October 26, 2015
| By Mike Schwager
Performance for Week Ending 10/23/15:
The Dow Jones Industrial Average (Dow) rose 2.50%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 1.85%, the Standard & Poor’s 500 Index (S&P 500) gained 2.07% and the Nasdaq Composite Index (NASDAQ) tacked on 2.97%. Sector breadth was positive with 7 of the 10 S&P sector groups finishing higher. The Technology sector (+4.61%) led the way higher followed by Industrials (+3.83%) and Financials (+2.51%).
| Index* |
Closing Price 10/23/2015 |
Percentage Change for Week Ending 10/23/2015 |
Year-to-Date Percentage Change Through 10/23/2015 |
|
Dow
|
17646.70
|
+2.50%
|
-0.99%
|
|
Wilshire 5000
|
21388.14
|
+1.85%
|
+0.47%
|
|
S&P 500
|
2075.15
|
+2.07%
|
+0.79%
|
|
NASDAQ
|
5031.86
|
+2.97%
|
+6.25%
|
*See below for Index Definitions
MARKET OBSERVATIONS: 10/19/15 – 10/23/15
The major market indices finished the week solidly higher with the S&P 500 advancing for a fourth straight week. The catalysts for last week’s gains included further signs China’s economy is beginning to stabilize, growing speculation the Federal Reserve could keep interest rates at current levels until next year, and hints from European Central Bank (ECB) President Mario Draghi that the ECB could ramp up its stimulus efforts at their December meeting. Better than feared third quarter earnings results, a surprise rate cut by China and positive US housing market data added to the positive tone.
Data Wrap Up:
Housing remains a bright spot for the economy. Last week the Commerce Department reported that housing starts during the month of September rose by a better than expected 6.5% to 1206K annualized units, the second highest level since October 2007. Elsewhere, the National Association of Realtors reported that existing home sales during September rose by a better than expected 4.7% to 5.55 million annualized units. Meanwhile, the National Association of Homebuilders reported that homebuilder sentiment rose to the highest level since October 2005. On the labor front, the Labor Department reported that the 4-week moving average for initial jobless claims dipped to the lowest level since 1973.
Q3 Earnings Season:
While far from perfect, third quarter earnings season is shaping up to be much better than feared. Through Friday, 173 members of the S&P have reported results with 71.2% surprising to the upside. Overall reported earnings for the S&P are currently down 1.9%, but still solidly better than the 5%-plus decline expected at the start of earnings season. Expectations heading into the quarter were muted due to global growth concerns and the lingering impact of the strong dollar and weaker energy prices. With the bar being set so low, this has left plenty of room for upside surprises.
The Week Ahead:
The FOMC meeting will be the spotlight event this week. While no changes in policy are expected to take place, investors will look for clues in the after meeting communiqué on how the recent stabilization in China and the generally firm tone to recent US economic data could impact the timing of the initial lift-off in rates This will be the peak week for earnings reports with 168 members of the S&P 500 scheduled to report earnings. Included in this group are Dow-components Apple, Du Pont, Merck, Pfizer, Chevron and Exxon Mobil. The economic calendar will also be chock full of data. Focal reports of note include; new home sales, durable goods orders, the Case-Shiller home price index, the Conference Board’s consumer confidence survey, the first estimate of third-quarter GDP, September pending home sales and the University of Michigan consumer sentiment survey.
Definitions
The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.
Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.
Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.
The individual companies mentioned in this piece were for informational purposes only and should not be viewed as recommendations.
The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. This document contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no gua rantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Information in this report does not pertain to any investment product and is not a solicitation for any product. This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its accuracy.
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VIDEO
Global CIO Scott Minerd and Head of Macroeconomic and Investment Research Brian Smedley provide context and commentary to complement our recent publication, “Forecasting the Next Recession.”
In his market outlook, Global CIO Scott Minerd discusses the challenges of managing in a market melt up and highlights several charts from his recent piece, “10 Macro Themes to Watch in 2018.”
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