/perspectives/weekly-viewpoint/is-the-seasonal-rally-starting-to-kick-in

Is the Seasonal Rally Starting to Kick In?

The major market indices finished the week solidly higher reflecting the dovish tone of the FOMC meeting minutes, a solid uptick in oil prices (the Energy sector paced the gains last week, adding 7.55%) and the S&P 500’s break above its 50 day moving average.

October 12, 2015    |    By Mike Schwager

Performance for Week Ending 10/9/15:

The Dow Jones Industrial Average (Dow) rose 3.72%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 3.40%, the Standard & Poor’s 500 Index (S&P 500) gained 3.26% and the Nasdaq Composite Index (NASDAQ) tacked on 2.61%. Sector breadth was positive with all 10 of the 10 S&P sector groups finishing lower. The Energy sector (+7.77%) led the way higher followed by Materials (+6.77%) and Industrials (+6.10%).

Index* Closing Price 10/9/2015 Percentage Change for Week Ending 10/9/2015 Year-to-Date Percentage Change Through 10/9/2015

Dow

17084.49

+3.72%

-4.14%

Wilshire 5000

20852.55

+3.40%

-2.05%

S&P 500

2014.89

+3.26%

-2.14%

NASDAQ

4830.47

+2.61%

+1.99%

*See below for Index Definitions
 

MARKET OBSERVATIONS: 10/5/15 – 10/9/15

The major market indices finished the week solidly higher reflecting the dovish tone of the FOMC meeting minutes, a solid uptick in oil prices (the Energy sector paced the gains last week, adding 7.55%) and the S&P 500’s break above its 50 day moving average. Traders watch the 50-day to help define the markets short term trend and the break above seemed to be a catalyst to get “fence sitters” back into the market. The rally was global in nature with almost all of the broader world indices finishing sharply higher. While October tends to be a bumpy month, it also tends to be a time when markets traditionally find their footing ahead of a fourth quarter rally. Over the past 20 years, the S&P has posted gains in the fourth quarter 80% of the time with an average advance of 5.15%.

With China essentially being ground zero for the selling pressure over the past 6-7 weeks, better clarity on their economic situation will be vital for the markets to post a sustainable move higher. The coming week will bring the next major batch of economic reports out of China and at this point the data simply needs to show stability for global investors to regain some confidence. Also this week will be the kick-off to third quarter earnings season. Expectations heading into earnings season are very low, which in turn leaves plenty of room for upside surprises. While bottom-line results will be watched closely, forward guidance from company management will be of equal interest.

The macro calendar was relatively light this past week, although there were a couple encouraging data points. On the labor front, weekly jobless claims fell 13K to 263K, better than the 274K forecast by economists and the lowest level since mid-July. Claims have been lower than 300K, a level typically associated with an improving job market, since early March. Elsewhere, the Mortgage Bankers Association reported that mortgage applications surged by 25.5% during the week ended October 2, the second double digit gain in the past three weeks. The jump in applications reflected a 24.2% gain in the refinancing index and a 27.4% advance in the Purchase component

FOMC Meeting Minutes
The much anticipated minutes from the September FOMC meeting were released on Thursday. The minutes suggested the Fed will remain patient in terms of the initial lift-off due to greater worries about growth and inflation. According to the minutes, the Committee decided that “it was prudent to wait for additional information confirming that the economic outlook had not deteriorated.” This statement suggests the Fed is in “wait and see” mode, and despite telegraphing that rates will move higher by year-end, the risk may be skewed toward a later liftoff if economic data softens. Fed speeches over the coming days will be watched closely for additional clarity.

The Week Ahead:
The earnings calendar will move to the front burner during the upcoming week with 35 members of the S&P 500 scheduled to release results. Among the more notable releases are Intel Corp., JPMorgan Chase, Johnson & Johnson, Goldman Sachs, and General Electric Company. The data calendar also picks up this week will the focal reports being the Producer Price Index, September retail sales, the Consumer Price Index, the October Empire State manufacturing survey, September industrial production and capacity, and the University of Michigan’s October consumer sentiment survey. Four Federal Reserve officials will make public appearances during the week including: Chicago president Charles Evans and Governor Lael Brainard on Monday, St. Louis president James Bullard on Tuesday and New York president William Dudley on Thursday.


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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