The Grind Higher Continues

The major market indices finished the week modestly higher reflecting the solid start to third quarter earnings season and building confidence tax reform will get done by early next year.

October 16, 2017 | By Mike Schwager

Performance for Week Ending 10/13/2017:

The Dow Jones Industrial Average (Dow) rose 0.43%, the Wilshire 5000 Total Market Index^SM (Wilshire 5000^SM) finished up 0.11%, the Standard & Poor’s 500 Index (S&P 500) gained 0.15% and the Nasdaq Composite Index (NASDAQ) tacked on 0.24%. Sector performance was mixed with 6 of the S&P groups finishing higher and 5 closing lower. The Real Estate sector (+1.77%) was the best performer while Telecom (-4.64%) was the worst.

Index*	Closing Price 10/13/2017	Percentage Change for Week Ending 10/13/2017	Year-to-Date Percentage Change Through 10/13/2017
Dow	22871.72	+0.43%	+15.73%
Wilshire 5000	26577.93	+0.11%	+13.46%
S&P 500	2553.17	+0.15%	+14.04%
NASDAQ	6605.80	+0.24%	+22.71%

*See below for Index Definitions

MARKET OBSERVATIONS: 10/9/2017 – 10/13/2017

The major market indices finished the week modestly higher reflecting the solid start to third quarter earnings season and building confidence tax reform will get done by early next year. According to Bloomberg, earnings at S&P 500 companies are expected to increase approximately 3 percent during the quarter, well off the double-digit pace recorded in the first two quarters of this year. Expectations have been revised lower in recent weeks due to the disruptions from hurricanes Harvey and Irma. However, when looking at ‘early reporters’ the trend has been better than expected so far. Through Friday 32 members of the S&P 500 have reported results with over 87% surprising to the upside. While it’s still very early, the solid ‘beat’ rate may be suggesting that the earnings bar has been set too low.

Market View – Stay the Course: We continue to believe the bull market remains intact and the “Goldilocks” economic environment (not too hot, not too cold) should help limit downside risk in the event of a correction. From a macro point of view, the world is enjoying a period of synchronized global growth, which has resulted in a favorable turn in the earnings environment. In addition, valuation levels—while elevated—are far from extreme. If the market were to stage a pullback in the coming months, it would be viewed as healthy and corrective in nature and not the start of a broader leg lower - in other words, a good buying opportunity, especially for longer-term investors.

The Week Ahead: Third quarter earnings season will begin to heat up in the week ahead with 57 members of the S&P 500 scheduled to report results. Included in this group are nine members of the Dow Jones Industrial Average. Highlights of the data calendar include the October Empire State Manufacturing Survey, September industrial production and capacity utilization, the October Housing Market Index, September housing starts and building permits, the October Philadelphia Fed Business Outlook Survey and September existing home sales will be released on Friday. Also of note will be the release of the Federal Reserve’s Beige Book report on Wednesday. A half dozen Fed officials are scheduled to speak during the week including Fed Chair Yellen on Friday.

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 Index^SM 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 guarantees 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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