Can
the market continue to set records?
Markets
ended a fairly bullish week mixed, gaining in some sectors, while others fell
to earnings jitters. The S&P 500 notched a new high, while the Dow finally
reached a record close.[i] For
the week, the S&P 500 gained 0.11%, the Dow gained 0.29%, and the Nasdaq
lost 0.54%.[ii]
Earnings
season hit the halfway point and some analysts are giving the performance a
barely passing grade. While corporate profits are healthy, they are being
achieved through cost cutting and accounting acrobatics rather than revenue
growth. Barely half of S&P 500 companies that have reported in have beaten
estimates, highlighting the fact that U.S.
Of course,
there are some bright spots such as in the tech sector, where third-quarter
earnings growth is expected to hit 5.81%, as compared to estimates of 2.6% at
the beginning of the season. Consumer discretionaries are another strong point,
led by double-digit growth from retailers.[iii]
The Federal
Reserve held a scheduled FOMC meeting last week, but decided to delay any taper
of its bond-buying program for another day. This was not unexpected since the
government shutdown caused the delay of critical economic reports and data
collection, leaving Fed economists without a clear picture of the current state
of the economy. While the Fed has one more meeting left in 2013, it’s looking
increasingly unlikely that they’ll initiate tapering while the country is still
recovering from Washington
We
expect that the earnings season will occupy investors’ attention this week as
they look for confirmation of the market rally. We’ll also get a look at the
October jobs report and an advance third-quarter GDP estimate. It’s hard to
know how investors will view these reports since the effects of the government
shutdown will have skewed results. Although we don’t yet have any complete
information about the costs of the shutdown, one report suggests that it took a
$24 billion chunk out of the economy.[iv]
This may mean that fourth quarter growth may slow down and that people who lost
wages may not be spending as much on holiday shopping.
ECONOMIC CALENDAR:
Monday: Factory Orders
Tuesday: ISM Non-Mfg. Index
Wednesday: EIA Petroleum Status Report
Thursday: GDP, Jobless Claims
Friday: Employment Situation, Personal Income
and Outlays, Consumer Sentiment, Ben
Bernanke Speaks 3:30 PM ET
HEADLINES:
Eurozone inflation slumps to near
four-year low.
Inflation in Europe fell to 0.7% in October,
shocking economists and increasing pressure on the ECB to ease policy to combat
high unemployment.[vi]
Economists slash U.S.
Gasoline price volatility spikes. Local gasoline prices are swinging
drastically due to fuel distribution problems. Refiners keep stocks of gasoline
low to save money, increasing the system’s vulnerability to temporary shocks
that can affect prices.[viii]
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