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After The Close - A mixed job report at the end of last week and the looming third-quarter earnings season contributed to a directionless market on Monday. Recent bullishness has been driven by largely positive economic data and a renewed optimism that the White House will deliver on its promise of tax reform.

The weaker-than-expected jobs report was somewhat impacted by recent hurricanes in the Gulf and Southeast regions of the country. So, we expect some of the resistance today stemmed from profit takers looking to assure gains before Corporate America unveils its updated performance data. On an aggregate, year-to-year basis, S&P 500 companies are expected to grow earnings by 4%, a moderate (though still positive) rate, especially when compared to the surges in the first half of the year.

Meanwhile, domestic oil prices finished the day higher, with U.S. crude rising $0.24, to $49.53 a barrel. The cause for the welcome turnaround was more optimistic news items regarding OPEC and its efforts to expand its drilling accord through 2018. More oil-producing nations may sign an agreement at the cartel’s November meeting. Monday’s modest upward trajectory, we think, is more of a reflection of the attractive valuations than it is of any meaningful increase in sentiment.

When the closing bell rang, each of the major indexes was firmly in the red. As for the industries, only the energy, utility, and technology sectors managed to finish the session in positive territory. Given the still-lofty valuations, we believe earnings will need to come in higher than expected to give an additional lift to trading levels in the coming weeks.

Looking ahead, the tug-of-war trading today will likely prove to be transitory pattern, as a slew of economic updates are expected this week. Headlining the batch will be Wednesday’s release of the Federal Reserve’s most recent policy meeting, which ought to inform the market’s expectation for the central bank’s interest-rate plans. Currently, most expect a tightening to occur during the December meeting, a projection that could become more certain should later-in-the-week updates on producer prices, consumer prices, and retail sales be positive. Moreover, banking stocks will face the market after a number of financial institutions release their quarterly performances during the back half of the week. – Robert Harrington


At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

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12:00 PM EDT - Stocks opened the week in quiet fashion. Wall Street seems to be looking for direction in the wake of Friday’s weak employment report. The good news is that the shortfall in job creation in September, owing to severe storms in Southern states, is expected to be made up in the months ahead. But the skewed data was not helpful.

In the meantime, investors should get a better idea of the Federal Reserve’s thinking on the direction of interest rates with the release on Wednesday of the minutes of its last policy-making meeting. Friday’s jobs report did show a pickup in wage growth. That fits in with the central bank’s view that inflation will eventually rise, if more slowly than expected.

Overall, The Fed is looking to raise rates once more this year. Data on producer prices, due to be released on Thursday, and consumer prices, on Friday, should provide further clues to the strength of inflationary trends and the likelihood of higher rates ahead. An important release on retail sales is due out, Friday, too.

Third-quarter earnings season gets under way this week, as well, with a number of the big banks leading the parade. Bank stocks have advanced over the past 12 months on prospects for margin growth and deregulation. Margin expansion has not come about as quickly as once envisioned, but there is still promise for lenders on that front.

Furthermore, there is a possibility that a new Fed Chair will be appointed when Janet Yellen’s term expires early in 2018. President Trump may be leaning toward a chairperson more in favor of loosening financial regulations. If that occurs, banks and insurance companies could see their regulatory costs decline.

Right around the noon hour on the East Coast, the Dow Jones Industrial Average is up 12 points; the NASDAQ is ahead six points; and the S&P 500 is little changed. Market breadth is tilted slightly to the downside, though.

Trading is subdued partly as some traders take off for the Columbus Day holiday. The bond market is closed in observance, for instance. - Robert Mitkowski

At the time of this writing, the author did not have positions in any of the companies mentioned.


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Before The Bell - The first trading week of October, a month that at times has historically been unforgiven to stocks, went to the bulls. Over the course of the five-day stretch, the Dow Jones Industrial Average, the tech-heavy NASDAQ, and the broader S&P 500 Index each flirted with or hit record highs. The news was mostly positive, particularly on the economic front, highlighted by strong reports on both manufacturing and nonmanufacturing activity. That, along with hopes that President Trump’s proposed tax reform plan, in some form or another, will garner enough support in Congress, was enough to offset a disappointing jobs report, though the employment data came with some explanations.

Indeed, on Friday, the big news was the latest reading on the job market from the Department of Labor. Specifically, the government reported that nonfarm payrolls contracted by 33,000 last month, which was well below the consensus expectation of a gain of more than 90,000 positions. However, the data was drastically impacted by the hurricanes that struck Texas and Florida. Meanwhile, the unemployment rate fell to 4.2% and the hourly wage rate rose by a notable amount (12 cents). The employment data made for a mixed bag, and was somewhat difficult to decipher, given the impacts of Hurricanes Harvey and Irma. Not surprisingly, the major equity averages did not stray too far away from the neutral line on the final day of trading last week. For the session, the Dow 30 and S&P 500 Index fell two and three points, respectively, while the NASDAQ added five points. Still, there was a bearish undertone to the overall trading day, with declining issues leading advancers on both the New York Stock Exchange and the NASDAQ. The spread was narrower on the latter exchange, with a solid performance from the technology stocks acting as the primary reason.

Speaking of the technology group, it was the lone sector among the 10 major equity groups to finish in positive territory. In the tech space, the stocks of the semiconductor companies were the best performers. It also should be noted that the setbacks in the industrial, healthcare, financial, and consumer discretionary sectors were miniscule. There was some notable selling in the energy sector on Friday, with a drop in oil prices pressuring the stocks of the oil producers. There also was some selling in the higher-yielding groups, with the rise in fixed-income yields, which makes bonds more attractive to income-oriented investors, the primary culprit.

Turning to the week at hand, third-quarter earnings season is set to kick off with the results from Dow-30 component and banking giant JPMorgan Chase (JPM - Free JPMorgan Chase Stock Report) due on Thursday morning. Our sense is that earnings will need to surprise to the upside—absent some tax reform legislation—to push the major equity averages higher from their already lofty perches. The current expectation is for growth of slightly more 4% for the S&P 500 companies in the third quarter. On the economic front, the data will come later in the week, with reports on producer and consumer prices and retail sales. Those releases will be scrutinized for more clues about inflation. And on that front, we will also get the minutes from the latest FOMC meeting and commentary from a number of Federal Reserve leaders. The current consensus points to the central bank tightening the monetary reins in December.

With less than an hour to go before the commencement of trading stateside, the equity futures are presaging a higher opening for the U.S. stock market. Overseas, the trading was mixed overnight in Asia (the equity markets were closed in Japan and Korea) and is mixed to slightly positive in Europe. The strongest reading on industrial production in Germany since 2011 is giving a boost to some of the major European bourses, including Germany’s DAX. Investors should note that the bond market is closed today for the Columbus Day holiday. The holiday may also cut into the trading volume in the U.S. equity market today. Stay tuned.   - Harvey S. Katz 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.