Markets, Economy

Weekly Kickstart (10/31/2016-11/04/2016)

10/31/16 8:00 AM

iStock_000000499785_Small-1Stocks headed lower last week, with the S&P 500 falling by 0.69 percent to 2,126.41. Despite this loss, the benchmark index is still up 4.03 percent 2016-to-date and just 2.91 percent below the all-time closing high hit in August. There were several issues weighing on the market last week, including a selloff in the price of oil that pulled down much of the energy sector. A disappointing earnings report from Caterpillar was another factor behind last week’s broad pullback, as the global bellwether warned that “economic weakness throughout much of the world persists.” Overall, though, corporate earnings season for the third quarter of 2016 has not been too discouraging because of the 58 percent of companies in the S&P 500 that have already released their Q3 profit data, 74 percent (58 percent) reported earnings (sales) above analysts’ average estimate. However, more companies have issued negative than positive earnings guidance for Q4, and Goldman Sachs even cut its S&P 500 earnings forecasts for each of the next three years.

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Uncertainty surrounding the Federal Reserve’s pace of interest rate normalization has also exacerbated the swings in the stock market recently, and another announcement on monetary policy from the Federal Open Market Committee (FOMC) will occur this Wednesday. Since the September meeting, Fed officials have been signaling the strong possibility that another rate hike will occur “soon.” The FOMC’s meeting this week, though, is likely to be a little too soon since it occurs just a few days before the release of the October job report from the Bureau of Labor Statistics (BLS), and less than a week ahead of the Presidential election. Moreover, there is no post-announcement press conference scheduled for the November FOMC meeting, and it is tough to imagine the committee moving on rates without a chance to thoroughly explain its timing and updated outlook for subsequent policy moves. As a result, FOMC members will likely hold steady this Wednesday and watch Friday’s job report closely for further confirmation that the economy is on a solid enough footing for a December interest rate hike. Although such issues are important, retirement investors with relatively long time horizons should focus less on trying to predict near-term changes in U.S. monetary policy, and more on building wealth through consistent participation in the highly resilient stock market. Such efforts can be enhanced with dollar-cost averaging and regularly consulting with a professional financial advisor. As always, we are here to help with any questions you may have.

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To recap a few of the things we learned about the U.S. economy last week, the positives included that the nation's trade gap in goods narrowed sharply, new home sales rose, pending home sales increased, measures of both national and regional manufacturing activity firmed, services sector activity rebounded, the number of Americans making first-time claims for unemployment benefits held near multi-decade lows, and gross domestic product (GDP) growth in the third quarter grew by more than anticipated. As for the negatives, mortgage and refinance applications declined, demand for U.S.-manufactured durable goods slid, core capital expenditures fell, home prices continued to rise faster than general consumer inflation, and gauges of Americans’ overall level of optimism deteriorated. This week the pace of economic data picks up with several important reports on manufacturing, inflation, consumers, and employment scheduled to be released, along with the government’s potentially market-moving October job report due out this Friday, and the latest announcement on monetary policy from the FOMC on Wednesday.

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What To Watch:

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Sources: Econoday, Twitter, Bloomberg, Goldman Sachs, Advisor Perspectives, FactSet, Wells Fargo, FRBSL

Post author: Charles Couch

Disclosures