Month: October 2016

The markets will look to build on strong earnings this week. Better-than-expected reports from Netflix (NFLX) and Microsoft (MSFT) lifted the expected S&P 500 earnings decline from more than 2 percent to only 0.3 percent. S&P 500 Index earnings may grow for the first time in over a year if results continue to exceed expectations.

AT&T (ATT) has reached an agreement to purchase Time Warner (TWX) for more than $80 billion. This confirms Friday’s rumor that sent shares of telecom companies lower.

Flash Purchase Managers Index (PMI) reports for October were released on Monday.  Both the U.S. and Japanese manufacturing sectors showed significant growth. We anticipate U.S. consumer confidence figures released tomorrow to be better than analyst expectations, while September new home sales figures should increase slightly.

Weekly unemployment claims, U.S. durable goods orders and pending home sales will be available on Thursday. While unemployment claims are expected to drop slightly from last week, durable goods order and pending home sales are forecast to rise slightly. On Friday, the Bureau of Economic Analysis will report its first estimate of third quarter GDP growth. Analysts forecast U.S. GDP to rise 2.7 percent, but the Atlanta Federal Reserve’s GDP Now model is only forecasting 2.0 percent growth. Given the accuracy of the Atlanta Fed’s model, a miss is likely.

Several major Dow, S&P 500 and Nasdaq components will report earnings this week. Among the reporting Dow components are: Apple (AAPL), Caterpillar (CAT) and Proctor and Gamble (PG) as well as Coca Cola (KO), ExxonMobil (XON) and Chevron (CVX). Influential Standard & Poor’s (S&P) 500 index earnings reports due out include General Motors (GM), Merck (MRK), Ford (F) and United Parcel Service (UPS). Amazon (AMZN) and Alphabet (GOOGL) will also report, marking an important week for Fidelity Select Technology (FSPTX) and First Trust Dow Jones Internet (FDN), among others. If they can build upon the strong precedent set by Netflix and Microsoft, it could buoy bullish sentiment and push indices out of their current trading range.

Strong earnings from Netflix (NFLX), McDonald’s (MCD) and several major banks delivered a flat week for the stock market, offsetting the effects of a strong U.S. dollar against the weakening yen, euro and yuan.

Netflix reported a large increase in subscriptions, particularly overseas. Shares of NFLX surged over 23 percent in response to the report. Bank of America (BAC), Goldman Sachs (GS) and Morgan Stanley (MS) also reported earnings per share (EPS) and revenues that beat expectations. Strong results in all banking divisions lifted shares of BAC by 3.5 percent, while shares of GS and MS rose more than 2 percent as both firms reported an increase in trading activity. SPDR Financial Select Sector (XLF) dipped on Friday, however, moderating the week’s gains to about 0.5 percent.

McDonald’s (MCD) profited from recent menu changes, such as all-day breakfast and new chicken nuggets. Same store sales climbed 3.5 percent, far ahead of the 1.5 percent consensus forecast. Shares rallied more than 2 percent following the Friday release. General Electric’s (GE) guiding revenue and full year earnings fell, despite an earnings beat, pulling shares lower.

European Central Bank (ECB) President Mario Draghi failed to clarify whether the ECB would taper its quantitative easing at the end of the year as was rumored last week, while the People’s Bank of China allowed the yuan to depreciate during the week to its lowest levels in six years. The lack of clarity from the ECB and hawkish comments regarding domestic interest rates by U.S. Fed officials kept markets relatively unchanged. The S&P 500 Index closed with a gain of 0.38 percent on the week.

West Texas Intermediate Crude prices surged to a 15-month high on Wednesday following a larger-than-expected inventory drawdown, but fell below $51 per barrel the next day. Copper was also under pressure as the greenback climbed steadily against the euro and yen.

The euro zone Consumer Price Index (CPI) rose 0.4 percent, a small increase over last month and in line with expectations. Reaching its highest inflation level since November 2014, the U.K. CPI rose 1 percent. This was slightly higher than forecast. Strong increases in gasoline and rents caused the U.S. headline CPI to rise by 0.3 percent, but core CPI was slower than expected at 0.1 percent. While the New York Fed’s Empire State Manufacturing index grew at its slowest rate in five months, the Fed Beige Book showed a modest increase in economic activity in all regions of the country. September industrial production was in line with forecasts, while capacity utilization missed by 0.1 percent, at 75.4 percent.

Although building permits jumped in September, housing starts fell 9 percent, declining for the second consecutive month. Waning demand in the multi-family sector has been cited as the primary cause for the trend. Existing home sales rose and beat analysts’ forecast in September. Still at multi-decade lows, unemployment claims rose to their highest level in five weeks, due in part to the impact of Hurricane Matthew. Chinese gross domestic product rose 6.7 percent for the third consecutive quarter, while home prices and lending surged in September.

Domestic markets are positioned to rebound this week following strong bank earnings on Friday.

Earnings season will move into full swing this week. Goldman Sachs (GS) and Morgan Stanley (MS) are expected to beat their earnings per share (EPS) and revenue estimates in response to rising market volatility and higher trading profits. SPDR Financial Select Sector exchange-traded fund (XLF) will benefit from financial sector growth.

Netflix (NFLX), Johnson and Johnson (JNJ), Verizon (VZ) and General Electric Co. (GE) are also on this week’s reporting schedule. NFLX far exceeded analyst predictions on Monday to send shares sharply higher. Cost-cutting measures and organic sales growth should ensure strong returns for JNJ, which also recently increased its full-year forecast. McDonald’s (MCD) will report on Friday.

Verizon’s pending acquisition of Yahoo (YHOO) was complicated by a massive data breach that occurred at the latter company. This is likely grounds for terminating the deal if Verizon wishes to back out.

The European Central Bank (ECB) will announce its latest interest rate decision on Thursday, though economists expect the ECB to leave rates unchanged. Modification to the central bank’s quantitative easing program, including a taper of bond buying similar to the Fed’s exit from QE, is rumored to be in the works.

Consumer Price Indexes (CPI) for the Eurozone, Britain and U.S. are expected to reveal modest increases. On Monday, the latest Empire State Manufacturing Index fell from minus 2 in September to minus 6.8 in October, signaling contraction in the New York area manufacturing sector.  Midweek, investors will hear the most recent figures on U.S. housing starts and the weekly crude oil inventory numbers. The Fed Beige Book will also be released Wednesday. Housing starts and building permits are forecast to rise slightly. Analysts expect crude stockpiles to drop close to a million barrels, which will buoy the recent rally in oil prices. Economists anticipate that the Beige Book will show continued strength in the overall economy.

While weekly unemployment claims are expected to rise slightly, they will still remain at multi-decade lows. Housing market analysts anticipate a slight uptick in existing home sales. China’s latest gross domestic product (GDP) figures will be released on Wednesday. The forecast is for a 5 percent increase in the nation’s GDP. China will also release new loan figures, along with real estate and fixed asset investment. The hefty amount of Chinese data could impact commodity markets during the week.