Year: 2018

Stocks opened on Monday with strong buying in transportation, defense, industrials, consumer staples and small caps. The Russell 2000 led index performance on the day with a 0.42- percent advance. iShares U.S. Aerospace & Defense (ITA) gained 1.42 percent.

Retail sales increased 0.1 percent in September, missing forecasts, but matching August’s growth rate. Retail sales ex-autos fell 0.1 percent. Bars and restaurants, despite 7.1 percent higher sales, accounted for most of the miss. Online sales rose 1.1 percent.

The October Empire State index shows strong manufacturing activity picked up by the September PMIs carrying over into this month.

Industrial production for September, August job openings and the October homebuilders’ index will be out later this week.  Housing starts, building permits and existing home sales, all for September, will also be released. The minutes of the September Federal Reserve meeting will be out on Wednesday.

The U.S. dollar started the week lower, but West Texas Intermediate crude closed below $72 a barrel nonetheless. Natural gas extended its rally, rising another 3 percent. Gold extended gains, but failed to exceed last week’s high.

Earnings season will kick into high gear this week. Bank of America (BAC) beat forecasts by 4 cents and delivered strong growth metrics. Charles Schwab (SCHW), Goldman Sachs (GS), Morgan Stanley (MS), American Express (AXP) U.S. Bancorp (USB) and many regional banks will all report earnings this week. SPDR Financial (XLF) and SPDR S&P Regional Bank (KRE) will be most affected by these reports.

Communication services and Internet funds will also be under the microscope this week with Netflix (NFLX) reporting after the bell on Tuesday. Johnson & Johnson (JNJ) and UnitedHealth Group (UNH) will also report. Other healthcare stocks reporting this week include Abbot Labs (ABT), athenahealth (ATHN) and Intuitive Surgical (ISRG).

Alcoa (AA), PayPal (PYPL), WD-40 (WDFC), Proctor & Gamble (PG), Schlumberger (SLB), Kansas City Southern (KSU) and Honeywell (HON) are also slated to report this week.

It was a volatile week for stocks as technology shares led a market decline on Wednesday and Thursday. The S&P 500 index broke through its 50-day and 200-day moving averages before rallying and retaking the 200-day MA on Friday. The Nasdaq Composite also narrowly recovered its 200-day MA on Friday by 7 points. The Dow Jones Industrial Average bounced well above its 200-day MA, while the more volatile Russell 2000 Index closed below its 200-day MA. Oversold conditions this week indicate short-term selling has reached exhaustion.

 Although the Nasdaq led the selling, it led performance on the week following a strong technology rally on Friday. It lost 3.74 percent on the week. The Dow Transports fell 6.40 percent. The S&P 500 Index and Dow Jones Industrial Average declined 4.11 and 4.19 percent respectively, while the Russell 2000 Index slid 5.23 percent.

SPDR Consumer Discretionary (XLY) fell 3.35 percent, SPDR Healthcare (XLV) 3.41 percent and SPDR Technology (XLK) 3.79 percent. SPDR Financial (XLF) and Industrial (XLI) underperformed with losses of 5.61 and 6.37 percent. Technology and consumer discretionary are still trailing in the fourth quarter, while financials and healthcare are leading the larger sectors.

Defensive sectors outperformed by a wide margin this week. SPDR Utilities (XLU) fell only 1.27 percent, SPDR Consumer Staples (XLP) 1.98 percent.

iShares MSCI Emerging Markets (EEM) fell 1.47 percent, iShares MSCI EAFE (EFA) 3.85 percent and SPDR S&P 500 (SPY) 4.10 percent. The U.S. Dollar Index weakened by 0.30 percent and slightly more versus emerging market currencies.

Small-business confidence eased from its all-time high in September but remains near the 45-year high. Producer prices rose 0.2 percent in September, as expected. Both the headline and core CPI missed expectations again in September, rising only 0.1 percent. The Atlanta Federal Reserve hiked its GDP growth forecast for the third quarter to 4.2 percent this week.

Market gyrations this week overshadowed a strong start to earnings season. J.P. Morgan (JPM) delivered $2.34 per share, better than the $2.25 expected. Rising interest rates lifted returns on the bank’s assets and net interest margin increased to 2.51 percent from 2.46 percent in the prior quarter. Citigroup (C) also beat estimates, while Wells Fargo (WFC) missed by a penny.  Delta Air Lines (DAL) earned $1.80, better than the $1.74 consensus forecast. Increased travel and higher fares offset rising fuel costs. Shares gained 4.7 percent on Thursday and Friday following the report.

All the major stock indexes opened the day in the red on Monday but rebounded late in the day. The Dow Jones Industrial Average led performance with a gain of 0.15 percent. The Nasdaq declined 0.67 percent. Bond markets were closed for the Columbus Day holiday. Canadian and Japanese markets also closed for national holidays.

Financials and utilities extended their outperformance. SPDR Financial (XLF) gained 0.68 percent and SPDR Utilities (XLU) 0.84 percent. SPDR Technology (XLK) slid 1.07 percent.

Small business confidence for September will be out on Tuesday. The producer price and consumer price indexes are due on Wednesday and Thursday. Economists forecast 0.2 percent increases for the headline PPI, headline CPI and core CPI. In August, PPI missed expectations and fell 0.1 percent. Core CPI missed as well with a smaller increase of 0.1 percent. The advance consumer sentiment index for October will be out on Friday. Analysts predict the University of Michigan survey will rise to 100.9 from 100.1 in September.

China cut the reserve ratio requirement (RRR) for banks on Sunday by 1 percent. This will free up as much as 750 billion yuan ($109 billion) for the banking system. China’s currency weakened on Monday in response. The U.S. dollar broke out immediately following China’s prior surprise RRR cut in April.  China’s stock market also tumbled on Monday as it caught up with global markets following a week-long holiday. New loans and exports are due later this week.

Italy’s sovereign bonds and stock market fell on Monday after its budget battle with the European Union escalated. EU officials rejected planned deficit spending, but Deputy Prime Minister Salvini said the country would not alter its budget. The euro sank in sympathy. This weekend, German voters in Bavaria will hold state elections. The euro-skeptic Alternative for Germany is framing the election as a referendum on Chancellor Merkel.

Brazil gave 46 percent of its votes to a pro-business reform candidate in Sunday’s elections. He’ll face a run-off later this month, but he’s all but assured to win. Shares MSCI Brazil (EWZ) gained 6.74 percent on Monday.

Euro weakness boosted the U.S. Dollar Index on Monday. SPDR S&P 500 (SPY) finished flat on the day, iShares MSCI EAFE (EFA) fell 0.42 percent and iShares MSCI Emerging Markets (EEM) gained 0.17 percent.

Delta Air Lines (DAL), Walgreens (WAG), Commerce Bancshares (CBSH) and Fastenal (FAST) will report early this week ahead of Friday’s big announcements from Citigroup (C), J.P. Morgan (JPM), Wells Fargo (WFC) and PNC Financial Services (PNC). Rising interest rates have lifted the financial sector over the past week and investors will be looking for positive guidance as firms adjust their outlooks given the prospect of higher rates and wider interest rate spreads.