Market Perspective for October 24, 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.

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