Market Perspective for October 26, 2015

The market is still in the midst of earnings season as investors eagerly await Tuesday’s numbers from Apple (AAPL) after stellar performances from Amazon (AMZN) and Google (GOOG). Investor expectations are running high for the smartphone giant with the holiday season approaching. Despite weaker stock performance over the past few months compared to other technology bellwethers, good numbers from Apple could propel the NASDAQ to a new all-time high.

The health of the pharmaceutical sector will be reflected in the earnings of Merck (MRK) and Pfizer (PFE), which are both scheduled to release results tomorrow. Investors will be on the lookout for reports about the companies’ late-stage drug trials and for insight into their future prospects. The end of the week will reveal the state of the energy space when integrated giants Exxon Mobil (XOM) and Chevron (CVX) report earnings on Friday. Their numbers will reflect the impact of falling oil prices, cost-cutting measures, worldwide energy demand and current inventory levels. Energy is what continues to drive the S&P 500 Index to speculate an earnings decline of 3.8 percent this quarter, although strong earnings thus far have reduced this forecast from 5.1 at the start of earnings season.

Economic news this week includes a two-day meeting of the Federal Reserve. Although expectations of a rate hike are low, the policy guidance could provide insight on the Fed’s intentions going forward. Investors will scrutinize any announcements for information regarding interest rates or clues that may suggest a hike in December, as well as their reaction to the quantitative easing announcement from the European Central Bank (ECB) this past Thursday. After cutting rates six times in less than a year, including this past Friday, the People’s Bank of China (PBoC) released a statement over the weekend saying that they anticipate annual GDP growth to remain around 6 percent for the next 3 to 5 years. PBoC Vice-governor Yi Gang insinuated this might be the new normal level for Chinese growth. The rate cut and a reduction in reserve requirements are attempts to jumpstart the economy that has been a drag on world markets of late.

The state of the U.S. economy will be revealed with Tuesday’s reports on Durable Goods Orders, Thursday’s third quarter GDP number, as well as weekly unemployment claims, Friday’s consumer sentiment index and Chicago Purchasing Managers’ Index. Most of these reports are expected to show improvement. Key housing reports to be released include New Home Sales on Monday, the S&P/Case-Schiller House Price Index on Tuesday and the Pending Home Sales on Thursday. Last week, housing data hit highs unseen since 2008.

Good news from tech giants Google and Microsoft (MSFT), as well as consumer favorites Amazon and McDonald’s (MCD), plus a PBoC rate cut, helped propel the markets higher last week. The week has started off optimistically and upward momentum should continue with additional positive earnings news and economic reports.

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