Market Perspective for October 27, 2014

After the strongest weekly rebound in nearly two years, investors should temper their expectations over the coming days. As the S&P 500 is less than 3 percent off its all-time high, it will first require a test of support levels. Moreover, with earnings, economic data and a Fed meeting this week, there’s a greater chance for even more volatility.

Earnings season is still in full swing. This week sees earnings reports coming from Facebook (FB), Twitter (TWTR) and Baidu (BIDU) in the technology area. Pfizer (PFE), Merck (MRK), Gilead (GILD) and Amgen (AMGN) will put pharma and biotech on investors’ radar. Energy giants Exxon Mobil (XOM) and Chevron (CVX), as well as credit card giants Mastercard (MA) and Visa (V) report. The latter two are widely held stocks and particularly important for iShares US Financial Services (IYG).

On Thursday, the United States will report third quarter GDP growth, which is expected to be in the low 3 percent range. This number has moved slightly lower in recent weeks due to data from August and September. That said, 3 percent growth will be considered good news by the markets even though it is expected.

All of the earnings reports, plus the GDP announcement, may be overshadowed by the Federal Reserve. At their meeting this week, they are widely expected to exit the third iteration of quantitative easing. The Fed tricked investors in 2013 though, pushing the taper back from the September meeting to the December meeting. Assuming the Fed exits as expected, attention will fall on the policy statement as investors try to define the future course of interest rate policy.

Outside of the United States, an important market to watch is Brazil, now that President Rousseff has been re-elected. Brazilian stocks sank in Asian trading, but this could be speculators “selling the news.” If iShares MSCI Brazil (EWZ) does not break its lows from earlier in the year, it will be a good sign that selling is finished. If Brazilian stocks cannot find support, it could be that emerging markets are not out of the woods yet.

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