Market Perspective for October 6, 2014

Stocks will be looking to carry the bounce on Friday into this week. Strong unemployment data on Friday sparked a big rebound in U.S. equities, but it also caused another jump in the U.S. dollar versus the euro and yen. The rise of the dollar has proven to be a significant headwind for foreign shares.

Earnings season does kick off this week, with Alcoa (AA) reporting on Wednesday. The firm is expected to announce earnings doubling from last year. Investors will be looking for Monsanto (MON) to report strong earnings and decent sales growth when it reports as well. The American consumer will be a topic this week when Costco (COST) and Family Dollar (FDO) report. Costco is expected to report an increase in earnings, while Family Dollar will likely see a decline. Finally, Yum Brands (YUM) and PepsiCo (PEP) are both expected to report earnings increases.

While these companies are major players in their sectors, the big earnings reports come next week when blue chip giants start reporting en masse. Currently, strength in the broader market is due to the financial, technology and healthcare sectors. Next week, major players in the latter two sectors, such as Intel (INTC), Google (GOOG) and Johnson & Johnson (JNJ) report.

Blue chips are the key to the equity market over the coming month. Both mid-caps and small-caps have sold off, but large caps continue to hold their bullish uptrend. The Russell 2000 may have made a triple bottom last week after again falling to the lows hit in February and May. If blue chips maintain the bullish trend, we should see small-cap and mid-cap stocks to begin to rally.

Finally, this week will be light on economic data. The most important piece of information released will be the minutes from the last Federal Open Market Committee meeting.

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