As indicated by the charts below, all three major US equity indices managed to trade higher in the early going last week – following the previous week’s panic-induced sell-off. However, all three indices were also unable to put together much in the way of positive follow through even though all did post a net-positive week. The Dow Industrials and S&P 500 closed out the week 6% off their all-time closing highs. The Nasdaq Composite has fared worse in the recent reset lower – closing out last week -8% from its all-time closing high. Volume on all three indices also tapered off last week as markets attempted to stabilize. As expected, corporate earnings and economic data have provided a reasoned counterbalance to the fear that has recently gripped markets.
In the case of Q3 corporate results, financials did the heavy lifting in the early going last week. Bank of America (BAC) delivered better than expected EPS results on Monday ($0.66 vs. $0.62), a 6.45% beat. On Tuesday, Goldman Sachs (GS) reported a 15.87% beat versus consensus ( $6.28 vs. $5.42). BlackRock (BLK) ($7.52 vs $6.93) posted a 8.51% beat. Transports also added some momentum to the earnings-induced rebound on Tuesday. CSX ($1.05 vs $0.94) results were an 11.7% surprise to the upside. UnitedHealth Group (UNH) beat by 3.33% ($3.41 vs $3.30).
Economic data, with few exceptions, played a role in providing a degree of relative stability to markets last week as well. Retail Sales for September M/M were lighter than consensus (0.1% vs 0.6%). Industrial Production for September remained constructive and above consensus coming in at 0.3%. Crude inventories, as measured by the EIA Petroleum Status Report, grew inventories – adding 6.5M bbl.
In a nod to the continued concern over monetary policy and further tightening, the FOMC Minutes released Wednesday at 2:00 pm, underscored the reality for investors that additional tightening is on the horizon – with the odds of a move in December a near certainty. The FOMC Minutes took some momentum out of the rally that had materialized on Tuesday – effectively taking equity prices close to where they started the week. Weekly jobless claims remain stronger than expected. Existing Home Sales for September were fractionally weaker tan expected.
All-in-all, corporate results and economic data damped the panic that materialized in the previous week. I expect continued choppy price action this week with a decidedly positive bias – primarily fueled by the same themes.
The tempo and trade off the economic calendar this week will be determined by several releases. New Home Sales and the EIA Petroleum Status Report on Wednesday. Thursday, Durable Goods, International Trade in Goods and Weekly Jobless Claims. Most importantly, Friday we receive Q3 GDP (a). Econoday consensus is 3.3%. Q2’s final reading was 4.2%. The street is expecting a slowdown from torrid results in Q2.