US equity markets have alternatively found justification for an intermittent trade higher from either news of progress in the current coronavirus aid/stimulus talks or better than expected earnings or even unexpectedly good news on the vaccine front. Those three themes have allowed for markets to remain either marginally higher or fractionally lower on balance over the past several weeks. In the case of last week, We saw all three major market indices give up fractional ground after a solid week of gains the previous week. Friday is a case in point. Both the Nasdaq Composite and the S&P 500 posted gains but ended the week fractionally lower. The Dow Industrials slipped a mere .10% on the session but 0.95% on the week.
DJIA – 0.95%
S&P 500 – 0.53%
Nasdaq – 1.06%
It feels like a directionless trade, but it isn’t. The trend remains subdued but higher for the time being. The 50 DMA has continued to act as support for all three major market indices. It is precisely at moments like the one we find ourselves in that an old adage comes to mind – one that my father was particularly fond of saying: “Never short a dull market.” Of course, the other side of that coin is worth underscoring given the near unanimity of these three charts below. A double top is more often times than not followed by a consequential pullback.
And a double top could be in the offing if pricing weakness manifests this week – particularly on rising volume with the three indices giving up on their relative 50 DMAs.
We will be swamped with Q3 earnings releases this week, dates are listed in the Nasdaq earnings calendar above.
Last week’s economic calendar highlights:
Housing, housing, housing…
Not surprisingly, the Housing Market Index reading for October (85), released Monday morning, came in higher than both September’s reading (83) and the high-end of Econoday’s consensus range (84). Housing Starts and Permits for September, released Tuesday morning, though solidly positive came in mixed relative to Econoday consensus and revisions. The prior month’s starts reading was revised lower from the initial 1.416 M to 1.388 M. Starts for September were 1.415 M – below Econoday consensus of 1.463 M. Permits are outpacing starts by a healthy margin – definitely a leading indicator for the sector and a sign of builder bullishness. 1.553 M permits were filed in September. Existing Home Sales for September came in at 6.540 M. Econoday consensus was 6.2 M. Y/Y Existing Home Sales have grown by a stunning 20.9%
Weekly Jobless Claims, for the week ending 10/17, were 55 K lower than the previous week. They dropped from 842 K to 787 K – significantly better than consensus of 865 K. The 4-week moving average stands at 811 K. There was significant pressure building around this weekly release over the past four weeks – due in large part to the fact that it appeared as though there had been a worrisome stall in the drop in claims.
Last Friday, we received the flash Purchasing Managers’ Index (PMI) reading for October. It came in at 55.5 versus consensus of 54.2 and the prior reading of 54.4. This purely private sector reading is comprehensive and provides good definition around what to expect when the PMI is released in 10 days.
This week’s economic calendar highlights:
On Monday New Home Sales data for September is released at 10:00 am. As we have discussed, housing in general has been an outperforming sector of the economy for most of 2020. That outperformance has been fueled in large part by significant net migrations out of our large urban areas – particularly from those urban areas that have been most adversely affected by the pandemic. However, the exodus underway in a number of the nation’s larger cities is also has being fueled by quality of life issues, rising taxes, and a general realization that most people can work remotely. All that said, New Home Sales for September are expected to remain in-line (1,016 K) with Augusts’ results (1,011 K).
Durable Goods Orders data for September is released on Tuesday morning. Again, top-line results in this report are expected (0.4%) to remain in-line with August’s results (0.4%). Ex-Transports, Econoday is expecting the same results (0.4% vs. 0.4%). Core Capital Goods however are expected to slip from August’s solid 1.8% reading to 0.5% in September.
Consumer Confidence data for October, compiled and released by the Conference Board, is released on Tuesday. Consumer Confidence is expected to be in-line with the previous reading. September’s reading was 101.8. Econoday consensus for October is 102.
International Trade in Goods (Advance) for September is scheduled for release Wednesday morning. Econoday consensus is $-85.0 B. August’s reading was $-82.9 B. Not pretty. Exports are again expected to lag behind imports by 2.8% vs. 3.1%. The EIA Petroleum Status Report for the week ending 10/23 is released at 10:30 am. Last week’s results continued to reflect a market in balance:
Crude Oil Inventories – W/W -1.0 M barrels
Gasoline Inventories – W/W 1.9 M barrels
Distillate Inventories – W/W -3.8 M barrels
US Q3 GDP (a) is released Thursday at 8:30 am. There is little question that this will be one of the two or three most anticipated economic releases of the week. And I could easily make the case for it being the most significant release of the week. Econoday consensus for this widely anticipated Q3 GDP release is 38.9% versus the previous quarterly reading of -31.4%. I dare say there is not a soul alive that has seen a total 2 month point swing in GDP of 70.3%.
Importantly, the Personal Consumption/Expenditures – Annual Rate reading is expected to match the top-line GDP reading, 38.9% interestingly enough. Weekly Jobless Claims data for the week ending 10/24 is also scheduled for release on Thursday morning. Last week’s report was a welcome source of good news for markets as the weekly claims figure or the previous week finally ticked below 800 K. Initial Claims in last week’s report were 787 K Econoday consensus for this week is 758 K. The four-week moving average is 811.25. K.
September’s Personal Income and Outlays data is due out Friday morning. Personal Income – M/M is expected to be 0.3% according to Econoday. Consumption is expected to be 1.0%. A move out of negative readings for Income is widely expected.
This week’s economic calendar does cover a great deal of ground from New Home Sales, to regional manufacturing reports to trade, GDP, Jobless Claims, and Incomes and Outlays. It is a busy week and though all this data is tangent, there remain four themes that will dominate trading this week and the direction of trade away from all the data in the economic calendar:
- The general election
- The coronavirus aid bill
- News of Coronavirus vaccines or therapeutics
- Q3 corporate results