Large-cap sponsorship, in the form of 3M, CAT, and Intel, helped to deliver positive traction for US equity markets last week. Large-cap tech sponsorship in the form of Tesla, AMD, and Nvidia helped to round out the broader push higher in equity prices. The constructive weekly performance for US equities, broadly speaking, was capped off on Friday by a gain of 0.7% by the tech-centric Nasdaq composite. On Friday, the S&P 500 added 0.4% and the Dow Industrials gained 0.6%. Volume on the NYSE slipped 3.4% while volume on the Nasdaq rose by 1.2%. Friday’s gains were even more significant given Amazon’s disappointing earnings on Thursday after the closing bell.
The current outlook for US equities remains “confirmed uptrend.
So what exactly is keeping US equity markets on a “confirmed uptrend?” A few things: manufacturing data released last week indicated that our expansion is not over––not a by a long shot. This, despite the US/China-trade panic that has been the touchstone for those looking to blame something (anything) for an economic slowdown. Last week the Richmond Fed Manufacturing Index for October was released. September’s reading was a solidly negative -9. Econoday consensus was calling for a repeat of that -9 in the October reading. However, it was 8. The Kansas City Fed Manufacturing Index for October was released on Thursday. It came in at -3 versus last month’s -2.0. Not positive, but hardly cause for panic either.
Though manufacturing has remained largely constructive both in regional Fed reports and as part of the monthly employment report, there are a few concerns in recent economic data releases. Durable Goods Orders for September, released last Thursday, reflected some unexpected weakness. New Orders M/M came in at -1.1% versus consensus of -0.7%. Core capital goods M/M was -0.5%. It is important to keep in mind that Durable Goods Orders tend to be volatile. As a result, the miss we saw in September’s data doesn’t take meaningful shape unless and until we see a trend develop that speaks to more sustained contraction.
US Consumer Sentiment, as measured by the University of Michigan’s Consumer Survey Center, is arguably one of the most important measures of consumer confidence, outlook, and comfort. For October (f), the results confirmed what we already knew. US consumer sentiment is rock solid. For the month it came in at 95. September’s reading was 96.
One of the themes that is providing lift for US equity markets continues to be economic data. But there is more to this––earnings. So far this earnings season, financials and healthcare have been pillars of strength for the market. Increasingly, though, those two sectors are not doing all the heavy lifting, as evidenced by last week’s earnings results.
With about 20% of the S&P 500 reporting Q3 results as of 10/22, the S&P 500 is still expected to see a 3.8% drop, year on year, despite impressive results for financials and health care. As a result, 7 of 11 sectors are now projected to post Q3 actuals that surpass end-of-quarter forecasts. – Sam Stovall
Leadership for large-cap tech has played a central role in resurgent US equity prices. Last week, Microsoft, PayPal, Intel, and Tesla all provided earning lift. US equity markets have regained a degree of momentum in recent weeks. If we receive a cut in rates this week, which is priced in, look for additional economic data and earnings to provide fuel for a punch into record territory this quarter.
So privileged to have Marc Sutin and Sam Stovall’s research notes included in this weekly note. Their perspectives, and their remarkable work, are supremely valuable.
This week’s Economic Calendar Highlights:
International Trade in Goods: This release, for September, is expected to reflect a worsening of the monthly trade gap. Econoday is calling for a consensus reading of $-73.5 B.
Q3(a) Gross Domestic Product is released at 8:30 am. Econoday consensus for Real GDP – Q/Q change SAAR is 1.7% – down from the previous reading of 2.0%. Consumer spending is expected to have continued to provide much of the fuel for our continued expansion.
FOMC Meeting Announcement – the street is expecting the Fed to cut 25 bps.
Fed Chair Press Conference is held at 2:30 pm.
Weekly Jobless Claims for the week ending 10/26 are released at 8:30 am. Consensus is little changed from last week’s results, 215k.
Personal Income and Outlays for September are expected to remain constructive. M/M personal income is expected to gain 0.3%. Consumer Spending is expected to be 0.2%. Core PCE price Index Y/Y is expected to be 1.7%.
The official Unemployment Rate dropped to 3.5% in September. This month’s report is expected to reflect a modest gain in employed, 93k while the rate of unemployment is expected to tick up to 3.6% from 3.5%.
ISM Mfg. Index report for October is released at 10:00. Econoday consensus is calling for a reading of 49 – up from last month’s 47.8.