Trick or Treat
U.S. equities closed the trading session lower, though stocks finished off October with one of the strongest monthly advances in four years. With a plethora of earnings reports flooding the Street, Dow members Exxon Mobil and Chevron joined the majority of companies that have bested their quarterly expectations.
Treasuries and crude oil prices were higher, while gold and the U.S. dollar were lower. In economic news, personal income and spending and consumer sentiment missed forecasts and regional manufacturing activity surprisingly expanded.
The Dow Jones Industrial Average decreased 92 points (0.5%) to 17,800
The S&P 500 Index lost 10 points (0.5%) to 2,079
The Nasdaq Composite declined 21 points (0.4%) to 5,054
In moderately-heavy volume, 1.1 billion shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq
WTI crude oil declined $0.53 to $46.59 per barrel, wholesale gasoline was $0.03 higher at $1.37 per gallon
The Bloomberg gold spot price declined by $4.10 to $1,141.87 per ounce
The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 96.99
Markets were higher for the week, as the DJIA advanced 0.1%, the S&P 500 Index rose 0.2%, and the Nasdaq Composite Index gained 0.4%
Personal income and spending slightly miss to headline heavy mixed economic calendar
Personal income was 0.1% higher month-over-month (m/m) in September, below the Bloomberg forecast of a 0.2% rise, while August’s 0.3% increase was revised to a 0.4% advance. Personal spending rose 0.1% m/m last month, below expectations of a 0.2% increase, while August’s 0.4% gain was unadjusted. The September savings rate as a percentage of disposable income rose to 4.8% from the upwardly revised 4.7% posted in August. The PCE Deflator was down 0.1% m/m, matching forecasts, with the prior month’s flat reading unadjusted. Compared to last year, the deflator was 0.2% higher, matching expectations. Excluding food and energy, the PCE Core Index was up by 0.1%, below expectations of a 0.2% rise, and the index was 1.3% higher y/y, versus estimates of a 1.4% increase.
The final October University of Michigan Consumer Sentiment Index was unexpectedly revised lower to 90.0 from the preliminary level of 92.1, and compared to the forecast of an upward revision to 92.5. However, the index was up from the 87.2 level in September. The downward revision came as both components pertaining to current economic conditions and the economic outlook were adjusted to the downside, but both were higher versus September. The 1-year inflation projection was unrevised at 2.7%, down from 2.8% in September, while the 5-10 year inflation outlook was adjusted to 2.5% from 2.6%, and below the 2.7% rate in the month prior.
The Chicago Purchasing Managers Index showed Midwest activity surprisingly jumped back into expansion territory (above 50) in October, rising to 56.2—the highest since January 2015—from 48.7 in September, and versus the expectation of a rise to 49.5.
The 3Q Employment Cost Index rose by 0.6% quarter-over-quarter, in line with forecasts, after rising by an unrevised 0.2% in 2Q.
Treasuries were mostly higher, with the yield on the 2-year note flat at 0.73%, while the yields on the 10-year note and the 30-year bond declined 3 basis points to 2.14% and 2.93%, respectively.
Europe and Asia mixed
European equities finished mixed, mirroring the results from a flood of earnings reports in the region. Also, traders digested the unchanged monetary policy decision from the Bank of Japan. In economic news, the eurozone consumer price inflation estimate for came in flat y/y for October, matching forecasts, and up from the 0.1% dip posted in September. Moreover, the eurozone unemployment rate unexpectedly dipped to 10.8%—the lowest since January 2012—for September, compared to the 11.0% estimate. The euro was higher versus the U.S. dollar, while bond yields in the region were mixed.
Stocks in Asia finished mixed with traders digesting the Bank of Japan’s (BoJ) monetary policy decision to keep its stimulus measures unchanged, despite signs of slowing economic growth and inflation that is running below its target. Japanese equities advanced despite some strength in the yen and as some had forecasted that the central bank may announce further measures to support the economy. Also, the BoJ’s decision comes even as core consumer price inflation declined in September and the nation’s household spending unexpectedly declined last month. The BoJ cut its inflation forecast further after the closing bell. The decision was overshadowed by a report from the Nikkei newspaper that the government may boost fiscal stimulus. Stocks trading in mainland China and Hong Kong dipped amid some mixed earnings reports from the nation’s largest banks, while consumer products companies tied to baby goods rallied to limit losses after the announcement that the government ended its one-child policy. Australian securities declined, led by weakness in mining issues, partially offset by strength in oil & gas stocks. Finally, equities in South Korea and India traded lower.
WEEKLY RECAP: Stocks extend winning streak to close out October rally
U.S. equities posted their fifth-straight weekly gain, modestly adding to a sharp October rally for the global stock markets, with relatively upbeat domestic earnings reports adding to central bank stimulus efforts in China, Europe and Japan. The technology sector has been a bright spot this earnings season, adding credence to our outperform rating on the group. Although the Fed surprised some by accompanying its unchanged monetary policy decision with a hawkish statement that kept the possibility of a December rate hike alive, stocks counter-intuitively rallied midweek.
Concerns about a Fed rate hike were likely tamped down by another dose of mixed U.S. economic data, with disappointing durable goods orders being impacted by the slowing manufacturing sector, while the first look at 3Q GDP showed growth slightly missed expectations. Stocks also likely continued to rally with concerns about a federal government shutdown being taken off the table as a surprise budget deal averts debt ceiling crisis. Finally, the U.S. dollar retreated and crude oil prices rebounded from last week’s rout, suggesting future quarters should be less negatively impacted, allowing investors to focus on overall demand, which remains fairly healthy.
THE WEEK AHEAD: Employment report likely to garner attention next week
Next week’s U.S. economic calendar will begin with a couple key manufacturing reads from Markit and the ISM, and will culminate with Friday’s release of the October non-farm payroll report. The relatively weak September jobs report should prove to be more of an outlier than the beginning of a deteriorating trend. That said, job gains should moderate over time, which is natural at this stage in the economic cycle.
Additional reports set for release next week include construction spending, factory orders, the trade balance, and consumer credit.