All posts by John Heilner

Market Insights 10/16/2019

U.S. stocks gave back some of yesterday gains as retail sales posted their first decline since February. However, the report was only a slight disappointment as August’s figures were revised higher and the yearly trend remains intact.

3Q earning continued to pour in with Bank of America and Bank of New York Mellon besting the Street’s forecasts. Treasury yields were lower and took the U.S. dollar with them. Crude oil and gold were higher on the day.

The Markets…

The Dow Jones Industrial Average was down 22 points (0.1%) at 27,003

The S&P 500 Index dropped 6 points (0.2%) to 2,990

The Nasdaq Composite shed 25 points (0.3%) to 8,149

In light volume, 741 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.55 higher to $53.36 per barrel and wholesale gasoline was flat at $1.62 per gallon

The Bloomberg gold spot price increased $10.20 to $1,493.70 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.3% to 98.00

Retail sales slip monthly, homebuilder sentiment improves, mortgage apps notch another gain

Advance retail sales for September fell 0.3% month-over-month, versus the Bloomberg forecast of a 0.3% increase, and August’s 0.4% rise was upwardly-revised to a 0.6% gain. Last month’s sales ex-autos ticked 0.1% lower m/m, compared to expectations of a 0.2% gain and August’s upwardly-revised 0.2% increase. Sales ex-autos and gas were flat m/m, compared to estimates of a 0.2% gain, and August’s upwardly-adjusted 0.3% increase. The control group, a figure used to calculate GDP, was unchanged, versus projections of a 0.3% rise, and compared to August’s unrevised 0.3% increase.

This was the first month the measure posted a decline since February, as seven of the 13 categories registered decreases, including autos, building materials, and non-store retailers, which counts online activity, offsetting increases in apparel, health and personal care, as well as furniture and home furnishings. However, sales were up 4.1% on a year-over year (y/y) basis, continuing its upward trend, with the revisions to August’s figures lending a hand.

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment in October improved to 71 from September’s unrevised 68 level, where it was expected to remain, with a level of 50 separating good and poor conditions. This was the ninth-straight month the index has been north of 60 and its highest level since February 2018. The NAHB noted that, “The second half of 2019 has seen steady gains in single-family construction, and this is mirrored by the gradual uptick in builder sentiment over the past few months,” adding, “However, builders continue to remain cautious due to ongoing supply side constraints and concerns about a slowing economy.”

The Federal Reserve released its Beige Book—an anecdotal look at economic activity across the nation used as a tool for its next monetary policy meeting set to conclude on October 30. In the report, economists said that the U.S. economy has expanded a “slight to modest pace”. Business outlooks for the next six to twelve months were a bit soft, but household spending has been strong.

Treasuries were higher, with the yield on the 2-year note down 3 bps to 1.59%, the yield on the 10-year note ticking 3 bps lower to 1.75%, while the 30-year bond rate was 1 bp higher at 2.23%. Despite the increases last week, yields remain historically low and overseas there is a massive amount of negative yielding debt.

With this week’s economic calendar less robust, Q3 earnings season could grab top billing, as it is set to kick into gear after a number of financial institutions unofficially got the ball rolling yesterday. Global events may also be the catalysts to help to shape sentiment throughout the week as any Brexit developments may be scrutinized as the deadline draws near, as well as the continued focus on the U.S.-China trade front. While optimism spiked on the partial trade deal agreed to between the two world’s largest economics, headlines since have kept a lid on the euphoria, as today China vowed to retaliate if the U.S. Congress were to enact legislation that supported the protests in Hong Kong. The proposed bill would request that various government departments consider whether recent political developments in Hong Kong require the U.S. to change the region’s special trading status.

Europe finished mixed amid Brexit uneasiness, Asia mostly higher

Brexit negotiations continued well into the night without an agreement, with reports coming out of the meeting more downbeat amid heightened pessimism after the Democratic Unionist Party objected to U.K. Prime Minister Boris Johnson’s proposal.

Economic reports from Europe showed consumer price inflation out of Italy, the Eurozone and U.K. roughly matched expectations, while wholesale prices in the latter declined more than forecasts. Eurozone industrial orders came in well below projections. The euro and the British pound were higher versus the U.S. dollar, while bond yields in the region were mostly higher.

Stocks in Asia finished mostly higher with focus again on developments on the U.S.-China trade front, and as the People’s Bank of China unexpectedly injected $28 billion in liquidity through one-year medium-term lending facility loans. The move caught investors by surprise, as the government typically injects funds when prior loans come due. Despite the positive events, China’s Shanghai Composite Index declined. Bloomberg reported that China vowed to retaliate if the U.S. Congress were to follow through on ratifying legislation that would require an annual review of the sufficiency of autonomy in Hong Kong from Beijing to justify its special trading status.

The Hong Kong Hang Seng Index was higher, and South Korea’s Kospi Index increased on the day with the Bank of Korea cutting its benchmark interest rate by 25 bps, as was widely expected. Japan’s Nikkei 225 Index increased was nicely higher, as well as Australia’s S&P/ASX 200 Index. India’s S&P BSE Sensex Index ticked a bit higher.

Earnings News…

Bank of America Inc. reported Q3 earnings-per-share (EPS) of $0.56, or $0.75 per share excluding a $2.1 billion impairment charge attached to the end of a partnership with First Data, above the $0.51 FactSet estimate. Revenues were nearly flat year-over-year (y/y) at $23.0 billion, slightly above the $22.8 billion forecast.

Bank of New York Mellon posted a Q3 profit of $1.07 per share, versus the $0.99 FactSet estimate, as revenues fell 5.0% y/y to $3.86 billion and below the $3.91 billion forecast.

Market Insights 10/15/2019

Earnings season unofficially started today with a number of major financial firms offering their third quarter results. JPMorgan Chase, Goldman Sachs, Citigroup, Blackrock and Wells Fargo all reported today and while the reports were generally mixed, the market may have been bracing for worse as the recent precipitous fall in interest rates can be a strong drag on earnings in the financial sector.

The largest company in the healthcare sector, Johnson & Johnson exceeded the Street’s forecasts. The strong results were echoed by a number of firms in sector, making Health Care the top performing sector on the day.

Treasuries continued last week’s selloff after being closed yesterday in observance of Columbus Day. The sole economic report of note showed better-than-expected regional manufacturing activity. The U.S. dollar was lower, despite the continued rally in yields. On the commodity front, gold lost ground and WTI crude oil fell.

The Markets…

The Dow Jones Industrial Average was up 237 points (0.9%) to 27,025

The S&P 500 Index added 30 points (1.0%) to 2,996

The Nasdaq Composite rose 100 points (1.2%) to 8,149

In light volume, 733 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.66 lower to $52.92 per barrel and wholesale gasoline was flat at $1.62 per gallon

The Bloomberg gold spot price decreased $12.50 to $1,485.20 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.2% to 98.28

Regional manufacturing surprises to upside in light economic calendar

The Empire Manufacturing Index, a measure of activity in the New York region, rose to a level of 4 during October from the unrevised 2 posted in September, well above the -1 forecasted, with a reading above zero denoting expansion in activity. The data was released early due to technical difficulties.

After a day off in observance of the Columbus Day holiday, Treasuries resumed their downward trend. The yield on the 2-year note was up 3 basis points. Yield on the 10-year note and 30-year bond were up 4 bps to 1.77%, and 2.24%, respectively.

Despite the recent increase in yields, the futures markets are pricing in strong expectation of further cuts from the fed, longer term yields remain historically low and overseas there is a massive amount of negative yielding debt.

Europe mostly higher amid upbeat Brexit developments

European equities finished higher amid cautious optimism over a partial trade deal between the U.S. and China and a European Union (EU) negotiator indicating that a deal between the EU and the U.K. is still possible ahead of the October 31st deadline. The upbeat news comes after U.K. Prime Minister Boris Johnson met with his Irish counterpart last week and had informed his cabinet over the weekend that a Brexit deal could be achieved, only for those hopes to be stymied after some EU officials warned that Johnson’s plans are currently insufficient for a basis of an agreement. The euro lost modest ground versus the U.S. dollar and the British pound was higher, while bond yields in the region were mostly lower.

Stocks in Asia finished mixed with focus again concentrated on last week’s U.S.-China trade talks that generated a partial agreement between the two nations. China has indicated that it wants another round of talks before it signs what President Trump called “a very substantial phase one deal”. Chinese consumer price inflation rose 3.0% y/y, a tick above expectations, with a jump in pork prices as a result of an ongoing shortage of meat following an outbreak of swine fever.

China’s Shanghai Composite Index finished lower as did the Hong Kong Hang Seng Index. South Korea’s Kospi Index was little changed and Australia’s S&P/ASX 200 Index inched a bit higher. Japan’s Nikkei 225 Index rallied in a return to action following yesterday’s holiday aided by some weakness in the yen. Japanese industrial production fell, but in line with expectations, and the nation’s Tertiary Industry Index, a leading indicator of the total value of services purchased by businesses, increased.

Earnings News…

Goldman Sachs reported Q3 earnings-per-share (EPS) of $4.79, nearly 24% lower than a year ago and below the $4.86 FactSet estimate. Revenues fell 6% y/y to $8.32 billion, missing forecasts of $8.42 billion, as a 15% decline in investment banking revenues came up against 8% and 5% respective gains for its fixed income and equity market units. GS finished the day modestly higher.

JPMorgan Chase reported a Q3 profit to $2.68 per share, above the $2.45 FactSet estimate on an 8.1% y/y increase in revenues to $30.1 billion, exceeding the $28.5 billion projection. The investment bank said strength in consumer and investment units helped offset a “more challenging” interest rate environment, as net interest income rose 2% to $14.4 billion, beating expectations of $14.1 billion. Shares jumped on the report.

Wells Fargo and Company posted a Q3 profit of $0.92 per share, which includes a $0.35 per share charge due to litigation which may be making it difficult to compare to the FactSet estimate of $1.24. Revenues rose 4.3% y/y to $22.0 billion, above the $21.1 billion forecast, as it saw a 45% decline in mortgage banking income and an 8% fall in net interest income. Shares moved higher.

Citigroup achieved a Q3 profit of $2.07 per share, including a tax benefit of $0.10 per share, exceeding the $1.95 FactSet estimate, on an 8.1% y/y increase in revenues to $18.6 billion, compared to forecasts of $18.5 billion. The bank’s CEO said, “Despite an unpredictable environment throughout the quarter, we continue to deliver on our strategy of improving shareholder returns through consistent, client-led growth while also executing against our capital plan,” and that it remains on track to return more than $60 billion of capital to shareholders over a three-year period which ends next year. Shares were higher.

Johnson & Johnson announced Q3 earnings of $1.84 per share, or $2.12 ex-items, compared to the forecasted $2.01, as revenues increased 1.9% y/y to $20.7 billion, versus the projected $20.1 billion. The company said its quarterly results represent “strong performance, driven by competitive underlying growth in Pharmaceuticals and Medical Devices, as well as continued optimization in our Consumer business.” JNJ gained ground.

BlackRock reported Q3 earnings-per-share (EPS) of $7.15, versus the $6.96 FactSet estimate, as revenues rose roughly 3.0% year-over-year (y/y) to $3.7 billion, matching forecasts. The money-management firm noted that total fund flows, the difference between money going in and that coming out, rose to $84.3 billion from the $3.1 billion loss a year earlier. BLK shared gained solid ground on the day.

Earnings Season- Elevated Expectations

Equity markets recovered last week from their early October slump, propelled by prospects of a trade truce.

The details of the agreement should either push stock prices to new heights or trigger a digestion of recent gains.

We wouldn’t be surprised to see a give-back of enthusiasm in this typically volatile month before advancing into the year-end.

EPS growth will likely take a front seat to trade speculation, with this week’s focus being on the financial sector, in general, and the banks, in particular.

The sectors expected to show the greatest gains include the financials, now likely to record a 2.3% y/y gain, versus the S&P 500’s projected decline of 4.2%. In addition, the S&P 500 Diversified Banks sub-industry Index is forecast to report a 5.6% increase, while the Regional Bank Index delivers only a 0.2% advance.

Eight of the 11 sectors in the S&P 500 have seen a reduction in their Q3 EPS growth projections when compared with the end-of-quarter estimates.

Finally, investors anticipate actual S&P 500 Q3 results to exceed the end-of-quarter estimate, as was done in each of the last 30 quarters.

Trade Deal

President Trump on Friday announced what he calls “phase one” of a larger trade deal with China. As part of the deal, a tariff increase planned for next Tuesday will not be imposed. The U.S. was scheduled to raise tariffs on about $250 billion worth of goods on October 15 from 25% to 30%.

The specifics of the deal are still being hammered out, and they haven’t been signed yet. President Trump said he hopes that will happen in the next month or so. The leaders of the U.S. and China are expected to meet in November.

“We’ll do a formal signing with President Xi and myself,” Trump said of the meeting in Chile, which is hosting the Asia Pacific Economic Cooperation meetings in November.

Leading up to the latest talks, the president had said he wanted to strike a comprehensive agreement which would include more Chinese enforcement of intellectual property rights, an end to the forced transfer of U.S. technology, greater access to Chinese markets and limits on subsidies of China’s state owned businesses.

Progress appears to have been made on some of these issues. While full details of the deal weren’t available, Trump said it encompasses agreements on intellectual property and financial services. He said it also includes a deal for China to purchase up to $50 billion worth of agricultural goods from American farmers.

The economies of both the U.S. and China have slowed since the tit-for-tat tariffs began 18 months ago. In the U.S., manufacturing and agriculture are two sectors notably cited in the U.S. slowdown. Both sectors rely critically on trade.

“With our two teams making progress on some parts of the agreement under consultation, it is important that we address each other’s concerns properly and make positive headway in the other areas as well,” Xi said in a letter to Trump.

GDP growth in the U.S. has slowed to 2% and is likely lower than that in the third quarter, which just ended. The administration has sought to compensate farmers for lost export sales with a $28 billion aid package distributed by the Department of Agriculture.

Market Insights 10/11/2019

U.S. equities rallied strongly to end the week and posted positive weekly returns for the first time in three weeks.

Optimism surrounding U.S.-China trade fueled the rally after a tweet from President Trump said that “good things” are happening.

Treasury yield rose sharply for a second straight day, while the U.S. dollar was off again. Oil joined other risky assets in the rally and gold sold off.

The Markets….

The Dow Jones Industrial Average rose 320 points (1.2%) to 26,817

The S&P 500 Index added 32 points (1.1%) to 2,970

The Nasdaq Composite increased 106 points (1.3%) to 8,057

In light volume, 863 million shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq

WTI crude oil moved $0.36 higher to $52.81 per barrel and wholesale gasoline increased $0.02 to $1.64 per gallon

The Bloomberg gold spot price declined $7.64 to $1,486.43 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was fell 0.4% to 99.28

Markets were higher for the week, a first for the past three weeks, as the DJIA added 0.9%, the S&P 500 Index gained 0.6 % and the Nasdaq Composite increased 0.9%

October consumer sentiment hits three-month high

The October preliminary University of Michigan Consumer Sentiment Index rose to 96.0 from September’s read of 93.2, and north of the Bloomberg expectation of a dip to 92.0. The index continued to rebound off of the near three-year low in August and posted the highest level since July as both the current conditions and expectations components of the index gained ground. The 1-year inflation forecast fell to 2.5% from September’s 2.8% rate, and the 5-10 year inflation forecast dropped to 2.2% from 2.4%.

Treasuries fell for the second straight day, with the yield on the 2-year note gaining 4 basis points to 1.59%, the yield on the 10-year note advancing 6 bps to 1.73%, and the 30-year bond rate rising 3 bps to 2.20%.

Global equities rally as trade and Brexit concerns fade

European and Asian equities finished higher amid optimism surrounding progress on the U.S.-China trade front. President Donald Trump and Chinese Vice Premier Liu met today to conclude a second day of negotiations that the President characterized as going “very well.”

U.K. Brexit concerns were tempered somewhat following yesterday’s meeting between British Prime Minister Boris Johnson and Irish Premier Varadker, with both noting that they could see a pathway to a possible deal. The developments eased concerns of a no-deal divorce from the European Union that has caused elevated pressure on the markets.

The British pound jumped versus the U.S. dollar on the developments, and the euro also traded to the upside, while bond yields in the region were mixed.

In Asia, major markets moved higher. Japan, China, Hong Kong, South Korea, India and Australia all finished in the green. While the move was likely primarily driven by U.S.-China trade talks. While trade news was generally positive today, trade concerns have been a major source of volatility in the currency markets and paired with elevated global recession risks, have led to negative bond yield across a good portion of the globe.

Stocks overcome early pressure to snap string of weekly losses

U.S. stocks seemed poised for a fourth-straight weekly decline early in the week as the markets appeared cautious with high-level talks between the U.S. and China looming. The announcements of the U.S. blacklisting some Chinese tech companies and placing new visa restrictions on Chinese officials appeared to further complicate the path toward a trade deal. However, hopes of some sort of a U.S.-China trade deal resurfaced to boost the markets and the S&P 500 posted a solid advance for the first time in four weeks, with comments from both sides suggesting a partial deal may be in the offing.

U.K. Brexit concerns faded a bit following a recently rare sign of potential progress. The markets shrugged off the prolonged strike at General Motors Company (GM $35) and pension plan changes at General Electric Company (GE $9), as well as caution ahead of next week’s unofficial start to Q3 earnings season.

Small business optimism slipped more than expected, reads on wholesale and consumer price inflation remained subdued, and job openings declined, but jobless claims unexpectedly fell and remained at a historically low level, consumer credit rose, mortgage applications jumped for a second-straight week, and consumer sentiment continued a rebound.

Treasury yields surged as elevated Fed rate cut expectations were tempered somewhat and crude oil prices posted solid weekly gain, though the U.S. dollar fell, along with gold prices. Most sectors advanced, led by materials, industrials, consumer discretionary and financials, while the defensive consumer staples and utilities notched weekly losses.

Market Insights 10/9/2019

Only nine days into the month and October is living up to its reputation for volatility. Month to date, the large-, mid- and small-cap components of the S&P Composite 1500 Index are trading in the red, along with all 11 of its sectors.

U.S. equities finished higher, as yesterday’s uncertainty surrounding the upcoming talks between the U.S. and China was tempered somewhat by increased optimism the two nations can cobble together some sort of a deal when talks resume tomorrow in Washington.

In addition, the S&P 500 has recorded four daily price moves of 1% or more, well on its way to surpassing August’s count of 11. The status of the trade negotiations appears to be the fulcrum of market volatility.

Investors are trying to ascertain whether the administration will settle for face-saving piecemeal agreements or hold out for a broad, sweeping concession. The markets will likely cheer the former but cringe at the latter.

The Markets…

The Dow Jones Industrial Average rose 182 points (0.7%) to 26,346

The S&P 500 Index increased 26 points (0.9%) to 2,919

The Nasdaq Composite advanced 80 points (1.0%) to 7,904

In light volume, 659 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.04 lower to $52.59 per barrel and wholesale gasoline gained $0.01 to $1.59 per gallon

The Bloomberg gold spot price increased $0.44 to $1,505.95 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was little changed at 99.10

Job openings decline, mortgage applications rise, Fed releases meeting details

The Labor Department’s Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, fell to 7.05 million jobs available to be filled in August—the lowest since March 2018—from July’s downwardly-adjusted 7.17 million figure, and below forecasts of 7.25 million. The hiring rate dipped to 3.8% from July’s 3.9% pace, and the separation rate edged lower to 3.7% from 3.8%.

The MBA Mortgage Application Index rose 5.2% last week, following the prior week’s 8.1% gain. The increase came as a 9.8% jump in the Refinance Index more than offset a 0.9% dip for the Purchase Index. The average 30-year mortgage rate dropped 9 basis points to 3.90%.

In afternoon action, the Federal Reserve released the minutes from its September meeting that concluded with the second rate cut for 2019. The report showed “a few participants” felt that prices in futures markets “were currently suggesting greater provision of accommodation at coming meetings than they saw as appropriate.” As a result of any potential misunderstanding, the Committee noted that “it might become necessary for the Committee to seek a better alignment of market expectations regarding the policy rate path with policymakers’ own expectations for that path.”

The minutes also showed that trade was an overriding concern, while also noting that “a clearer picture of protracted weakness in investment spending, manufacturing production, and exports had emerged.”

Treasuries were lower, as the yield on the 2-year note was up 3 bps at 1.45%, the yields on the 10-year note and the 30-year bond rate rose 4 bps to 1.58% and 2.08%, respectively.

More job and inflation data is in store for tomorrow’s economic calendar, courtesy of weekly initial jobless claims, forecasted to tick higher by 1,000 to 220,000, and the Consumer Price Index (CPI), with economists projecting a 0.1% m/m increase for September, matching that seen in August, and the core rate, which excludes the volatile food and energy components, to have gained 0.2% m/m after posting a 0.3% increase the month prior.

Europe higher as trade optimism kicks in, Asia mixed

European equities overcame early pressure and finished higher amid reports that China still wants to reach a trade deal with the U.S. as talks are expected to resume tomorrow, even as the U.S. yesterday blacklisted some Chinese tech companies. The markets also showed some resiliency in the face of a disappointing read on French industry sentiment for September and as U.K. Brexit uncertainty remained elevated as Prime Minister Boris Johnson is reportedly facing some pressure within his own cabinet regarding the potential for a no-deal divorce from the European Union as an October 31st deadline looms.

The euro was higher versus the U.S. dollar and the British pound was little changed after yesterday’s drop, while bond yields were higher.

Stocks in Asia finished mixed with the markets appearing a bit cautious ahead of this week’s resumption of high-level trade talks between the U.S. and China, with the former’s move yesterday to blacklist some of the latter’s tech companies adding another layer of tension and uncertainty.

Japanese equities declined, with the yen holding onto yesterday’s gains, while stocks in mainland China overcame early losses and finished higher. Listings in Hong Kong, on the other hand, fell and shares in Australia dropped following a deterioration in the nation’s October consumer confidence.

Market Insights 10/8/2019

U.S. equities declined amid tempered optimism of a U.S.-China trade deal with talks set to resume in Washington this week, as the U.S. blacklist of some of China’s tech companies is one of the issues that is adding another wrinkle to the upcoming meeting.

Treasury yields were mostly lower amid the dampened trade optimism and as U.S. wholesale price inflation unexpectedly declined and small business optimism slipped, while the U.S. dollar inched higher, gold gained ground, but crude oil prices ticked lower.

The Markets…

The Dow Jones Industrial Average fell 314 points (1.2%) to 26,164

The S&P 500 Index lost 46 points (1.6%) to 2,893

The Nasdaq Composite decreased 133 points (1.7%) to 7,824

In moderate volume, 803 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil nudged $0.12 lower to $52.63 per barrel and wholesale gasoline gained $0.01 to $1.58 per gallon

The Bloomberg gold spot price increased $10.34 to $1,503.84 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was up 0.2% at 99.13

Wholesale price inflation cools, small business optimism declined more than expected

The Producer Price Index (PPI) showed prices at the wholesale level in September declined 0.3% month-over-month, below the Bloomberg forecast calling for it to match August’s unrevised 0.1% rise. The core rate, which excludes food and energy, also declined 0.3% m/m, versus expectations calling for a 0.2% increase and compared to August’s unadjusted 0.3% increase. Y/Y, the headline rate was 1.4% higher, versus projections to match August’s 1.8% increase. The core PPI rose 2.0% y/y last month, south of estimates calling for an unchanged reading from August’s unrevised 2.3% gain.

The National Federation of Independent Business (NFIB) Small Business Optimism Index for September declined to 101.8 from August’s unrevised 103.1 level, and expectations of a decrease to 102.0. NFIB President and Chief Executive Officer (CEO), Juanita Duggan noted, “As small business owners continue to invest, expand, and try to hire, they’re doing so with less gusto than they did earlier in the year, thanks to the mixed signals they’re receiving from policymakers and politicians,” adding that “All indications are that owners are eager to do more, but they’re uncertain about what the future holds and can’t find workers to fill the jobs they have open.”

Treasuries were mostly higher, as the yield on the 2-year note was down 5 basis points (bps) to 1.41%, the yield on the 10-year note lost 2 bps to 1.53%, while the 30-year bond rate was flat at 2.04%.

Europe lower, Asia higher as U.S.-China trade discussions eyed along with data

European equities finished lower, with the global markets treading cautiously ahead of this week’s U.S.-China trade talks in Washington, with some skepticism appearing to resurface regarding what the negotiations could yield. Also, U.K. Brexit concerns continued to ramp-up ahead of the October 31st deadline, with negotiations with the U.K. and European Union reportedly being close to breaking down. The British pound saw heavy pressure versus the U.S. dollar and the euro was slightly lower, while bond yields in the region were mostly lower.

Stocks in Asia finished mostly higher as the markets focused on this week’s trade talks between the U.S. and China though some caution remained regarding if a comprehensive deal can be reached, with the U.S. blacklisting some Chinese tech companies.

Chinese markets returned to action following a week-long holiday break, gaining ground along with shares in Hong Kong. Japanese equities rose, with the yen giving back some of a recent advance, while South Korean and Australian securities also increased.

Expectations are Lowest Since the 2015-16 EPS Recession

The third quarter has come to an end. Wall Street estimates now call for a 4.2% year-over-year decline in S&P 500 operating EPS for the quarter, according to S&P Capital.

This projected decline follows the more than 2% gain reported for Q2. Seven sectors are expected to post declines, led by energy, materials and real estate, while increases should be greatest in financials, health care and industrials.

We feel no EPS recession is on the horizon, however, as Q4 estimates call for a 2.8% advance. Full-year 2019 results will likely be up only 0.7% but then increase by 10.3% in 2020, while S&P 500 revenues should rise 3.7% in Q3 and 4.4% for all this year, versus the gain of 5.8% expected in 2020. The S&P 500’s P/E on next-12-month (NTM) EPS stands at 17.5x, vs. the average multiple of 16.4x since 2000.

The S&P 500 is expected to report a year-on-year decline in EPS in Q3, its first fall-off since the earnings recession of 2015-16. Q3 declines are also expected for six of the 11 sectors in the S&P 500 driven by a slowing U.S. economy as a result of the lingering trade dispute with China. Should history repeat itself, however, the final tally of Q3 results will likely see EPS growth approach the positive zone, as actual EPS exceeded initial estimates in each of the last 30 quarters by an average of nearly four percentage points.

U.S. Market Weekly Summary – Week Ending 10/04/2019

S&P 500 Posts 0.3% Weekly Drop, Starting October and Q4 on Cautious Note, Led by Energy Sector

The Standard & Poor’s 500 index fell 0.3% this week, marking its third-consecutive weekly drop and starting October and Q4 on a negative note as investors’ worries about the economy and trade issues weighed.

The market benchmark ended the week at 2,952.01, down from last week’s closing level of 2,961.79. Still, the decline was smaller than it would have been if not for a Friday increase of 1.4%, boosted by a lower-than-expected September unemployment rate.

The energy sector had the largest percentage drop of the week, down 3.8%. Other sectors in the red included materials, down 2.5%; industrials, down 2.4%; and financials, down 2.2%.

On the upside, the technology sector rose 1.1%, followed by a 0.9% increase in health care. Consumer staples, real estate, utilities and communication services also managed to eke out small gains.

The activity came as investors entered Q4 on cautious footing amid mixed readings on the economy and continuing concerns about the trade war between the US and China.

While some parts of the September US employment data out Friday appeared encouraging, with the unemployment rate hitting 3.5% for the first time since 1969, US non-farm payrolls rose by less than expected and followed disappointing manufacturing data released earlier in the week.

The energy sector’s drop came as crude-oil futures fell on the week amid the economic and trade concerns along with fears of a supply glut. The latest weekly inventory figures showed a larger-than-expected increase in crude stockpiles, which have risen for three consecutive weeks now.

In the financial sector, shares of E*TRADE Financial (ETFC) and Charles Schwab (SCHW) were hit hard as the brokerages entered the commissions war, with E*TRADE saying it will eliminate retail commissions for online US-listed stock, exchange-traded funds, and options trades, and Schwab saying it is ending commissions on stocks, exchange-traded funds and options listed on US and Canadian exchanges through its online platforms. Shares of E*TRADE fell 16% on the week while shares of Schwab sank 14%.

The industrial sector’s drop came as data from the Institute for Supply Management showed a gauge of factory activity fell in September to its lowest level since 2009.Among the industrial sector’s decliners, shares of Delta Air Lines (DAL) fell 7.7% this week as the carrier narrowed the guidance range for its Q3 earnings amid higher expected unit costs.

On the upside, the technology sector was boosted by shares of Apple (AAPL), which rose 3.7% this week amid encouraging reports of demand for its newest slate of iPhones. The company reportedly is boosting production of the iPhone 11 amid the strong demand.

Market Insights 10/3/2019

U.S. equities finished modestly higher in a choppy session, with investors weighing mixed trade sentiment, as the U.S. is prepared to increase tariffs on European goods and China is set to head to the U.S. for high-level talks next week.

Treasury yields were again sharply lower, while the U.S. dollar and crude oil prices fell, and gold was higher amid the uneasiness.

The Markets…

The Dow Jones Industrial Average (DJIA) rose 123 points (0.5%) to 26,201

The S&P 500 Index gained 23 points (0.8%) to 2,911

The Nasdaq Composite increased 87 points (1.1%) to 7,873

In moderate volume, 801 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq

WTI crude oil moved $0.19 lower to $52.45 per barrel and wholesale gasoline was $0.01 higher at $1.56 per gallon

The Bloomberg gold spot price rose $6.30 to $1,505.75 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 98.92

Services sector growth slows to 3-year low to amplify recession concerns

The September Institute for Supply Management (ISM) non-Manufacturing Index fell to 52.6 from August’s 56.4, and versus the Bloomberg forecast of a dip to 55.0, though a reading above 50 denotes expansion. The index hit the lowest level since August 2016 as new orders and business activity both retreated solidly back below 60, and employment dipped to 50.4, though growth in prices accelerated. Non-manufacturing activity accounts for a large majority of U.S. economic output. The ISM said the respondents are mostly concerned about tariffs, labor resources and the direction of the economy.

Weekly initial jobless claims rose by 4,000 to 219,000, versus estimates of 215,000, with the prior week’s figure being revised higher by 2,000 to 215,000. The four-week moving average was unchanged at 212,500, while continuing claims declined by 5,000 to 1,651,000, south of estimates of 1,654,000.

Treasuries continued to rally, as the highly-expected services sector data followed some further softening in global manufacturing reports to exacerbate recession concerns, headlined by Tuesday’s drop to a 10-year low in output for the U.S. sector. The yield on the 2-year note dropped 11 basis points to 1.37%, the yield on the 10-year note decreased 6 bps to 1.53% and the 30-year bond rate declined 5 bps to 2.04%.

Tomorrow’s economic calendar will include the September labor report slated for release before the opening bell. Non-farm payrolls are forecast to have added 147,000 during the month and private sector payrolls are expected to have gained 130,000. The unemployment rate is anticipated to remain at 3.7%, and average hourly earnings are projected to have increased 0.3% m/m and 3.2% y/y.

Europe mixed on data and escalated trade tensions, Asia lower

European equities finished mixed, with trade tensions escalating as the U.S. is set to increase tariffs on goods out of the region, though some of the levies appear to be seen as less severe than expected. The markets digested some mixed economic reports on both sides of the pond, headlined by the 3-year low in growth out of the all-important U.S. services sector.

Eurozone retail sales rose m/m in August and was stronger-than-expected y/y. The euro was higher versus the U.S. dollar, which fell on the data and the British pound rallied, while bond yields in the region were lower. U.K. Brexit uncertainty continued to fester and U.K. services sector output surprisingly contracted.

Stocks in Asia finished lower, extending a recent slide as global sentiment remains dampened by economic concerns in the wake of recent soft manufacturing data, headlined by the drop to a 10-year low in U.S. activity out of the sector. Also, trade uneasiness escalated as the U.S. is set to impose further tariffs on European goods. The global growth concerns have fostered further easing of central bank monetary policy across the globe, with Australia cutting rates to a new record low and hinting at potential further reductions this week and the U.S. reducing rates last month after the Eurozone restarted its quantitative easing campaign.

Stocks in Japan fell, with the yen adding to a recent rally, while Australian securities were also sharply lower, with the nation reporting a larger-than-expected contraction in the nation’s trade surplus for August, and Indian listings decreased in a return to action following yesterday’s holiday break.

The Hong Kong Hang Seng Index ticked higher, even as the nation’s retail sales fell more than expected and protests in the region continued. Volume was lighter than usual as mainland Chinese markets remained closed for National Day holiday celebrations and South Korean markets were also shuttered for a holiday.