The Hot List
1. Inflation
CPI rose +0.2% last month which was hotter than expected. However, PPI was unchanged and cooler than expected.
2. Earnings
JPM and Wells Fargo beat analyst expectations to start earnings season. Goldman Sachs United Health and Netflix will headline a busy week of earnings.
3. Interest Rates
Mortgage rates had the biggest weekly jump since April with the 30-year mortgage back to 6.32%.
4. Federal Reserve
The minutes from the last meeting showed that a “substantial majority” backed a 50bps cut. Many Fed officials will deliver remarks throughout the week.
5. Economy
The September Retail Sales report will be released on Thursday.
Last Week
Monday: S&P 500 -55.13 (-0.96%) to 5695.94. No major economic releases.
Tuesday: S&P 500 +55.19 (+0.97%) to 5751.13. No major economic releases.
Wednesday: S&P 500 +40.91 (+0.71%) to 5792.04. FOMC minutes released.
Thursday: S&P 500 -11.99 (-0.21%) to 5780.05. Initial jobless claims 258K (vs. 229K expected). Sep. CPI +0.2% (vs. +0.1% expected). Core CPI +0.3% (vs. +0.2% expected).
Friday: S&P 500 +34.98 (+0.60%) to 5815.03. Sep. PPI 0.0% (vs. +0.1% expected). Core PPI +0.2% (vs. +0.2% expected).
S&P 500 [S&P] Technical Look
Potential Support: To the downside, look for support at 5800. If it breaks below that look for additional support at the 20-day moving average near 5700.
Potential Resistance: At all-time highs, there is no clear resistance to the upside.
Bright Ideas
Small-Mid Cap Growth
Emerging Markets
Healthcare
Financials
My Take
Stocks rose for the fifth week in a row following strong earnings reports from the financial sector. Coming into the week, the S&P had largely moved sideways as valuations appeared to be topping out. With the S&P’s P/E ratio historically high – in the 20s – it was up to the “earnings” side to push this rally further.
JP Morgan and Wells Fargo both topped expectations Friday and led stocks higher. The financial sector had the lowest valuations so it was welcome news to see these give us a good start to earnings season.
CPI – consumer inflation – gave us a scare coming in hotter than expected on all fronts. That report firmly took 50bps off the table and even increased the odds of no cut at the next meeting. However, PPI – wholesale inflation – was unchanged last month. Since PPI feeds more into the Fed’s preferred gauge, the PCE, it may have quelled reinflation fears.
With hotter inflation reports and strong economic data, interest rates have jumped back up. The 10-year Treasury yield is back above 4%, pushing 30-year mortgages back near 6.5%.
Now, the focus will be back on earnings and retail sales. Goldman Sachs, Morgan Stanley, Netflix, and United Health are just a few of the big names reporting this week. The farther this rally goes the higher the bar will be for companies to beat. Many of the high-value tech names will be the last to report, so just keep in mind as we get deeper into earnings.
With much of the worry around the strength of the consumer, expect the Retail Sales report to carry extra weight on Thursday.
In the meantime, it’s important to remember that there are many macroeconomic catalysts going on around the globe. The sentiment is certainly more “greedy” than “fearful” which makes me a little nervous. I wouldn’t be surprised to see some volatility pick up especially as we get closer to the election.
Look for emerging markets and areas of small-midcap growth with secular themes to outperform as the rally continues. Healthcare is also interesting if volatility starts to pick up as it can be both offense and defense.
If you have any questions or would like me to manage your money, please contact me today.
Until next time,
Clint Kirby
Chief Financial Strategist
Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.