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Market Update

Few Boos Here—Stock Market Logging Best Month in Years

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October 30, 2015

Small stock gains may be in order for Friday but that’s a headline buried by the fact the broader stock market is on track for its biggest monthly percentage gain in four years. It’s been a strong month for U.S. stocks, with the S&P 500 (SPX) up 8.8% in October as of Thursday’s close.

The rally is enough to wipe out that summer swoon, with SPX back into the black with a 1.5% year-to-date gain.

The drivers? Many. But for starters the Federal Reserve has likely struck a balance; it’s not so worried about global growth that an interest rate hike is impossible at this point but it’s not in any big hurry to take away the easy policy punch bowl.

And then there are earnings. Factors such as global economic slowing and a beefy dollar are still factors. But Wall Street has responded appropriately with realistic expectations. That means the sum total of earnings so far have either met expectations or surprised to the upside and that includes the battered energy sector. Two big names are out with results (more on them below). Their stocks, as dividend payers, remain actively traded even in the event of fundamental drags such as low oil prices.

With November dawning, talk likely turns to the chance for a continued “Santa Claus rally,” although some defensive positioning may set in ahead of next Friday’s monthly jobs report. It’s one of only two such readings we’ll get before the Fed ‘s December interest-rate meeting, a session that could produce the first rate hike since 2006.

SPX-stock-chart

FIGURE 1: BEST OCTOBER IN FOUR YEARS?

The S&P 500 (SPX), charted on the new-look thinkorswim® platform, did end with a red blip on Thursday but is on track to log its best October in four years, up some 9% for the month. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Chevron Gains after Earnings, Job Cuts. Chevron (CVX) shares rose after the oil giant beat profit and sales expectations on Wall Street, and said it would cut spending and up to 7,000 jobs in the coming years. Earnings for the quarter ended Sept. 30 fell to $2.04 billion, or $1.09 a share, from $5.59 billion, or $2.95 a share, in the same period a year ago, but did top the Street view for $0.76 per share.   Revenue dropped to $32.77 billion from $51.82 billion, reflecting declines in market prices for crude oil and natural gas, but was well above the Street consensus of $27.7 billion. The stock had dropped 20% year to date through Thursday, while the S&P 500 has gained 1.5%.

Exxon Mobil: Not as Weak as Expected. Exxon Mobil (XOM) reported a profit of $4.24 billion, or $1.01 a share, down from $8.07 billion, or $1.89 a share, a year earlier. Revenue fell 37% to $67.34 billion. Analysts polled by Thomson Reuters expected a per-share profit of $0.89 and revenue of $63.75 billion. Profit in the exploration and production, or upstream, business plunged 79% to $1.36 billion in the latest quarter, as its U.S. division swung to a loss of $422 million. But Exxon was again helped by meatier profits in its downstream and chemicals divisions, which are helped by low prices for oil and gas. In the latest quarter, XOM’s refining and marketing earnings, or downstream, doubled to $2 billion.

“Steady” Good Enough for Now for Fed’s Lacker. Richmond Fed President Jeffrey Lacker on Friday issued a statement explaining why, for the second time in a row, he dissented from his Federal Reserve buddies in calling for a rate hike. "My reasoning was based on my belief that with the steady growth in output and household spending that we have been observing—and expect to continue—the real (inflation adjusted) rate of interest should be higher than its current level of less than negative 1%," he said. "My assessment was also supported by labor markets that had tightened considerably and my confidence that inflation will return to our 2% objective after the temporary effects of low energy and import prices have passed." He also said that certain bumps, namely in China, were not likely to impact the U.S.’s medium-term outlook. 

Good Trading,

JJ

@TDAJJKinahan

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