Stocks started November by continuing October’s charge, but action turned choppy early Tuesday.
The pause follows the Dow industrials’ ($DJI) move into positive territory for the year, while the S&P 500 (SPX) hit its highest level since August (figure 1) in Monday trading. So far this week, earnings and deal news are driving the action, although equity market moves may be clipped ahead of Friday’s looming jobs report. That data could be pivotal for the Federal Reserve’s December interest rate deliberations.
Analysts at Société Générale called the U.S. earnings season “mixed” so far, with 51% of S&P 500 companies beating Street estimates—running just below the 10-year average of 52%. Select stocks have surprised to the upside as industry analysts tempered their expectations ahead of time and overall, the China tug has been less than most pessimists braced for. Some industry analysts are noting that expectations for next year’s earnings growth is already subject to downward revisions owed to expectations for weaker emerging market growth.
After-bell earnings today include: And after the market closes, reports are due from CBS Corp. (CBS), Etsy (ETSY), Herbalife (HLF), Tesla Motors (TSLA), Groupon (GRPN), among others.
A Good Sign? The Fed will only hike interest rates as long as economic data allow it, Mislav Matejka, JP Morgan’s global equity strategist and team said in a research note this week. That includes a pickup in U.S. payrolls (the latest installment of payroll job data is out Friday morning) and stabilization in Chinese economic activity into year-end, the note said. The central bank will likely be reluctant to move if financial markets start to send “renewed warning signals,” the note said. But perhaps the biggest take-away: “If the Fed does hike in December, this should be interpreted as a confirmation that improving sentiment is sustainable, in our view, and should be a positive for equity markets,” said Matejka.
If He Says So. Chinese Premier Xi Jinping has declared that the nation's annual growth should be no less than 6.5% over the next five years to realize its economic goals by 2020, the Xinhua News Agency reports. The remark follows release of the country's five-year economic blueprint. Under that plan, China pledged to promote the yuan to the International Monetary Fund's reserve-currency basket, narrow the income gap, and other steps.
Deal Buzz. Activision Blizzard (ATVI) is lower after an initial gain. The videogame company late Monday said it is buying King Digital Entertainment (KING)—maker of the popular “Candy Crush Saga” game— for $3.4 billion in cash plus debt. KING shares surged 16% premarket.
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