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Market Update

Can the SPX Do It Again? Benchmarks Look for Another Positive Day

October 3, 2017

(Tuesday Market Open) Stocks appeared headed for another day in the record books in the early going today, though the movement was sluggish. If the day ends in the green, it will mark the S&P 500’s (SPX) sixth straight session to the upside, matching its longest winning streak that ended Sept. 1.

The Dow Jones Industrials ($DJI) and the Nasdaq Composition (COMP) also were headed higher in similar multi-day runs.

Auto shares climbed yesterday and might get a boost today if expectations for this afternoon’s September sales are on track. (See below.) General Motors (GM) said yesterday it was going to step up its effort to roll out as many as 20 new all-electric vehicles over the next six years. Ford (F) is expected to make a similar announcement today, pushing its “Team Edison” electric car strategy.

Tesla (TSLA) shares didn’t enjoy the same run up after announcing that production of its new Model 3 fell short of expectations. Shares were off 2% in the premarket action.

Resilience kicked in yesterday as investors continued to bid up the stock market as the numbers of those who died or were injured amid the biggest mass shooting in the U.S. also climbed. As we’ve seen in other rally-threatening instances this year, the markets continue to slog ahead. Strong manufacturing activity, as reported by the Institute of Supply Management (ISM), rose to a near 13½-year high in September and might have helped boost stocks.

At yesterday's close, all three major benchmarks plus the small-cap Russell 2000 settled at record peaks, though the Russell was the only one to move ahead greater than 1%. The move higher was led by gains in materials, industrials and financials.

Crude oil prices were closely watched yesterday as they dipped 2.1% to that $50 support level that it has sat so comfortably above in recent sessions. It was the lowest closing level since Sept. 19 and they have been slumping again in the early going. (See chart.)

Compliance by the Organization of the Petroleum Exporting Countries (OPEC) members apparently declined in September, which could have contributed to the price drop. The output among OPEC members rose by 50,000 barrels a day in September as the cartel’s overall compliance with its supply-cut deal fell to 86%, according to published reports.  



Crude oil prices retreated by 2% yesterday and are on a downward slope today, losing the momentum they've enjoyed in recent settings amid a pullback in OPEC's cutback compliance. Data sources: CME Group. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Energy Expected to Lead S&P in Q4: That’s the qualified judgment from Sam Stovall, chief investment strategist at CFRA Research. In a research note out yesterday, Stovall said the S&P Capital IQ consensus estimates point to a 5% year-over-year gain in S&P 500 operating earnings per share. That’s down from the 8.4% expected growth projected at the end of the second quarter.

The biggest disruptors to earlier forecasts appear to be hurricanes Harvey and Irma, which may have helped the energy sector while hurting the consumer discretionary sector, according to Stovall. The energy sector is expected to surge more than double the year-ago results, partly with thanks to a 7% rise in spot oil prices. Consumer discretionary is projected to fall 2.2%, a record. “A post-hurricanes spike in gasoline prices was likely a temporary drag” in the quarter for overall consumer spending, the report said. Still, Stovall said, “History implies that the final tally will likely be even better.”

Auto Sales Expected to Rev Higher: This might be another post-hurricanes consequence. When September’s auto sales are released later today, is forecasting that new cars and trucks sold last month will reach a seasonally adjusted annual rate of 17.5 million—the highest so far this year. The rate reflects a 2.9% drop in sales last month and a 0.4% year-ago rise, according to the car information and shopping platform.

Labor Day weekend sales were strong, according to Jessica Caldwell, Edmunds executive director of industry analysis, as automakers dialed up incentives. “We anticipate that the recovery from the recent hurricanes will give vehicle sales an incremental boost in September, and will likely continue to slightly lift the market in the months to come," Caldwell said. "When you have hundreds of thousands of people affected by an event of this magnitude, not everyone will hit the market at once.”

The Sad Reality of the Markets: Although our thoughts and prayers remain with the victims of the tragedy in Vegas, we also know the sad truth of the markets, and that is that with every action in the world, even horrific ones, they have a reaction.  This is a scenario we’ve seen before, that is after these terrible mass shootings, shares of gun stocks tend to move higher. This played out again yesterday after the mass shooting in Las Vegas, and is likely due to both emotional and political reasons.

After the Orlando, Florida, and San Bernardino, Calif., shootings, "you saw a two- to three-month surge in firearms sales," Rommel Dionisio, managing director at Aegis Capital, told CNBC. The two ISIS-linked attacks "certainly triggered something in the American consciousness about personal safety.” Dionisio added that while national gun laws are unlikely to change, “certainly on a state-by-state basis you can see states pass tighter gun control laws.”

Good Trading,

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