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Win Streak In Jeopardy As Yellen Remarks, Friday Jobs Data Loom

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October 4, 2017

(Wednesday Market Open) Wall Street is on a winning streak, but might take a little break Wednesday if pre-market trading is any indication. All eyes are on Friday’s jobs report, and a Janet Yellen speech today could also draw some attention.

So far this week, markets have continued to slog ahead despite the horrifying attack in Las Vegas. That’s similar to what we’ve seen after other rally-threatening circumstances this year. All of the major indices set new record highs Tuesday, and the Dow Jones Industrial Average ($DJI) is up five days in a row while the Russell 2000 (RUT) is up eight days in a row.

This week might seem a little back-loaded, because Friday’s monthly payrolls report (see below) looms so large. Wall Street analysts expect that September saw fewer than 100,000 jobs created, perhaps due in part to the hurricanes. The wage numbers in the payrolls data might draw some extra attention thanks to the Fed’s continued concerns about low inflation. At this point, the futures market places odds at around 77% for another rate hike by the end of the year, but as Fed speakers often remind us, we have to watch the data roll in.

On the subject of Fed speeches, we’ve got a couple of them ahead, including one by Fed Chair Janet Yellen. She’s scheduled to give “brief opening remarks” at 3:15 p.m. ET today at a Fed conference on community banking in St. Louis, according to the Fed’s official schedule. If Yellen just sticks to brief opening remarks, it seems a bit doubtful that she’ll say anything market-moving, but it’s worth checking when the time comes.

Additionally, Fed Governor Jerome Powell is scheduled to speak early Thursday.

Looking back at Tuesday’s box score, leading sectors yesterday included telecom, industrials, and materials. Eight of the 11 S&P 500 (SPX) sectors rose.

Some of the sub-sectors gaining steam Tuesday included automobiles, which got a boost from decent September sales numbers. All of the major U.S. carmakers advanced, especially General Motors (GM) and Ford (F), both of which had a good month. GM saw U.S. sales grow 12%, while Ford sales rose 9%. One school of thought is that car companies might benefit in some ways from the hurricanes because people might have to replace cars that were damaged or destroyed.

Other notably strong sub-sectors included gun makers and homebuilders. Transports, sometimes viewed as a key metric of how the overall economy is performing, scored new all-time highs Tuesday and are up dramatically since floundering for about a month between mid-July and mid-August. Small stocks continued to post gains as the Russell 2000 (RUT) leaped to new all-time highs.

From a data perspective, ISM services is on the calendar this morning. The ISM Index earlier this week came in above Wall Street’s expectations, and auto sales for September released Tuesday also beat analysts’ projections.

Over on earnings row, PepsiCo (PEP) beat Wall Street analysts’ expectations with its earnings but cut back its revenue growth outlook due to slow beverage sales. Some of that might have been due to natural disasters, the company said.

Without a lot of catalysts today, volume might trend a little lower. That means anyone trading the market should remember to be extra careful because thin trading sometimes gets more volatile. The VIX, which measures volatility, moved up slightly this morning, but we’ll see if it can break through the 10 barrier.

Crude oil continues to flirt with the $50 a barrel level, but it’s held up so far and we’ll see if it can continue to weather the storm.

Homebuilders Index.

FIGURE 1: TRAVEL OR SETTLE DOWN.

Both the S&P Homebuilders Select Industry Index ($SPSIHO) and the Dow Jones Transportation Average ($DJT, represented by the purple line) have been on a roll these past couple of weeks. Homebuilding and the transport of goods can often tell a story about the health of the broader economy. Data sources: Standard & Poor’s, Dow Jones. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.    

Payouts On the Rise: Shareholders are raking in dividend growth. Dividends rose $15 billion on a net basis in Q3, according to a press release Tuesday from S&P Dow Jones Indices. That was up from a net rise of $6 billion a year earlier. This appears to be less a function of actual dividend increases and more due to a general lack of dividend decreases, according to the press release. While there were 438 dividend increases reported in the quarter, there were just 93 decreases. The 93 decreases represented a 19.1% drop from the same quarter a year earlier. “With a more stable dividend base, and interest rates expected to increase, the rate of dividend growth may pick up,” said Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, in the press release.

Job Estimates Lowest in A While: It’s been a long time since the market approached a monthly payrolls report with lower expectations than we’re seeing now. Wall Street analysts project that just 75,000 new jobs got added to the economy in September, according to Briefing.com, down from 156,000 in August. If analysts turn out to be right, that would be the fewest jobs added in a month since March, and one of the three lowest in the last year and a half. One possible explanation is the hurricanes that tore through Florida and Texas in late August and early September, which hit major population centers and might have stalled jobs growth in those areas. If that’s the case, perhaps jobs growth could climb in Q4 as those regions recover. The payrolls report for September is due before the market opens Friday.

Tune in To Those Earnings Calls: The late baseball great Yogi Berra famously said, “You can observe a lot just by watching.” Well, you can also hear a lot just by listening, and that definitely applies to those quarterly calls. Paying attention to the earnings calls of your favorite companies often can provide a lot more insight than just looking at the numbers and reading the press release. With Q3 earnings season starting next week, let this serve as a reminder to pay attention, and to look beyond financial information and outlook. Things to listen for this quarter include CEOs’ thoughts on the interest rate situation, possible tax reform, and how the weaker dollar has been affecting sales.

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

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