Uptrend Under Pressure

By |2016-10-25T15:14:51+00:00October 25th, 2016|Uncategorized|

Microsoft, Netflix, United Health earnings and Tesla corporate news provided investors with some positive and actionable trading themes last week that ultimately delivered some lift to an otherwise trendless US equity landscape. Technically, the market outlook remains “uptrend under pressure” despite the fact that the S&P 500 gained 0.38% last week while the Nasdaq Composite registered a weekly gain of 0.79%.

microsoft     netflix     unitedhealthtesla
The Nasdaq’s outperformance was clearly driven by earnings and corporate news. On the week, Netflix rose a staggering 26% on the back of better than expected Q3 results, gains in subscribers both domestically and internationally and constructive guidance. Microsoft also gave markets some lift by solidly beating top and bottom line consensus expectations. United Health beat and raised yearly guidance as well, rallying 8% on the week. We also received encouraging results from McDonald’s and General Electric. This week we have earnings scheduled for release by mega-caps Apple, Amazon, Alphabet, Caterpillar and Exxon Mobil.As encouraging as the highlighted corporate results outlined above were last week, the economic data we received was less compellingly positive. The Consumer Price Index for September, released last Tuesday, came in at 0.3% – meeting consensus. Less food and energy it was 2.2% on a year-over-year basis. The Housing Market Index for October was 63, hitting consensus on the nose. Housing Starts and overall building activity dropped to an 18-month low in the period. For September, starts – level – SAAR slipped to 1.047M from August’s revised 1.150M. However, permits gained well above expectations for the period. For September permits – level – SAAR was 1.225M versus consensus calling for 1.165M.  The Atlanta Fed’s Business Inflation Expectations for October were 1.7%.

The EIA Petroleum Status Report for the week ending October 14th, reflected a market moving draw of 5.2 m barrels. Distillates also slipped again by 1.2 M barrels. The Fed’s Beige Book confirmed for investors that the current rate of economic expansion remains both modest and soft. There was no mention of wage pressure despite characterizing current labor conditions as “tight.” Weekly Jobless Claims came in at 260k – more or less in line with 250k. Existing Home Sales – level – SAAR were a bright spot last week coming in at 5.470M. Year-over-year, 0.6%. Finally, the Leading indicators component of the economic calendar for September came in at 0.2%; once again hitting consensus.

This week’s economic calendar, outlined below, is likely to play second fiddle to the earnings calendar. That said it will provide the template for any further conjecture on the Fed’s intention with monetary policy through year-end. There are a few highlights. Things get rolling with this morning’s release of the Chicago Fed National Activity Index. The street is expecting below trend growth in the range of -0.55 level. The three-month average is -0.07. The PMI Manufacturing Index Flash for October Is expected to register at 51.2. Tuesday we receive the FHFA House Price Index. The street expects a monthly tick higher of 0.5%, matching last month. On a year-over-year basis, it is expected to reflect a gain of 5.8%. The Conference Board’s Consumer Confidence reading is supposed to come in at 101 versus last month’s 104.1. New home Sales – level – SAAR on Wednesday are expected to reflect a gain of 601k. Durable Goods for September are expected to be nearly flat at 0.2%. On Friday we receive GDP ( 2.5% consensus) and the Employment Cost Index ( 0.6% consensus).

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