Oct 24 2014

Next Week’s Market Moving Events

Market Recap:

While major market indexes rose sharply on Thursday, it wasn’t an “all-clear” for investors as telecom shares and consumer staple stocks fell, while healthcare and technology shares rose nearly 2%. Strong earnings by Caterpillar, which also raised its full-year outlook, lifted investor’s spirits causing the Dow to gain as much as 300 points intra-day before closing up about 200. Markets did come under some pressure in the late afternoon after rumors circulated (which were later proven to be true) that a doctor in New York City was showing signs of having contracted the Ebola virus. Given the volatile nature of the market, many are asking themselves what they should do in this environment – in our view, and as we have frequently shared (watch our latest CNBC interview here: http://video.cnbc.com/gallery/?video=3000323515) taking a patient and long-term view to investments should alleviate many of the short-term concerns the fear filled news-headlines are bringing forth.

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Looking Ahead:

So far third quarter earnings have been strong.  While there have been some notable misses by the likes of McDonalds and Amazon, there have been more earnings beats by the likes of Nike, Microsoft and Caterpillar. So far, with just over 2/3rd of S&P constituents reporting, 68% of the companies have beaten EPS estimates. Additionally, economic news continues to be robust, with unemployment falling, inflation remaining benign and overall activity continuing to grow. However, it is clear that overall investor sentiment is best described as nervous, as fears over a spread of the Ebola virus, a worsening of conditions in Europe and the ongoing geopolitical turmoil between Russia and the West are all dampening investors mood. As such, we believe that a patient, longer-term view is most appropriate, meaning that investors should focus on the basics – corporate earnings and overall economic growth. As of Thursday’s market close, the trailing P/E ratio of the S&P 500 is 17.80, while the trailing P/E ratio of the Dow Jones Industrial Average sits at 15.44. Looking 12 months ahead, based on analysts’ expectations, the spread does narrow, to 15.75 forward P/E for the S&P, and a 14.25 forward P/E for the DJIA. Price to Earnings ratios are just one of many metrics used to judge the value of a stock and the broader market. However, given this disparity, and accounting for dividend payouts, it is fairly evident that high-quality dividend paying stocks continue to offer investors a relatively attractive value, compared to other segments of the market.

Next Week’s Market Moving Events:

  • Monday: Pending Home Sales, PMI Services and Dallas Fed Manufacturing. T-Mobile and Twitter report earnings.
  • Tuesday: The 2 day FOMC meeting kicks off, Durable Goods Orders, Case-Shiller Home Prices, Consumer Confidence and the Richmond Fed Manufacturing Index are all reported. Aetna, AFLAC, Coach, DuPont, Express Scripts, and Pfizer all report.
  • Wednesday: Mortgage Applications, FOMC Minutes release and the Chairwoman’s conference. Fiat-Chrysler, Ralph Lauren, and Southern Co report.
  • Thursday: (First estimate) Third Quarter GDP, Jobless Claims, European economic sentiment and inflation outlook. Cigna, Conoco Philips, and Master Card report.
  • Friday: European manufacturing and inflation data, US Personal Income and Spending, Consumer Sentiment and the Employment Cost Index are released. Chevron and Weyerhaeuser report.

Don’t miss our President, Oliver Pursche, on Fox Business Network next Tuesday when he joins Charles Payne for the six o’clock hour to discuss our year-end outlook and what we think will drive markets in 2015. And tune into Money Matters with Gary Goldberg this Saturday at 5:00 PM (following the Rutgers game) and Sunday at 2:00 PM on WOR 710 AM Radio to hear a great interview with Newt Gingrich, as well as our latest market and economic analysis. Visit our website www.ggfs.com for details.

Oct 23 2014

Markets are looking to regain their footing

Market Recap:

Wednesday started out with the expected low volume, low volatility trading pattern as there was little news for investors to get agitated over. That all changed late morning, as news came across that there had been a terrorist attack in Canada’s capital, Ottawa – the second in three days. One or more gunmen killed a soldier standing guard at the national war memorial and then entered the capital building, firing as many as a dozen shots before being killed himself. The “lone gun-man” incident in Ottawa underscored the fragile psyche of investors, whose nerves have been frayed lately. The Utilities sector was the sole gainer yesterday, as Industrials and Material shares underperformed. Commodities were mixed, as Oil and other agricultural commodities sold off, while base metals such as Zinc and Copper rose slightly. The U.S. dollar was mixed with a slight upward bias.

Looking Ahead:

Markets are looking to regain their footing on Thursday morning after better than forecast economic news out of China and Japan helped lift international bourses. U.S. equity futures are pointing to a higher open as international investors digest the slightly better than expected European manufacturing and export data. The reports were mixed, with the UK and Germany outpacing expectations, while France’s domestic output fell more than feared. Today’s releases of U.S. consumer comfort data, jobless claims, home prices, PMI Manufacturing and Leading Indicators could all tilt the market’s direction. Make sure to tune into CNBC this afternoon at 3:45 PM to listen to our President, Oliver Pursche, discuss our year-end outlook and what catalysts will help drive the S&P past 2,100. And don’t miss Money Matters with Gary Goldberg this Saturday at 5:00 PM (immediately following the Rutgers game) and Sunday at 11:00 AM on WOR 710 AM Radio, to hear a great interview with Newt Gingrich, our latest economic analysis, as well as our ongoing market commentary. Visit our website www.ggfs.com for details.

Oct 22 2014

All sectors of the S&P rose

Market Recap:

Stocks rallied for a fourth day in a row as the S&P climbed nearly 2% on strong corporate earnings reports and better than forecast economic news. All sectors of the S&P rose on Tuesday, with the economically sensitive materials sector outperforming, while the traditionally defensive consumer staple and utilities sectors underperformed. Commodities were mildly higher, while the dollar was mixed and treasury yields rose as the benchmark ten-year yield reached 2 ¼%.

Looking Ahead:

Wednesday’s earnings and economic releases are relatively light compared to the remainder of the week, making today’s trading likely tepid and uneventful. Investors did get some additional positive news, as new Mortgage applications were shown to rise and overall inflation data was benign as lower gasoline prices kept prices in check. Thursday’s heavy data release calendar includes European manufacturing data, US jobless claims, housing data and PMI Manufacturing data, all of which could prove to be market moving data points.

Make sure to tune into CNBC on Thursday afternoon when our President Oliver Pursche joins Bill Griffith and Kelly Evans on the floor of the New York Stock Exchange to provide our latest economic and market outlook. And don’t miss Money Matters with Gary Goldberg this Saturday at 5:00 PM, immediately following the Rutgers Game, and Sunday at 11:00 AM on WOR 710 AM Radio for our complete economic and market analysis, as well as our ongoing market commentary.  This week’s guests are Newt and Callista Gingrich as well as insight on market volatility from our own Peter Dedel.  Visit our website www.ggfs.com for details.

Oct 20 2014

Volatile weeks for equities in over five years

Market Recap:

In what turned out to be one of the most volatile weeks for equities in over five years, investors found themselves a bit befuddled as there really was no fundamental reason for any of the violent market action last week. Fears over the Ebola virus, weakening economic conditions in Europe and some saber-rattling by Mr. Putin in Russia were all part of the cause, however strong corporate earnings releases and decent U.S. economic data should have abated concerns. Instead, it was the Fed that came to the rescue of investors, as St. Louis Fed President James Bullard indicated on Thursday afternoon that he was in favor of the Central Bank continuing its bond purchases. While many interpreted this to mean that the Fed might be contemplating another round of quantitative easing, QE 4, we believe Dr. Bullard’s statement was taken out of context, as he most likely meant to indicate that the ending of QE hardly signified a deleveraging of the bank balance sheet or the end of easy monetary policy (see our post from last Friday for further explanation). Dr. Yellen clarified and to some extent reiterated Dr. Bullard’s comments on Friday morning.  This, coupled with much lower (better) than expected jobless claims, helped markets rally over 1%.

Looking Ahead:

Corporate earnings and economic data will be the rain-makers this week, as blue-chip stocks such as IBM, Apple, McDonalds, Elli Lilly and Microsoft are among some 300 companies releasing earnings this week. On the economic front, manufacturing and industrial production figures from China and Japan along with Housing data in the United States are likely to be the key drivers of activity. We suspect investors are wise to keep their seatbelts fastened and expect a bit more volatility – after all, it is hurricane season, and there is a monsoon of activity heading our way.

Make sure to tune into CNBC this Thursday afternoon at 3:45 PM when our President, Oliver Pursche, joins Bill Griffith on the floor of the New York Stock Exchange to discuss our latest market views. And tune into Money Matters with Gary Goldberg this Saturday at 2:00 PM and Sunday at 11:00 AM on WOR 710 AM Radio to hear our complete economic analysis and market commentary. Visit our website www.ggfs.com for details.

Oct 17 2014

QE 4 or not?

Market Recap:

Volatility declined on Thursday as investors started coming back to the market and selectively took advantage of the buying opportunity the near 10% sell-off created. Energy, Industrial and Consumer Discretionary shares all fared well on Thursday, as fears over a significant slowdown in the global economy abated. Economic news was mixed, as home-builder sentiment unexpectedly fell, while jobless claims also fell to their lowest levels in over 2 ½ years. In a somewhat surprising move, Fed Governor James Bullard (a voting member of the FOMC) indicated that he would be in favor of continued bond purchases by the Fed.

QE 4 or not?

President Bullard’s comments on Thursday afternoon that he is in favor of the Fed continuing its bond buying (QE) program caused market participants to wonder whether he and the Fed were contemplating another round of Quantitative Easing. In our view this is highly unlikely – the Federal Reserve will conclude its QE policy in November or December. However, as the Fed has very clearly stated, it is their intent to continue to reinvest proceeds of their current Treasury and Bond holdings. Hence, while the Federal Reserve is no longer intending to expand its balance sheet, it is also not reducing it at this time – as their current bond (mortgage securities and treasuries) mature, they will take those proceeds and “roll” them into new similar or possibly shorter dated bonds. The likely effect of this is to allow for a very gradual rise in interest rates, with longer-term rates rising at a greater pace than short-term rates.

Looking Ahead:

Pre-market futures are indicating a sharply higher open in early morning trading, giving investors some reprieve. In addition to Housing Starts and Consumer Sentiment data, market participants will tune into Federal Reserve Chairwoman Yellen’s scheduled speech at 8:35 AM in the hope of hearing comments that echo President Bullard’s supportive comments made on Thursday. Furthermore, traders will keep an eye on Oil and the US dollar, both of which have stabilized a bit in the past 2 days, helping to reduce overall volatility. While down-side volatility may be coming to an end, we suspect that overall volatility will remain part of the landscape through the current earnings reporting season and possibly beyond.

Next Week’s Market Moving Events:

  • Monday: Chinese GDP, Industrial Production and Retail Sales are reported, as are German Producer Prices. There are no major economic releases in the U.S. Apple (APPL), Halliburton (HAL) and IBM (IBM) report earnings
  • Tuesday: U.S. Same Store Sales, Redbook report and Existing Home Sales are reported. Coca Cola (KO), Lockheed Martin (LMT), Kimberly Clark (KMB) and McDonalds (MCD) report.
  • Wednesday: US Consumer Prices, Mortgage Application, and Chinese Manufacturing data are released. Abbott Labs (ABT), ATT (T), and Leggett & Platt (LEG) report.
  • Thursday: Home Prices, Leading Indicators, PMI Manufacturing data and the Kansas City Fed Manufacturing Index are released. 3M (MMM), Amazon (AMZN), Caterpillar (CAT), Eli Lilly & Co (LLY) and Microsoft (MSFT) are amongst over 200 companies releasing earnings today.
  • Friday: New Home Sales data is released. Ford Motor (F) and Proctor & Gamble (PG) report earnings.

Make sure to tune into Money Matters with Gary Goldberg this Saturday at 2:00 PM and Sunday at 11:00 AM on WOR 710 AM Radio to hear our latest economic analysis, interviews with some of today’s most respected business leaders, as well as our ongoing market commentary. Visit our website www.ggfs.com for details.

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