Home / The Markets This Week

The Markets This Week

October 28, 2015 | Weekly Commentary

Quiet markets perked up Thursday, when European Central Bank President Mario Draghi said the ECB would revisit monetary stimulus moves in December. That drove European stocks higher and ignited a rally in the U.S. Friday’s surprise rate reductions by the People’s Bank of China stoked the fire and helped global stocks end higher.

Third-quarter earnings reports from Google owner Alphabet (ticker: GOOGL), Microsoft (MSFT), and Amazon.com (AMZN) topped Wall Street expectations. Struggling McDonald’s (MCD), like Microsoft, a member of the Dow, gave the index a boost when it announced the first quarterly U.S. same-store sales increase in two years.

Last week, the Dow Jones Industrial Average jumped 2.5%, or 431 points, to 17,646.70. The Standard & Poor’s 500 index tacked on 42 to 2075.15. The Nasdaq Composite soared 3%, to 5031.86.

American and Chinese economic reports were decent. China reported Monday that its economy grew by 6.9% in the third quarter, the slowest since 2009. But it was good enough, says John Canally, investment strategist at LPL Financial, to help allay the fears of a “hard economic landing” that had set off the market correction in August. It helps that so far there has been no big profits miss blamed on China, he says.

“Good reports from leading tech names always bolster investor psychology,” says Joseph Amato, chief investment officer of Neuberger Berman. “There’s a better tone in the market now.”

Earnings growth remains mixed due to problems in the energy patch. In general, revenue growth continues to disappoint, though earnings somehow have managed to overcome that. Analysts’ expectations of 10% profit growth next year for companies in the S&P 500 “feels aggressive,” but that doesn’t mean the market will turn down, Amato says. Something modestly below 10% can still support equities, which remain a better alternative than fixed-income assets, he says.

A rate rise isn’t expected from the Federal Reserve’s Open Market Committee, which meets Tuesday and Wednesday. Should the market stay strong in the fourth quarter, that, together with improved credit-market spreads and lower joblessness, might give the Fed a chance to raise rates, says John Brady, an institutional sales trader for broker R.J. O’Brien.

Sentiment has improved and the rally has put the market back into positive territory for the year. Given that stocks are entering a seasonally positive quarter, the default is rally mode.

(Source: Barrons Online)

Visit www.theweeklycommentary.com for more posts in this category. DISCLOSURES