[MM_Member_Data name=’firstName’],
U.S. markets pushed record peaks for the fifth time in the past six sessions with the Dow and the S&P 500 closing higher for the third-straight session. The Dow cleared 23,000 intraday while the Nasdaq traded in a tight 15-point range and missed a fresh high by 4 points before finishing slightly lower.
Meanwhile, the Russell 2000 made a lower low for the second-straight session while failing to hold 1,500. It was the first close below this level in 11 trading sessions, or the first time this month. Health Care had a strong session with the sector rising 1.3%. Financials led the sector laggards after falling 0.5%.
With 3Q earnings season starting to get into full swing, total Q3 earnings are expected to be up 2.1% versus the same period last year on 5% higher revenues. This would follow over 11% earnings growth in 2017 Q2 on 5.5% revenue growth, and would represent the second quarter in a row of double-digit earnings increases.
It is important to note estimates for Q3 came down as the quarter unfolded, with the current 2.1% growth down from 6.3% at the end of June.
Q3 earnings results from S&P 500 members that have already reported are up nearly 13% from the same period last year on 6% higher revenues. So far, over 81% of companies reporting have topped EPS estimates with 78% beating revenue estimates.
Global Economy – European markets traded mostly lower after Spain cut its 2018 GDP estimate to 2.3% from 2.6%, citing the impact of the political standoff in Catalonia. The Stoxx Europe 600 gave back 0.3% while Germany’s DAX 30 and UK’s FTSE 100 declined 0.1%. France’s CAC 40 slipped just over a point, or 0.03%, while the Belgium20 gained 0.2%.
The German October ZEW survey expectations of economic growth rose 0.6 to 17.6, weaker than expectations of for a rise of 3 to 20.
UK September CPI came in at gain of 0.3% month-over-month and 3.0% year-over-year, matching expectations. The September core CPI rose 2.7% year-over-year, also matching expectations.
Asian markets settled mostly higher despite disappointing data out of Singapore. Australia’s S&P/ASX 200 jumped 0.7% while Japan’s Nikkei advanced 0.4%. South Korea’s Kospi climbed 0.2% and Hong Kong’s Hang Seng Index was up 5 points, or 0.02%. China’s Shanghai index fell 0.2%.
Exports of goods made in Singapore fell 1.1% in September compared with a year earlier, after a revised 16.7% gain in August. Expectations were for September exports to expand 12.7% from a year earlier.
Import/ Export Prices topped expectations with September gains of 0.7% for imports and 0.8% for exports.
For the week of 10/14, Redbook Store Sales were up 3.6% year-to-date.
U.S. industrial production rose 0.3% in September, with capacity at 76.0%. Expectations were for a gain of 0.1% for the month with capacity of 76.2%.
The October Housing Market Index checked in at 68 versus a forecast of 64.
Market Sentiment – Fed funds futures are still showing a December rate hike is a strong possibility with the implied rate showing about an 80% chance. Analysts are forecasting three more moves based on the outlook for solid economic growth in 2018 and rising inflation pressures that should finally bring the Fed’s PCE measure to the 2% area.
The iShares 20+ Year Treasury Bond ETF (TLT) opened lower at $125.39 with upper support at $125-$124.50 easily holding. The steady run to $126.03 afterwards cleared lower resistance at $126-$126.50 with the 50-day moving average holding into the close.
Market Analysis- The iShares Micro-Cap ETF (IWC) recently broke down out of a trading range between $95.75-$96.75 that lasted for seven trading sessions. The all-time high reached a peak of $96.77. Today’s low reached $94.55 and represented the fourth-straight lower high and lower low.
We mentioned earlier this month a close back below $96-$95.75 would likely lead to a continued backtest towards $94.50-$94 to retrace the gap higher from the beginning of the month. A close below the latter would be a continued bearish development.
We highlighted overbought RSI conditions near the 90 level earlier this month and it remains in a downtrend. Support will try to hold at 60 on continued weakness and a level that also served as prior resistance in late August and mid-September.
A move below 60 would likely signal continued weakness towards 50.
The Spiders S&P Homebuilders ETF (XHB) recently made a significant breakout to multiyear highs following the move above $39-$39.25 that represented June, August and early September resistance. Prior resistance had been at $38.50 and January 2007 resistance. The run to $40.67 represents the decade plus high with continued closes above $40-$40.25 being a bullish signal.
The all-time high high is north of $46 that was reached in February 2006 and when XHB started trading. A move below current support at $40-$30.75 would be a bearish development.
All the best,
Roger Scott
Roger Scott