U.S. markets were weak throughout Wednesday’s session with the Dow posting its worst decline since early September. The Nasdaq led Wednesday’s pullback but held 6,550 and a key level of support.

The S&P also showed losses but held near-term support at 2,550. Meanwhile, the Russell 2000 fell to a fresh low for the month after falling below 1,490 but a level that held into the closing bell. All sector members in the S&P 500 were in the red with Industrials and Energy the weakest links after falling 1% and 0.7%, respectively.
As of last Friday, Q3 results from 87 S&P 500 members that combined account for nearly 25% of the index’s total market capitalization. Total earnings for these companies are up 9.4% from the same period last year on 7.3% higher revenues.
This compares to 4.4% top-line growth for the same group of companies in the preceding quarter and still lower average growth rates in the prior periods. The number of companies topping EPS estimates is above 71% with 70% beating revenue estimates.
Results from the Finance sector companies that have reported have been impressive versus forecasts. Total earnings are up 7.8% from the same period last year on 3.3% higher revenues, with 71.4% beating EPS estimates and 50% exceeding top-line estimates.
Looking at Q3 earnings and revenue expectations for the sector as a whole, combining the reported actual results with the still-to-come estimates, Finance sector earnings are expected to be down 1.5% from the same period last year on 1.1% higher revenues.
Global Economy – European markets were lower ahead of Thursday’s ECB meeting where the ECB is expected to announce that it will reduce its QE program. UK’s FTSE 100 sank 1.1% and the Belgium20 tumbled 0.8%. The Stoxx Europe 600 stumbled 0.6% and Germany’s DAX 30 declined 0.5%. France’s CAC 40 fell 0.4%.
UK’s Q3 GDP rose +0.4% quarter-over-quarter, stronger than expectations for a gain of 0.3%.
The German October IFO business climate unexpectedly rose 1.4 to 116.7, an all-time high, and stronger than expectations for a decline of 0.1 to 115.1.
Asian markets were traded mostly higher aside from Japan’s Nikkei which closed lower for the first time in 17 sessions after falling 0.5%. Hong Kong’s Hang Seng Index gained 0.5% while China’s Shanghai index was up 0.3%. South Korea’s Kospi and Australia’s S&P/ASX 200 added 0.1%
The MBA mortgage market index sank 4.6%, in addition to a 6.1% drop in the purchase index and a 3% decline in the refinancing index for the week ending October 20th.
Durable goods orders rose 2.2% in September, topping expectations for a rise of 1% for the month.
The FHFA home price index rose 0.7% to 251.8 in August, beating forecasts for an increase of 0.36% to 250.7.
New home sales surged 18.9% to a 667,000 rate in September, exceeding expectations for a decrease of 1.8% to 550,000. This represented the best rate since October 2007.
Market Sentiment- Gary Cohn is reportedly out of the running for Fed chair, according to people familiar with the process, and various news wires. It is believed President Trump said in at least one private meetings last week that the current director of the National Economic Council won’t be nominated as he’s too crucial to the tax reform initiative.
However, a senior White House spokesperson said all candidates are still in the running. Meanwhile, there is chatter no decision has been made on the Fed post. However, in recent comments, President Trump did tell reporters they would be surprised by his choice. Current Fed chair, Janet Yellen is also in the running.
The iShares 20+ Year Treasury Bond ETF (TLT) continued its backtest towards support at $122 and the 200-day moving average. Today’s low reached $122.42. Lowered resistance is now at $123-123.25.
Market Analysis- The iShares Micro-Cap ETF (IWC) traded to an all-time high of $96.77 earlier this month but fell below a trading range between $95.75-$96.75 that lasted for eight trading sessions. We highlighted the lower lows that followed with the possibility of a backtest towards $94.50-$94. Last Thursday’s low tapped $94.24 to split support following the late September move above the latter. A close below $94-$93.50 would be a bearish development for continued weakness towards the $92-$91.50 area that served as the mid-September gap higher above these levels. Today’s low tapped $93.39. Current resistance is at $94.50-$95.
We also mentioned overbought RSI conditions near the 90 level earlier this month with current support at 50 now in play. A move below this level would be a continued bearish signal.
The Spider S&P Retail ETF (XRT) is trying to rebound from its recent backtest to the $39.50 level and drop below the 50-day moving average. We mentioned earlier this month failed resistance at $42 for eight trading sessions was a bearish signal with fresh hurdles now at $41-$41.25 and a downward slopping 200-day moving average. A move above $41.50 would be a slightly bullish development. Fresh support is at $40.25-$40 with a move back below the latter being a bearish development.

All the best,
Roger Scott