U.S. markets showed strength on Monday’s open with the Dow and Nasdaq trading to fresh all-time intraday highs. The S&P 500 and Russell 2000 failed their lifetime peaks by a point or so before a holding pattern developed quickly afterwards.
The action stayed in a tight range into the final hour of trading before the indexes eventually rolled over to close slightly lower. Technology and Energy were the sector leaders while Health Care and the Financial sectors led the laggards.
The kickoff of the Q3 earnings season starts this week with the Financial sector taking center stage during the back half. Total Q3 earnings are expected to be up 2.2% from the same period last year on 5% higher revenues.
This would follow 11.1% earnings growth in 2017 Q2 on 5.5% revenues, and would represent the second quarter in a row of double-digit earnings growth.
Estimates for Q3 came down as the quarter unfolded, with the current 2.2% growth down from 6.3% at the end of June.
As of sector expectations, the strongest growth in Q3 is expected from the Energy sector which benefits from easy comparisons. Excluding the Energy sector, the aggregate growth pace drops to 0.4% from 2.2%.
The Conglomerate sector is the only other sector with double-digit growth rates. Earnings growth is also strong for the Technology sector, with total earnings for the sector expected to be up 9.7% on 6.7% higher revenues.
On the negative side, double-digit declines for the Transportation, Aerospace, Basic Materials and Autos sectors are expected. Citigroup (C) and JPMorgan Chase (JPM) report earnings Thursday morning.
Bank of America (BAC), First Horizon National (FHC), PNC Bank (PNC) and Wells Fargo (WFC) will announce numbers ahead of Friday’s opening bell.
Global Economy – European markets traded mostly higher following better-than-expected economic news. The Belgium20, the Stoxx Europe 600 and Germany’s DAX 30 gained 0.2% while France’s CAC 40 added 0.1%. UK’s FTSE 100 fell 0.2%
Eurozone October Sentix investor confidence rose 1.5 to 29.7, stronger than expectations for a gain of 0.3.
German August industrial production rose 2.6% month-over-month, stronger than expectations for a gain of 0.9%.
French economic growth grew 0.5% for 3Q, as expected. Business sentiment indicators in manufacturing and services were unchanged in September. The indicator in construction rose one point to 104 from 103.
Asian markets traded to the upside, paced by China following a weeklong holiday there. China’s Shanghai index jumped 0.8% and South Korea’s Kospi rallied 0.9%. Japan’s Nikkei advanced 0.3% while Hong Kong’s Hang Seng Index declined 0.8%. Australia’s S&P/ASX 200 was unchanged.
The Caixin China services purchasing managers’ index slipped to 50.6 in September from 52.7 in August.
China’s foreign-exchange reserves rose for an 8th-straight month in September by $16.98 billion from the previous month to $3.109 trillion.
The September TD Ameritrade IMX Level checked in at 7.14.
Market Sentiment- The iShares 20+ Year Treasury Bond ETF (TLT) traded higher throughout the session while reaching a peak of $124.06. Lower resistance at $124.50-$124.75 held. Support remains at $123.50-$123.
Market Analysis- The Russell 2000 ETF (IWM) has been in a mini trading range over the past five sessions but continues to push fresh all-time highs with today’s peak reaching $150.68. A close above upper resistance at $150.50-$150.75 would be a continued bullish development for a possible push towards $152-$152.50 over the near-term.
Short-term support is at $148-$147.50 with a move below $147 likely signaling a short-term top.
RSI has backed off the 90 level and is in a slight downtrend.
The Financial Select Sector Spiders (XLF) traded to an fresh 52-week high of $26.46 on Friday and tapped $26.42 during Monday’s session. We mentioned continued closes above prior resistance at the $25.50 level could get 10-year support/ resistance levels at $26.50-$26.75 in play.
Continued closes above the latter could lead to a continued rally towards $28-$30. Current support is at $26.25-$26 with a move below the latter signaling a short-term top.
All the best,