by Ian Harvey
October 11, 2015
KEYWORDS: stock market outlook, the week ahead
Introduction to the Stock Market Outlook
The week ahead will be subject to several influencing factors which should help the investor and trader, alike, to determine which way the stock market is headed.
The past week showed that there is definitely some more optimism in the stock market – yet the doomsayers keep insisting there is “worse to come”.
There are certainly some significant signs after last week’s bullish move up, particularly with the major indexes coming off their August lows.
Historically, when corrections occur, followed by disappointing economic data, and then followed by better-than-expected growth data, the stock market works its way back to the highs previously experienced after several months.
However, with the present situation, the market is moving ahead quicker than anticipated, as can be seen with the S&P 500 having gained in seven of the past eight sessions, and being up nearly five percent by the end of the past week due to a disappointing U.S. nonfarm payrolls report which is expected to decide on a delay for the Federal Reserve keeping interest rates near zero longer than was expected.
The Stock Market Outlook Influencing Factors
1. Earnings Guidance -- The Third-Quarter earnings season is already underway, with results from 24 S&P 500 members already out – and in the week ahead the reporting pace picks up with 78 companies coming out with Q2 results, including 34 S&P 500 members.
Maybe earnings will not be as bad as analysts have been predicting, as China, which has had plenty of economic woes in the past few weeks, may not, in fact, be as big a concern after all. This is not to say that some sectors will not be affected by the impact from China, but in the main, other sectors should be okay – and suggest that at least 75 percent of the companies reporting earnings will beat expectations.
Volatility will still be the norm, with bigger swings than usual for the quarter expected by analysts and strategists.
2. Earnings Valuations – will be crucial where many companies, particularly large-cap stocks, have fallen to cheaper entry prices – such as, big biotechnology and pharmaceutical names.
3. Fed Watching – it appears that all areas of the stock market – investors, traders, analysts, strategists, software programs – are obsessed with the comings and goings of the Federal Reserve decisions.
4. Congress Concerns – the inability to smoothly resolve key fiscal negotiations adds to uncertainty to the stock market.
It should be expected that the Fed will stay in this holding pattern, no rate hikes, until next year. Excluding global growth concerns, there is plenty of internal turmoil surrounding the Fed – speaker of the house resigning, debt ceiling debate, maybe a government shutdown December 11th, one week before the Fed’s final meeting for this year.
If all else fails and the rate hike occurs – then little impact will be felt on the stock market as the Fed liftoff from near-zero interest rates is already built into the stock market.
Conclusion to the Stock Market Outlook
Since the correction, there has been some drop-off in sentiment and a more conservative approach to trading which is not surprising.
A growth environment is still being experienced – this means that investors and traders have been shown a great door of opportunity to buy in the middle of a longer-term economic expansion.
The stock market appears to be now set up for another year-end rally – maybe not new highs – but higher; somewhere within the upper trading range of the year.