by Ian Harvey
October 03, 2015
Introduction to the Week Ahead in the Stock Market
**MARKET SEEMS TO BE BOTTOMING – BUT VOLATILITY STILL LIKELY!**
The week ahead in the stock market will probably continue to be volatile, but there is a likely possibility that a bottom is forming according to technical data.
Third-quarter earnings season will start off later in the week, with Alcoa (AA) reporting quarterly results after the close on Thursday. PepsiCo, along with other companies will also be reporting. Earnings are expected to decline 3.9 percent for the S&P 500, according to Thomson Reuters.
Also, for the week ahead in the stock market, on the economic front, the highlight will be Thursday afternoon's release of the Federal Open Market Committee (FOMC) meeting minutes – this will be examined closely by investors in trying to determine when a rate hike may be expected.
As well, on Tuesday, the Commerce Department will release the U.S. trade deficit data. The trade gap is expected to have increased to $45.5 billion in September. The Federal Reserve, on Wednesday, will issue the consumer credit figures for August. Meanwhile, the Labor Department issues the import and export prices for September on Friday. Separately, the Commerce Department will release the wholesale inventories for August the same day, which are expected to have remained flat after slipping 0.1 percent in July.
Traders will be on the lookout during the week ahead in the stock market for any signs of overseas weakness seeping into the U.S. economy, after the surprisingly soft job growth in August and September.
There is a great deal of nervousness in the stock market due to a number of factors:-
• Uncertainty about the Federal Reserve and upcoming rate hikes,
• a decrease in investor confidence,
• lowering of valuation levels, and
• events in China and other emerging markets…..
…..rather than by a decline in the U.S. economy.
But looking ahead, stock market bulls remain optimistic. Many strategists and analysts expect to see a rebound by year's end in the S&P 500, with a level above the 2,000 mark -- which is down about 8 percent year to date – with improving confidence in the market and expected market improvement toward the end of the year as the U.S. economy continues to grow.
The past week was a big week for economic reports, culminating in the very disappointing September employment situation.
September's 142,000 jobs and a downward revision in Augusts’ number to 136,000 instantly rocked the stock market and signaled that the Fed may not be able to raise rates this year, as it would like. It also raised concerns that the Fed may have been right when it held off a rate hike in September, saying it was worried international developments, like China's weak growth, could hurt the U.S. economy.
For the week ahead in the stock market and in the following weeks, all eyes will be on what is happening outside the U.S. -- data that has to do with Chinese growth and data that has to do with manufacturing around the world.
U.S. growth is not a big concern – particularly when looking at other data besides the employment report – as an example, September's strong car sales Thursday showed the fastest pace of annualized sales in 10 years -- 18.1 million cars being sold a year.
Looking beyond the jobs report the long-term trend still points toward a strengthening labor force.
The Dow staged its biggest reversal in four years on Friday, and finished the week up 1.0 percent, to 16,472.37. The S&P 500 was up 1.0% at 1,951.36, whilst the Nasdaq finished up 0.5%, 4,707.78.
The CBOE Volatility Index (VIX - 20.94), widely considered the best gauge of fear in the market, ended the week down 11.3%.
• The Institute for Supply Management's (ISM) non-manufacturing index, and
• Markit's services purchasing managers index (PMI).
• The international trade balance, and
• A speech from San Francisco Fed President John Williams.
• The weekly petroleum inventory report, and
• The Fed's consumer credit report.
• Weekly jobless claims,
• Another speech by the San Francisco Fed's Williams.
• The release of the FOMC meeting minutes, set for release at 2 p.m.
• Additionally, Minneapolis Fed President Narayana Kocherlakota is slated to speak.
• Import and export prices,
• Wholesale inventories, and
• An afternoon speech from Chicago Fed President Charles Evans.
Earnings for the Week Ahead in the Stock Market
A bottoming of the market may be determined with the upcoming earnings season, and whether there will be a year-end rally. The earnings are not expected to be anything spectacular and may not even surpass last year's level, and there's a good chance the S&P 500 could be negative for the year. Domestically the stocks should do reasonably well but multinationals may continue to struggle.
The worst-performing sector is expected to again be energy with a 64 percent decline, followed by a 14 percent drop in materials earnings. The best performers should be consumer discretionary, financials and telecom, all up about 11 percent.
For a full list of companies reporting in the week ahead for the stock market …..CLICK HERE…..
Conclusion for the Week Ahead in the Stock Market
The past few weeks has seen the market on a wild roller-coaster ride, with day-to-day, as well as intra-day, movements in big swings, both up and down – which has left investors quite nervous, as well as confused.
Even though the stock market, being a leading indicator for the economy, has been on a roller-coaster ride, there is little chance that a recession is in the works for the next 12 to 18 months at least. Long-term investors are recommended to sit tight, to reduce damage to their portfolio.
With the present market down-turn, means that bargains are to be found – with many high-quality stocks falling more than 20 percent over the past year. One such sector is energy; where earnings are expected to be off nearly 64 percent in the third quarter.
It is advisable to continue with a set investment course if fully invested – avoid the psychological effects that can cause harm to your portfolio.