Market Commentary
It’s election week in the United States, and markets appear to be in a holding pattern as they await election results, as the S&P 500 traded slightly lower on relatively thin volume. The finish line of this political race, along with the FOMC interest rate decision on Thursday, are likely to turn this uneventful Monday into an at least interest trading week.
The market breadth that powered the summer rally in equities is waning, even as major indexes remain steady, supported by mega-cap leaders like NVIDIA and Meta. From a technical perspective, U.S. equities appear to be taking a breather, retreating to their medium-term moving averages after an impressive six-week run. With the election approaching, volatility is likely to increase throughout the week.
Earnings season enters its fourth quarter this week, with results so far reflecting stable, not stellar, performance. To date, 70% of the S&P 500 has reported, with 75% surpassing earnings expectations and 60% exceeding revenue expectations. While these figures don’t raise major concerns, they both fall slightly below the five-year averages. If this trend continues, a 5.1% year-over-year growth rate could mark the fifth consecutive quarter of positive earnings growth. Overall, while growth is slowing, there are no significant signs of earnings instability at this point.
On the economic front, all eyes are on Thursday’s Federal Reserve meeting and Jerome Powell’s press conference. Markets are highly confident of a 0.25% rate cut, with a 98% probability currently priced in. However, Powell’s remarks will be closely scrutinized. Some analysts suggest the Fed may have erred with its 50-basis-point cut in September and view the current rate-cutting cycle as premature, while others argue that further cuts are necessary to support a potentially vulnerable economy. How the Chairman and the committee navigate this balance will surely impact market sentiment moving forward.
Our Newton model reflects the recent softening in equity market indexes. Although foreign stocks saw a slight improvement, momentum across the rest of the market either declined or remained steady over the past week. In terms of market segments, all areas lost favorability within our models. The bright spot was in fixed income, where falling market interest rates led to improved momentum for bonds.
Economic Releases This Week
Monday: None
Tuesday: ISM Services
Wednesday: S&P Services PMI
Thursday: Initial Jobless Claims, FOMC Interest Rate Decision & Press Conference
Friday: Consumer Sentiment
Stories to Start the Week
Warren Buffet’s Berkshire Hathaway has increased its cash stockpile to a record high $325.2 billion and continues to trim its Apple position
Restaurant chain TGI Friday’s filed for Chapter 11 bankruptcy citing an inability to recover from the Covid-19 pandemic as the primary cause
After rejecting the previous three offers from Boeing, 33,000 on-strike machinists will vote on the company’s latest attempt to end the seven-week walkout
Salesforce co-founder Marc Benioff, who bought Time Magazine for $190 million in 2018, is discussing a sale to Greek media company Antenna Group
What is Newton?
Our Newton model attempts to determine the highest probability of future price direction by using advanced algorithmic and high-order mathematical techniques on the current market environment to identify trends in underlying security prices. The Newton model scores securities over multiple time periods on a scale of 0-20 with 0 being the worst and 20 being the best possible score.
Trend & level both matter. For example, a name that moves from an 18 to a 16 would signal a strong level yet slight exhaustion in the trend.
Technical trading models are mathematically driven based upon historical data and trends of domestic and foreign market trading activity, including various industry and sector trading statistics within such markets. Technical trading models, through mathematical algorithms, attempt to identify when markets are likely to increase or decrease and identify appropriate entry and exit points. The primary risk of technical trading models is that historical trends and past performance cannot predict future trends and there is no assurance that the mathematical algorithms employed are designed properly, updated with new data, and can accurately predict future market, industry and sector performance.