Week In Brief: October 16

October 19, 2015

Last week's lackluster economic data led to a rebound in global equities. As investors believe central banks may extend their accommodative policies. Fact is, Fed governors appear to be as flustered as anyone. Making it up as they go. Rather like Dr. Frankenstein pacing to and fro. Wringing his hands. Worried about this monstrosity of his creation roaming the countryside.
Huddle in, friends. At least we're all in this together.
Q3 earnings season continues. 80 companies in the S&P 500 have reported thus far. Results? Mediocre. 54 percent have beaten earnings expectations. 41 percent have beaten sales expectations. Should results continue as such, it will represent the weakest quarter of the bull market.

Not all the news is bad.
JPMorgan's U.S. Portfolio Strategy report -- released last Friday -- postulated that the broader equity bull cycle remains in place. Further, the bank believes the market can continue to grind higher on the wings of easing macro headwinds, housing recovery traction, a resilient U.S. consumer and strong credit growth. Also noting that forced short covering could lend itself to additional equity support. As short sellers would have to cover around $90 billion in equities to restore short interest to pre-August levels.
Still, Bears continue espousing the "domestic economy stinks" line. While Bulls counter, pointing out selectively weak facets of an economy that remains reasonably healthy, overall.
Somebody's got to be right, right? And we'll know soon enough.
Next week, the government will issue its initial estimate for Q3 GDP. Most economists, dreary scientists they are, anticipate a relatively soft reading of 1.5 percent annual growth. Which places real GDP growth at 2.5 percent annualized these last two years. Pretty pedestrian.
Yet, let's consider "core" GDP, which the nation's economists truly rely upon in accounting for long-term economic growth. Core GDP excludes the effects of government, inventories and international trade, which can be very volatile from quarter to quarter. While Q3 GDP may register at 1.5 percent, core GDP looks to have expanded at a robust 3.5 percent. Which, notes First Trust's Chief Economist Brian Wesbury, translates to a 3.5 percent rate for the past two year. Signaling that there's little-to-no recessionary signs. Those facets comprising 82 percent of the U.S. economy? Doing just fine.
Bottom line? Stocks continue to rebound off the double lows set in August and September. Let's not get too bullish. Not yet. At least not until the S&P 500 (currently at 2,030) closes above its 12-month average (now at 2048). And even that must hold through the end of a calendar month. With Janet Yellen wearing a Fed talisman around her neck.
Just kidding about the talisman. But the rest was on point. And until it plays out, expect more volatility as Bulls and Bears battle it out for market superiority.
Meanwhile, the race for the White House continues to entertain. Republicans appear no closer to a nominee than the day the 19th candidate declared. Democrats, meanwhile, more or less held a coronation for Hillary last Tuesday under the guise of a debate. After which Hillary, campaigning in Alabama, had suddenly developed a southern accent (here).
Thus far, neither party has focused on the need to trim government spending. Or the nation's budget deficit. Of course, a nomination campaign is hardly the time to address such contentious and critical issues. Leave that for after the election. After which the winning candidate can simply ignore it.
Last Tuesday's Democratic debate featured a smorgasbord of topics, few of which rank among those most troubling the nation today. An increasingly destabilized Middle East and Europe. ISIS. Sectarian violence and massive human migrations. A grinding economic recovery featuring the least amount of growth permitted under the definition of a recovery.
Otherwise, CNN checked every box.
Here's a question for the next GOP and Democratic debates...
The U.S. government borrows 30 cents of every dollar it spends. Which, coincidentally, happens to be the exact percentage of the budget earmarked for seniors via Social Security, Medicare, and other transfer payments. Seniors comprise a large constituency. Politicians don't wish to upset them. But these problematic trends are only accelerating as the population of transfer-payment recipients grows older and bigger (with life expectancies) while the population of younger payers into the system shrinks (with birth rates). What propose you, Mr./Mrs. Candidate?
That would get 'em squirming. Unfortunately, we'll never see it.
The Democrats have essentially reached into the bottom of the sock drawer and pulled out the pair whose time has come. The pair is stained and lint covered. And is not the best match for shoes and pants. But, it has the right label. Which makes that worn out pair of socks just good enough.
The GOP, on the other hand, has become such a fractious hot mess that it cannot even convince one of its own to assume the most powerful job it can offer devoid of a general election. How can this party expect to choose the right presidential candidate?
If the average fast-food joint, brewpub and movie theater can provide an array of choices that do not require consumers to consistently settle for the lesser of two evils, why can't our political system? So long as the current political duopoly runs the nation, it is destined to see its problems treated as a thick rope over a puddle of mud. With two teams vying to pull each other in. Tugging desperately, to and fro. Forever stalemated in a endless tug of war.
The Good
Options traders, despite recent rallies, remain bearish - which is a contrarian bull signal... The U.S. budget deficit, thanks to sequestration, hit its lowest point since 2007... The misery index hit a 59-year low... Inflation remained low... Weekly jobless claims remained at record lows... Michigan consumer confidence sentiment rebounded solidly last month... Retail sales grew slightly...
The Bad
Company revenues from Q3 earnings reports thus far have been bad... Philly Fed missed expectations and turned negative... Job openings were slightly lower... LA Port traffic declined...
Weekly Results
Major markets finished higher last week. The DJIA gained 0.77%, the S&P 500 added 0.90%, and the Nasdaq climbed 1.16%. Small cap stocks lost 0.26%. And the 10-year Treasury bond yield fell 6 basis points to 2.03%. Gold rose $18.20 per ounce, or 1.57%.

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