Monday, October 5, 2015
Stocks are indicated to start today's session in the green, with Fed-centric optimism offsetting worries about the U.S. economic scene following Friday's soft jobs reading.
The service sector ISM survey coming out a little later today isn't expected to bring up a negative surprise along the lines of what we saw from the factory sector ISM survey or the jobs report last week. But irrespective of how today's ISM survey turns out, the market's view of the U.S. economy and the Fed has fundamentally changed following last week's data, particularly the jobs report.
Earlier expectations of the Fed going for lift-off in the December meeting are no longer valid and have shifted to sometime early next year. Minutes of the last Fed meeting when the FOMC took a pass on lift-off coming out on Thursday would have been instructive earlier. But those minutes no longer carry as much weight in the current changed backdrop - the lift-off is simply no longer imminent, and December is clearly off the table.
Q3 earnings season takes the spotlight this week as well with the Alcoa ( AA ) release after the close on Thursday. Earnings growth has been nonexistent lately, and the outlook isn't expected to improve this earnings season either. Total earnings for the S&P 500 index are expected to be below the year-earlier level for the second time in a row this year, with a combination of Energy sector weakness, the dollar strength and global growth worries weighing on the growth picture. Overall earnings are expected to be flat this year, with growth expected to resume next year as comparisons for dollar and oil become easier.
The only silver lining in this otherwise uninspiring fundamental backdrop for stocks is the Fed, which will likely remain supportive for longer than would be the case otherwise. And it is this Fed perspective that produced some green in the market on Friday and is pushing stocks higher today as well.
Director of Research
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