Markets Post Fresh Highs: Volatility on Horizon

Over the last week, the Bull Market flexed it muscles, as it marched on to set numerous new highs in both the Dow Jones and S&P 500 indices. Additionally, while not setting a new high, the Nasdaq Composite is quickly approaching its 52-Week High, set earlier this year. The Nasdaq index looks like it is poised to capture those levels before the year’s end. Now that there is much more clarity regarding inflation and future Fed policy actions, the market is beginning to focus more on earnings to be the main driver. Last week’s bullish surge higher is largely attributed to a great start to Q3 earnings season. Thus far we have seen many of the major U.S. Financials as well as companies like Netflix, Inc., & Taiwan Semiconductor Mfg. deliver major earnings beats, and this has served as a positive catalyst for the market to move higher. Additionally, Thursday’s U.S. Retail Sales report posted a larger acceleration in consumer spending than was expected. As some were beginning to feel that the U.S. consumer was showing signs of becoming stretched, this report seemed to confirm that the U.S. consumer is in good shape and still more than willing to spend. We are continuing to see strong signs of breadth across the market. Last week the NYSE Advance-Decline Index leaped to new highs, signifying the strong buying pressure felt across the market. Also, 9 out of the 11 SPDR sectors finished the week in the green. Furthermore, looking at the market internals, at the market close on Friday, 78.7% of S&P 500 stocks were trading above their 200-Day moving average, which signifies that they are in a long-term uptrend. Now that we have nearly 80% of S&P stocks in confirmed uptrends, the ‘broadening out’ narrative is certainly playing out as we approach year’s end. As we sit here at the beginning of Q4, with almost 80% of S&P stocks in an uptrend and the index itself up 23% YTD, we anticipate that the market will finish the year strongly. There could certainly be a few bumps along the way between then and now, however, with this level of broad participation in the market, as long as Q3 earnings continue to deliver, it would be hard to imagine many scenarios where most stocks are lower by the end of the year.

Key Events to Watch this Week

New & Existing Home Sales
Election Volatility & Potential $VIX Spikes
Q3 Earnings for GE, IBM, & TSLA

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Building off of last week’s strong trading where we witnessed the Dow Jones & S&P 500 climb to multiple new ATH’s, it is time to turn our focus to the upcoming week. This week, as we are beginning to get into the ‘real meat’ of Q3 earnings season, the earnings results posted this week will be the main driver of market performance. There are a handful of companies in particular that we will be watching closely as they post their latest quarterly results. On Tuesday, before the market open, GE Aerospace (GE) will release their results. Then on Wednesday, after the closing bell, both Tesla, Inc. (TSLA) & Intl. Business Machines Corp. (IBM), will report their Q3 numbers. Each of these reports are sure to garner plenty of attention from investors. Analysts expect GE to report Y/Y Q3 earnings growth of 39.0%. TSLA on the other hand is expected to report its fifth consecutive quarter showing a Y/Y decline in quarterly EPS. Analysts predict TSLA to post a 12.1% Y/Y decrease in Q3 EPS. Now, in addition to these major earnings, there are a handful of other things that we are keeping a close eye on in the week to come. As we approach Nov. 5^th and the U.S. General Election, we anticipate that sometime between now and then the markets are likely to see a pickup in volatility. This is largely due to the Presidential race, by all accounts, being in a virtual ‘dead-heat’ with a razor-thin margin. This element of uncertainty is enough to cause an uptick in volatility for investors because if there is one thing everyone can agree on is that the market certainly does not like uncertainty. This is a theme that we are watching as we approach the election and potentially even in the short-term following the election. If this scenario plays out and there is a notable uptick in volatility expect to see some spikes in the $VIX. The final thing we are watching for in the coming week is a handful of housing-related reports. Due this week on Wed. & Thurs., are the Existing Home Sales & New Home Sales reports respectively. New Home Sales have shown nice growth over the past two years, while Existing Home Sales have collapsed during the same period, which is symbolic of the housing market being essentially frozen over the past few years. As mortgage rates have dropped over the past year, the Existing Homes Sales should improve as rates approach a more favorable level for buyers.

Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.

Thanks,