Entering the last days of October, the market will focus on a big earnings week, big decisions by Mario Draghi and President Donald Trump, as well as the decisive outcome of Japan’s snap election and the progress of tax reform, Prudential’s Chief Market Strategist Quincy Krosby said Monday in her weekly “Connecting the Dots” outlook.
The third quarter earnings season has gotten off to a solid start with 77 percent of reports beating estimates. It has become increasingly clear that the weaker U.S. dollar, coupled with stronger global demand, have given a powerful boost to top-line revenue growth, she said.
This week, 175 companies within the S&P 500 will report earnings, allowing analysts to garner a broader picture of both the earnings and economic landscape. The wide range of reporting companies includes the auto, energy, technology, defense, industrial, consumer foods, and pharmaceutical sectors—highlighted by big names like Caterpillar, McDonalds, Boeing, Alphabet, Amazon, Exxon, GM, and Ford. Guidance stemming from the earnings calls should allow analysts to draw a clearer picture of the global economy.
“Every earnings season there is one week that is the big week for earnings, and this week is it,” Krosby said.
The European Central Bank’s meeting on Thursday is widely anticipated as investors await ECB president Mario Draghi’s announcement on the quantitative easing program, and whether or not there will be a tapering of bond purchases. The currency market, in particular the Euro, is vulnerable to any change in policy direction.
“They want a weaker Euro—the equities market responds favorably—however, the Euro has been already weakened because of events in Catalonia,” Krosby said.
In Washington, the prospects for tax reform were given a significant boost on Thursday as the Senate approved a budget.
The White House has announced that the president will decide the next Federal Reserve chairman before he leaves on his trip to Asia on November 3rd. The guessing game continues, but above all, investors want someone who will conduct monetary policy with a careful hand as the Fed embarks on a precedent-setting path to unwind its $4.5 trillion balance sheet that was accumulated during the financial crisis.
Speaking of Asia, Prime Minister Shinzo Abe’s strong win in Japan’s snap election on Sunday helps to ensure the continuation of monetary accommodation from the Bank of Japan.
“Abe has done quite a bit of reform to change a culture that has been steady for many decades in terms of employment and how long the workweek has to be,” Krosby said. “This win has been good news for the Japanese markets.”
This week’s economic data will include the Chicago Fed National Activity report on Monday, Tuesday’s flash report on the Composite Purchasing Managers index, the Durable Goods Orders report on Wednesday, the continued roll out of regional manufacturing reports and on Friday, the first reading on GDP for the third quarter.
To talk to Quincy Krosby about her views of the market, contact Lisa M. Bennett or Dara Scerbo.
Read Quincy Krosby’s full Q4 Market Commentary: The End Game
The views and opinions are those of the author at the time of publication and are subject to change at any time due to market or economic conditions. This is solely for informational purposes. This is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.