Riding (the roller coaster) into Earnings Season – Monday Morning Market Memo – October 7, 2019

Riding (the roller coaster) into Earnings Season – Monday Morning Market Memo – October 7, 2019

Good morning,

The stock market averages moved notably lower early last week after the Institute for Supply Management reported its Manufacturing Index came in at 47.8 last month, lower than market expectations for 50.2 (levels below 50 indicate contraction). This was the lowest level since 2009, and put worries of the “R” word (yes, recession) on the minds of investors. Adding to the bad news and the selling pressure last week, the ISM Non-Manufacturing Index also came in below expectations on Thursday – sending stocks lower once again, with the Dow down over 300 points at its low.

The mood of the market quickly perked up however, and stocks recovered from those earlier losses, as market participants took the weak economic data to mean the Federal Reserve is more likely to cut interest rates later this month. You know, the standard “bad news is good news” analysis of the situation. According to the CME FedWatch Tool, probabilities of a ¼ point rate cut by the Fed at the October 30th meeting are now 75.4%, compared to 40% early last week. Add in a “Goldilocks” jobs report – which was hot enough to ease recession fears and cold enough to indicate the Fed would likely deliver that rate cut – and stocks moved sharply higher on Friday, paring losses from earlier in the week. For the week as a whole, the Dow Jones Industrial Average lost .92%, the Standard & Poor’s 500 Index dropped .33% and the NASDAQ Composite gained .54% – so the roller coaster ride did not end too far away from where it started.

Looking ahead, it’s time to get ready for another earnings season, which begins with a trickle this week. Household names set to report in the week ahead include Domino’s Pizza, Delta Air Lines, Tootsie Roll, Fastenal, and Levi Strauss. Looking at the broad picture, for the third-quarter of 2019 the estimated earnings decline for the Standard & Poor’s 500 is 4.1%, according to data from FactSet. Remember, earnings is an expectations game, and with consensus estimates low, it will be easier for companies to impress – so a little “less bad” earnings news could end up being good news. Of course, guidance will likely be even more important than actual results, as the market is forward looking. Whatever, the case, get ready for earnings!

As always, call us with any questions you may have, or if you would like to set up a meeting.

All the best – Southport Station Financial Management, LLC