Fasten your seat-belts! In the next four weeks the stock market is in for a roller coaster ride. Today began Q3 earnings season. Oil is front and center, and we have a wild, unpredictable presidential election just 28 days away.
First and foremost for traders is Q3 earnings. Alcoa (AA) kicked off the season with a miss. Analysts were looking for 35 cents per share on revenue of $5.31 billion. Instead, the company reported 32 cents a share on sales of $5.21 billion. This could be the beginning of one of the most volatile earnings seasons in recent memory. S&P 500 stocks are trading at a forward multiple of 17.0 times earnings—close to an all-time high. This is where the bubble broke during the dot-com fiasco.
Alcoa is by no means the only one to report this week. We expect to get a slew of financials reporting: Citi (C), JPMorgan (JPM), Wells Fargo (WFC) and PNC Financial (PNC). These are just the major ones that will be reporting this week. Financial reporting has a tendency to dramatically move markets one way or another.
The global oil glut is not going away
Oil is driving stocks lower today. Also, we have a slew of Fed speakers this week. As of last month, the mere talk of a rate hike sent the markets into a tailspin which, in turn, sent the dollar up. Today the US dollar index is up 0.74% to 97.64 and the US 10-year note hit 1.78%. All this puts pressure on the price of oil.
US crude, after reaching a high on Friday, was off by as much as -1.30% this afternoon and is trading below $51.00 a barrel. The real catalyst in knocking the price of oil down is a glut on the worldwide market. The US, which had a 40-year ban on exporting oil, is now a major exporter. US shale is now a major force in the US oil industry, and then there’s the reemergence of Iran, Iraq and Libya adding millions of barrels a month to this glut. Saudi Arabia, with all this talk of a freeze, is still producing record amounts of black gold. Given everything in play, the world will be awash in oil for the conceivable future. You may wonder how relevant OPEC will remain going forward.
Presidential election to get uglier
With only four weeks to go before we elect a new president, expect to see possible “lead” changes in the polls almost hourly. On Friday, it appeared as though Mr. Trump was done due to an 11-year-old explicit tape, which sent even Republicans scurrying for cover. On Sunday, during the debate, he may have changed his course, as Mr. Trump performed better than many expected. While Hillary Clinton still leads in the polls, WikiLeaks expects to release thousands of more leaks, promising to embarrass the former US Secretary of State. What effect, if any, these may have on the campaign, is anyone’s guess. One thing we can expect for sure, it will most likely get uglier.
Finally, the good news: jobs
One of the bright spots in the last week was the jobs report. Yes, we missed analysts’ expectations. But look past the headline number and you get to see a glimmer of sunshine. Hourly pay for production and non-supervisor employees rose 1.5% year over year. The labor force increased by 3 million in the past 12 months versus 738,000 the previous 12 months. The big number—full-time labor employment in the US—is now at a record high of 124 million.
With the holidays fast approaching, most expect to see seasonal spending increase by 4%. In an economy that is powered by consumer spending, this would be a welcome holiday gift to all investors.