Not Just Mid­terms: In­ves­tors Bra­cing for Pa­cked No­vem­ber Ca­len­dar

L'Opinion - - News - Am­rith Ram­ku­mar and Gun­jan Ba­ner­ji

In­ves­tors loo­king beyond Tues­day’s U.S. mid­term elec­tions are fo­cu­sing on trade, ear­nings and in­ter­est rates, re­flec­ting an ex­pec­ta­tion that eco­no­mic and mar­ket trends li­ke­ly will conti­nue to play a big­ger role in stocks’ di­rec­tion through the end of 2018 and the­reaf­ter.

Shifts in Con­gress could ea­si­ly swing ma­jor in­dexes fol­lo­wing a whirl­wind Oc­to­ber that high­ligh­ted in­ves­tor un­cer­tain­ty fo­cu­sed on in­ter­est rates, growth ex­pec­ta­tions and trade ten­sions, ana­lysts said. On Tues­day, the Dow in­dus­trials rose 173 points to 25 635, the se­cond straight gain and fifth ad­vance in six ses­sions fol­lo­wing last month’s swoon.

But ma­ny more port­fo­lio ma­na­gers ex­pect that third­quar­ter cor­po­rate ear­nings re­ports and events such as this week’s mee­ting of the Fe­de­ral Re­serve will loom lar­ger in the mar­ket mind-set. That is par­ti­cu­lar­ly so gi­ven the mixed in­ves­tor reac­tion to ge­ne­ral­ly so­lid ear­nings so far this sea­son and unease over stocks’ per­cei­ved vul­ne­ra­bi­li­ty to ri­sing rates.

“There’s a lot of pret­ty stiff head­winds the mar­ket is trying to struggle its way through from now through the end of the year,” said Eric Ku­by, chief in­vest­ment of­fi­cer of Chi­ca­go­ba­sed North Star In­vest­ment Ma­na­ge­ment. At the top of ma­ny in­ves­tors’ minds: The Fed mee­ting and other cen­tral-bank si­gnals, which could shake up the mar­ket in­ter­est-rate ex­pec­ta­tions that have lain at the heart of both the so­lid U.S. stock ad­vance in the first nine months of 2018 and last month’s may­hem. Ma­ny ex­pect an in­crease in De­cem­ber and are clo­se­ly tra­cking Trea­su­ry yields, which serve as a re­fe­rence rate for bor­ro­wing costs for in­di­vi­duals and com­pa­nies world-wide. On Tues­day, the 10-year U.S. Trea­su­ry yield was 3.214 %, near its hi­ghest le­vel in se­ven years.

Other ana­lysts are wai­ting to see whe­ther U.S. sanc­tions against Iran, which went in­to full ef­fect Mon­day, fur­ther dis­rupt the glo­bal ener­gy in­dus­try and ripple to other sec­tors. U.S. crude prices have tum­bled 15 % since the end of Sep­tem­ber, sur­pri­sing some ana­lysts and spur­ring a de­bate over si­gni­fi­cance to other mar­kets.

Mixed trade si­gnals bet­ween the U.S. and Chi­na have al­so conti­nued ahead of a plan­ned mee­ting bet­ween Pre­sident Trump and Pre­sident Xi Jin­ping of Chi­na at the Group of 20 lea­ders sum­mit in Bue­nos Aires la­ter this month.

Glo­bal eco­no­mic po­li­cy un­cer­tain­ty in Oc­to­ber hit its hi­ghest le­vel since March 2017, ac­cor­ding to an index crea­ted by pro­fes­sors at Nor­th­wes­tern Uni­ver­si­ty, Stan­ford Uni­ver­si­ty and the Uni­ver­si­ty of Chi­ca­go.

Add in the do­zens of S&P 500 ear­nings re­ports still ahead in the co­ming days, and some in­ves­tors say unk­nowns beyond Tues­day’s re­sults could end up ha­ving more of an ef­fect than po­li­tics, es­pe­cial­ly on the heels of Oc­to­ber’s whip­saw tra­ding.

While ma­ny large com­pa­nies have al­rea­dy pos­ted third­quar­ter re­sults, ana­lysts say recent jit­ters about slo­wing re­ve­nue will in­crease scru­ti­ny on co­ming ear­nings, in­clu­ding num­bers from Qual­comm Inc. and Walt Dis­ney Co. la­ter this week.

Com­pa­nies that ex­ceed ear­nings ex­pec­ta­tions are per­for­ming worse than they have his­to­ri­cal­ly, FactSet da­ta show, po­sing a fur­ther di­lem­ma for ana­lysts ho­ping to re­main fo­cu­sed on mar­ket fun­da­men­tals.

“It is hard when there’s this much noise and you’ve got com­pa­nies re­por­ting good num­bers and not being im­me­dia­te­ly re­war­ded,” said Mark Stoe­ckle, chief exe­cu­tive of Adams Funds.

That said, the elec­tion re­sults are clear­ly on ma­ny in­ves­tors’ minds. Few ana­lysts ex­pect the out­come Tues­day to lead to a si­gni­fi­cant change in mar­ket va­lua­tions, but there are si­gns that smal­ler po­ckets of mar­kets will be af­fec­ted.

Op­tions tra­ders were bra­cing for about a 1.4 % move in the big­gest ex­change-tra­ded fund tra­cking the S&P 500 on Wed­nes­day af­ter the elec­tion re­sults, Trade Alert da­ta show. The pro­jec­tion is ba­sed on the size of the move, not the di­rec­tion.

Shares of gun ma­kers ral­lied Tues­day, as tra­ders sought to an­ti­ci­pate how po­ten­tial changes in Con­gress might re­shape gun control laws. As vo­ters hea­ded to the polls, Ame­ri­can Out­door Brands Corp. jum­ped 4.7 %, Sturm, Ru­ger & Co. rose 3.7 %, and Vis­ta Out­door Inc. ad­van­ced 2.1 %.

Gun ma­kers’ shares are hea­vi­ly in­fluen­ced by shif­ting po­li­ti­cal winds. The stocks tend to swing af­ter high-pro­file shoo­tings, re­flec­ting fears of a cra­ck­down on gun-ow­ner­ship rights that drive in­crea­sing sales.

Ho­li­day pro­mo­tions and a “po­ten­tial elec­tion-dri­ven up­tick” could push gun sales hi­gher in the near-term, ba­sed on one mea­sure, James Har­di­man, a Wed­bush Se­cu­ri­ties ana­lyst, wrote on Fri­day. He pre­dicts Ame­ri­can Out­door will ral­ly about 20 % from its cur­rent price to $16.50 a share.

SIPA PRESS

The Teh­ran oil re­fi­ne­ry, Iran. The Trump ad­mi­nis­tra­tion has gran­ted wai­vers to eight coun­tries that buy Ira­nian oil.

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