Stocks Turn Defensive As Weaker Economic Data Sets Scene For Gathering Fed

Stocks hunkered down in a defensive position Tuesday following equity weakness overseas and a drop in a closely followed reading on big-ticket goods buying. Caution creeps in as a two-day Federal Reserve interest-rate meeting gets underway.

Tuesday weakness follows a down day for the SPX to start the week, in one of the narrowest trading ranges in recent memory (figure 1).

Focus on individual stocks also continues, with some 170 S&P 500 (SPX) companies slated to report quarterly results this week. The earnings season has been largely better than expected as Street analysts better calculated the impact from slowing Chinese and emerging market demand. Apple Inc. AAPL is among the companies due to report later Tuesday and its results and any guidance for the holiday season could have an impact on big-picture stock sentiment.

Economic hiccups serve as the backdrop to the Fed’s latest gathering. Just this morning, a report shows that U.S. orders for long-lasting or durable goods fell a seasonally adjusted 1.2% in September amid widespread softness in the manufacturing sector. Granted, that drop was smaller than the 2.3% decline forecast by a MarketWatch poll of economists, but orders for August were also revised lower.

Economic and company-focused news will share the marquee with a two-day Fed gathering that at one time was considered to be all but a lock for an interest rate hike. No so true anymore. The strong dollar, China-triggered global growth worries, and inconsistent U.S. economic indicators have sidelined the central bank’s plans to reverse recession-era interest rate levels. For now.

The Fed wraps its two-day session with a statement at 2 p.m. Eastern on Wednesday, October 28. The majority of Fed watchers expect no action from the panel then, but market-driving news could still emerge especially if the Fed lays any groundwork for its December meeting and early 2016.

The CME Group’s FedWatch Tool, calculated based on pricing in the Fed funds futures market, shows traders are pricing in about a 5% chance the Fed moves this week to raise rates for the first time since 2006. The tool shows about a 34% shot for a rate hike in December and a 59% chance for a hike in March.

Pfizer Lifts Outlook. Pfizer PFE stock gains after the pharma giant topped the Street view with its Q3 results and raised its full-year earnings outlook. Excluding non-recurring items, adjusted earnings per share were $0.60, better than the Street’s consensus for $0.51. Revenue slipped 2% to $12.09 billion from the year-ago comparison, but was above the expected $11.56 billion. The company raised its full-year 2015 outlook for adjusted EPS to a range of $2.16 to $2.20 from $2.04 to $2.10, and for revenue to $47.5 billion to $48.5 billion from $46.5 billion to $47.5 billion. The stock has gained 9.7% year to date.

BABA Sees Boost from Mobile. Alibaba Group Holding Ltd BABA is headed for Tuesday gains after the China-based e-commerce giant reported a 32% rise in its fiscal Q2 revenue over the year-earlier period as well as increasing profitability from mobile transactions compared with its fiscal Q1, according to financial media. For the reporting quarter, the company earned $1.40 per share, a result helped by a $2.93 billion gain from revaluing its previous stake in its Alibaba Health Information Technology, the company said.

Ford: North America Comes Through. Ford Motor Co. F trades lower even as it earned $1.9 billion in Q3 net income, or $0.48 per share, more than doubling the $835 million reported in the same year ago period. Solid results in the core U.S. market offset weaknesses in emerging markets, the company said. Its CFO did warn to Q4 profitability will be negatively impacted by higher seasonal costs and potential payouts tied to a new labor deal. Ford confirmed full-year sales growth guidance for North America at the top end of a previously reported 8.5% to 9.5% range. Wall Street is closely watching automaker results at a time when China demand has cooled and other markets considered to have high potential—Russia and Brazil among them—have disappointed.

Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.

Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2015 TD Ameritrade IP Company, Inc. All rights reserved. Used with permission.