To start the week, a key manufacturing index fell to its lowest level since 2009. Precious metals, including gold, silver and particularly palladium, took it on the chin. Crude oil fell 3% to below where it was before the attack on Saudi oil fields.
Despite all that, the stock market rallied Monday, with the S&P 500 Index (SPX) rising 0.5% and the Nasdaq (COMP) advancing 0.75%. It’s also looking like there might be follow-through strength early Tuesday. Also, in a possible sign of “risk-off” trading, bonds are taking a hit.
Welcome to Q4 2019.
Though stocks finished Q3 roughly where they started, it was a heck of a ride, with major indices falling as much as 6% and rising as much as 2% above current levels during a turbulent three months. When the dust settled, the SPX and the Dow Jones Industrial Average ($DJI) posted their third-straight quarter of gains. In general, we had an amazing quarter. Considering everything that happened, it’s amazing we ended up where we ended up.
Now we’re in Q4, which is often the most volatile quarter of the year, as Q3 earnings reports and Q4 guidance can give investors their first snapshot of full-year stock performance. Add in an ongoing trade war, geopolitical tensions at home and abroad, an impending Brexit deadline at the end of the month, and a new incoming president of the European Central Bank, and it could be an interesting month.
It might actually be an interesting day to start the month, because besides auto sales giving us another look at consumer health, the schedule also includes four Fed speakers. Meanwhile, across the Atlantic there’s disappointing economic news as the European Purchasing Managers Index (PMI) of 45.7 in September was a seven-year low. Major European stock indices mostly edged lower early Tuesday.
Also overseas, eyes could remain on Hong Kong protests and their possible impact on Asian markets. Generally, though, that situation hasn’t had too much impact on trading here in the U.S.
The earnings calendar is a bit light right now, but tomorrow brings a fresh look at the housing market as home builder Lennar Corporation (NYSE:LEN) is expected to report before Wednesday’s open. Some analysts have sounded more positive about housing stocks recently based on solid home sales data over the last month or two.
Still, if you want a theme for this week, let’s face it. It’s the same as last week and the week before, and it’s called “Listening for news about trade.”
Manufacturing, Auto Sales and the Dollar
As mentioned above, palladium—a key component of catalytic converters for the auto industry—led the metals sector lower yesterday, falling 5%. The rest of the metals complex, including gold and silver, also fell, and crude sank 3% to $54. Meanwhile, the Chicago Purchasing Managers’ Index (PMI) fell to 47.1, well below Wall Street consensus of 50.8 as compiled by Briefing.com. It was the lowest reading since 2009.
There’s more data ahead. We’ll get a fresh look at auto and truck sales this afternoon, but expectations are low. On Friday, a J.D. Power/LMC Automotive forecast pegged September auto sales down 13% from a year ago.
These dynamics might become important to watch in the coming weeks as companies begin rolling out earnings.
Working Out the Kinks?
The bottom line: New ideas and new industries can take a long time to mature to the point of profitability. And in the absence of solid fundamentals, it's difficult to know how to value such early-stage potential disruptors. The WeWork saga, however, may be a sign the IPO market is cooling, for the remainder of 2019 anyway.
Information from TDA 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.
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