The major indexes are on track to start today’s session modestly in the red, with market participants trying to handicap the Fed’s next move in light of Friday’s labor market reading. Weak data out of China also remains in the backdrop for today’s session, but I think the domestic concerns are more prominent.Friday’s all-around positive jobs reading shows that we should brace ourselves for lift-off at the mid-December Fed meeting. Fed officials appeared to be very serious about the December timeline even before the Friday report, which means that their resolve to move must have only become stronger following the report. The data calendar is somewhat on sparse side this week, but we do have scheduled Fed speeches and the October Retail Sales report that will further refine the market’s Fed expectations.
Speeches from three Fed presidents – Bill Dudley of the New York Fed, Chicago’s Charles Evans and Richmond’s Jeffery Locker – will be speaking on Thursday and will likely address these questions. The Retail Sales report coming out on Friday will give us a good sense of the consumer economy ahead of the holidays. Given the headwinds facing the factory sector, consumer spending will need to pick up to push GDP growth in the final quarter of the year.
The Fed aside, we will be watching earnings reports as well, with the Q3 earnings season slowly moving towards the finish line. Including this morning’s reports from Priceline (PCLN), Scripps Network (SNI) and others, we now have Q3 results from 447 S&P 500 members. Total earnings for these 347 index members are down -2.5% on -4.6% lower revenues, with 68.3% beating EPS estimates and only 39.8% coming ahead of top-line expectations. The Retail sector is the only one at this stage that has any size number of reports still awaited at this stage.
As we have mentioned repeatedly in this space before, this is weak performance relative to what we have been seeing from these index members in other recent periods, with weakness on the top-line particularly notable. Growth is hard to come by and management teams are guiding toward continuation of the weakness in the current period as well, which is causing estimates for Q4 to come down at an accelerated pace.
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