News for the Week of 10/10/2016 – 10/14/2016
by David Abuaf, CFA
Investment Manager, RJFS
Government / Political / non-Economic
1. Saudi Arabia said it regretted an airstrike on a funeral in Yemen that killed 142 but stopped short of accepting responsibility
2. Undecided voters said the harsh tone of the debate favored neither presidential candidate
3. Pope Francis said he would appoint 17 new cardinals in November
4. Singapore urged Beijing to engage constructively with other players to ease South China Sea tensions
5. European relations with Moscow are deteriorating anew as Russian bombing of Aleppo sweeps aside moves to ease tensions
6. Colombia’s FARC rebels said they wouldn’t resume fighting despite voters’ rejection of a peace deal
General Markets / Economic
1. Putin said Russia backs oil-output curbs, boosting prices to their highest price since July 2015
2. A weaker pound has softened Brexit’s impact on the UK economy, but debate remains over how long that cushion will work
· Some analysts are saying that the pound’s plunge highlights how thinner currency trading desks exacerbate volatility
3. Asian nations are stepping up purchase of Iranian oil, underscoring Tehran’s ties with the region
1. Samsung halted production and distribution of its Galaxy Note 7 while investigators probed recent reports of overheating batteries on smartphones that were supposed to be safe
2. Alibaba is forming an alliance with Steven Spielberg’s Amblin Partners to produce and distribute movies
3. Oracle is extending the deadline for its $9.3B NetSuite bid amid concerns it undervalues the firm
4. Amazon plans to open grocery stores and curbside pickup locations as it pushes deeper into the food business
5. St Jude warned that a battery malfunction could cause its implanted heart defibrillators to fail
6. Verizon signaled it may demand to renegotiate its $4.8B deal for Yahoo following the internet firm’s data-breach disclosure
7. Unilever is raising its UK prices amid a Brexit-triggered drop in the pound that has lifted import costs
1. McDonald’s is going to court with graffiti artists because they are “stealing” the work of graffiti-ists and putting them in their stores in Europe
2. Bob Dylan was awarded the Nobel Prize in Literature
3. Nigeria’s president warned by his wife that she may not back him at the next election unless he shakes up his government. His response? “My wife belongs in [the] kitchen”
Commentary for the Week of 10/10/2016 – 10/14/2016
by David Abuaf, CFA
Investment Manager, RJFS
Chart from Barrons
Stocks fell almost 1% in their second consecutive weekly loss. In up and down trading, numerous cross currents pulled investors one way and then pushed them another. The immediate and main driver was a relatively poor start to the third quarter earnings reports season. A rising dollar and surprisingly weak data from China on Thursday also pressured equities.
Friday, the nation’s major banks produced solid results but it wasn’t enough to overcome the market drop elicited by Tuesday’s poor kickoff to quarterly results. Alcoa fell 16%, when the company missed profit expectations. Though the great majority of firms have yet to report, the poor start – in the context of six straight quarters of declining S&P 500 quarterly results – was enough to sow doubt among investors who expected that earnings growth will recover in the third and fourth quarters.
That feeling was exacerbated by US economic data released last week, which continues to be relatively unimpressive. Until the election results, the market will probably focus on the quarterly reports, says Michael Purves, chief global strategist at Weeden. Poor reports will lead to continued skittishness, but decent earnings will boost market confidence, he adds. Additionally, he says that given how bad profit growth has been, “we don’t need great earnings, just good enough.”
Behind all those more immediate concerns, anxiety about financial stability in Europe dogs investors and weighs on financial stocks, even as US big banks reported solid results on Friday. While the US dollar rise is also lurking in the background and is another worry, it’s not as strong as the rally that began in 2014.
The good news, points out Purves, is that even if October historically isn’t particularly kind to stocks, the fourth quarter is.
All opinions presented are those of David Abuaf, and not of Raymond James or Forman Investment Services.
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