The stock market had its best October since 2003 due largely in fact to strong earnings reports, a growing economy and an improving report on jobless claims. October had loads of thrills for the bulls with big upside moves, and not many downside chills for the bears could be found. The S&P 500 closed out the past week virtually flat, although its 3.7% jump in the scary month of October was its best October in seven years. In addition, for the month, the Dow rose by 3.1%, 5.9% for the Nasdaq, and a 4% jump for the smaller-cap stocks as represented by the Russell 2000. With the latest Gallup survey showing that the horde of bullish investors had swelled to more than 70%, it’s ironic that consumer sentiment has at the same time fallen to an 11-month low. What this really means is that the current state of the market is being driven by the fickle, fast-money crowd of momentum money managers. Thus going into the final two months of year, it could be a volatile holiday season, given the fact that the improving economic facts and the pre-election results are already ‘baked into the cake.
Stocks ended this past week somewhat lethargically as the Dow Jones Industrial Average finished last week down 14 points, or 0.1% to the 11,1118 level. Both the Standard & Poor’s 500 and the Russell 2000 were basically flat, while the Nasdaq was the lone standout as it gained 1.1%. For the first time since April, major stock indexes have risen for two months in a row. The Dow and S&P are both up about 6 percent for the year, while the Nasdaq is up 10.5 percent. Since September, the Standard and Poor’s 500 index, perhaps the best measure of the stock market, is up 12.7 percent. There’s no doubt that this recent market run is getting ‘long in the tooth,’ and investors bided their time during this past week in anticipation of next week’s midterm elections, the Federal Reserve meeting and the all-important October jobs report.
Speaking of the elections, most experts feel that the Republicans will at least gain control of the House of Representatives this coming Election Day. The most optimistic ones feel there’s also a chance that the GOP might even take control of the Senate. Which bring us to our next question; “Is a Republican victory good for stocks?” The movement of the Dow since late August seems to say it is. The stock market has always favored Republicans, or so it seems anyway. After all, they are tax friendly and pro-business, but after all that has occurred under Republican rule, is the President right in pleading with Americans not to put the bad drivers back behind the wheel? If the economy fell into such a disaster under Republican rule and the treasury budget grew into its current monstrous state, then perhaps old rules no longer apply? However, most pundits emphatically believe the market will reward a Republican victory, if it has not already, and will penalize a Democratic Party win. For what it’s worth, I tend to agree
Next week will be the most anticipated Fed meeting in quite some time, as it falls right after the mid-term election day. Market participantes have been anxiously awaiting the annoncement of Quantative Easing 2, and now the question becomes as to how much will the fed purchase? Currently analysts are looking for around $500 billion to $1 trillion, which might not be enough believe it or not to keep the pundits happy. Bill Gross, the bond guru from PIMCO who runs the biggest bond mutual find in the world, went on record last week stating that we are now at the end of the 30-year bull market in bonds. He is worried about the collapse in the U.S. dollar and that the QE2 will just create more problems for the already broke U.S. government.
Thus getting through the month of October allows us to now focus on the month of November. As you can see by the listed table below, November has surprisingly been a decent month going back nearly 60 years. Since 1949, November has outperformed the broader market in every decade, and on average, has turned in about twice the return as the average month. This according to MarketSci Blog.
Like all seasonality plays, this one has by no means been a sure thing and doesn’t by itself justify a trade, but we feel there’s clearly been a positive edge to the month so we’re calling the calendar month bias for November to be somewhat bullish. Let’s just hope that history proves we’re right.
Here is a brief list of some of the key events for the first trading week in November. All earnings dates listed below are tentative and subject to change. It is best to check with each company’s respective website for official reporting dates.
Monday
• The Commerce Department will report on personal income and spending construction spending in September, while the Institute for Supply Management (ISM) will issue its October manufacturing index. Allergan Inc. (AGN), Cooper Tire & Rubber Co. (CTB), Corning Incorporated (GLW), Humana Inc. (HUM), IntercontinentalExchange Inc. (ICE), Loews Corp. (L), American Financial Group (AFG), Anadarko Petroleum Corp. (APC), and Evergreen Solar Inc. (ESLR) will report earnings.
Tuesday
• There no major economic reports scheduled for Tuesday, which is also election day. Archer Daniels Midland Co. (ADM), The Clorox Co. (CLX), DineEquity Inc. (DIN), Dollar Thrifty Automotive Group Inc. (DTG), Kellogg Company (K), Marathon Oil Corp. (MRO), MasterCard Inc. (MA), Newmont Mining Corp. (NEM), Pfizer Inc. (PFE), The St. Joe Company (JOE), Tenet Healthcare Corp. (THC), Teva Pharmaceutical Industries Ltd. (TEVA), Career Education Corp. (CECO), Hartford Financial Services (HIG), Leap Wireless International Inc. (LEAP), OpenTable Inc. (OPEN), STEC Inc. (STEC), and Wynn Resorts Limited (WYNN) are scheduled to issue their quarterly reports.
Wednesday
• The big news on Wednesday will likely be the decision of the Federal Open Market Committee. It’s widely anticipated that the Fed will launch another round of quantitative easing. We’ll also get the ISM services index for October, reports on auto sales in October and factory orders in September, and the usual weekly report on U.S. petroleum supplies. ADP will weigh in with employment numbers in the private sector. Scheduled to report earnings are Aetna Inc. (AET), Agrium Inc. (AGU), Alpha Natural Resources Inc. (ANR), AOL Inc. (AOL), CVS Caremark Corp. (CVS), Hyatt Hotels Corp. (H), Molson Coors Brewing Co. (TAP), PulteGroup Inc. (PHM), Qwest Communications International Inc. (Q), Time Warner Inc. (TWX), TRW Automotive Holdings Corp. (TRW), WellPoint Inc. (WLP), Westlake Chemical Corp. (WLK), Force Protection Inc. (FRPT), Genco Shipping & Trading Limited (GNK), General Cable Corp. (BGC), Overstock.com Inc. (OSTK), Prudential Financial Inc. (PRU), QUALCOMM Inc. (QCOM), WebMD Health Corp. (WBMD), Whole Foods Market Inc. (WFMI), and Yamana Gold Inc. (AUY).
Thursday
• The weekly initial jobless claims report comes out on Thursday. DIRECTV (DTV), Frontier Oil Corp. (FTO), Fuel Systems Solutions Inc. (FSYS), Liz Claiborne Inc. (LIZ), PG&E Corp. (PCG), Sirius XM Radio Inc. (SIRI), Suncor Energy Inc. (SU), Time Warner Cable Inc. (TWC), Activision Blizzard Inc. (ATVI), bebe stores inc. (BEBE), Blue Nile Inc. (NILE), CF Industries Holdings Inc. (CF), Crocs Inc. (CROX), Isis Pharmaceuticals Inc. (ISIS), Kraft Foods Inc. (KFT), SandRidge Energy Inc. (SD), and Starbucks Corp. (SBUX), will report earnings.
Friday
• Nonfarm payrolls and the unemployment figures for October will be released on Friday. Beazer Homes USA Inc. (BZH), Coventry Health Care Inc. (CVH), DISH Network Corp. (DISH) and Plains Exploration & Production Co. (PXP) will report.
Sources: Barron’s, The Wall Street Journal, CNN, The New York Times, MarketSci, Schaeffer’s Research, Reuters, Bloomberg