Investor resting atop cash reserves
The stock market’s 10% selloff has the look of a full-blown correction. Therefore, Monday’s (Oct. 30) upside reversal (and the calmer days ahead) could be taken as proof that the selloff is done.
However, the negative issues that ignited the selloff remain. Therefore, viewing this new period as a pause could prevent becoming optimistic too soon.
So, why the pause now?
The stock market has passed through October with a few whacks, but without causing investor fright. Therefore, the happier November-December holiday period backdrop could keep investors’ moods relatively neutral, if not positive.
Moreover, there are five major fundamental developments that could brighten spirits:
First – Company earnings reports (Oct. 30 through Nov. 10)
These two weeks of reports are well-diversified among economic sectors and business industries. Here are the proportion of index companies reporting:
- S&P 500 = 207 (41+%) companies
- Nasdaq 100 = 41 (41%) companies (33 are also in the S&P 500)
- Russell 2000 = 932 (46+%) companies (none are in the other two indexes)
Therefore, 1147 (45+%) companies are reporting out of the three indexes total of 2517, and the spread of results and outlooks will reduce some of the generalized worries, like high interest rates. If most reports are good, the indexes could rise
Second – Federal Reserve announcements (Nov. 1)
The interest rate decision and the accompanying commentary and outlook will likely reassure investors
Third – Bureau of Labor Statistics (BLS) Employment Situation Summary” report (Nov. 2)
This important report will likely confirm the continuation of strong employment conditions and low unemployment
Fourth – University of Michigan Consumer Sentiment report (Nov. 10)
These survey results are a widely followed measure of consumer sentiment, both for current conditions and expected. With the good retail sales and employment reports, expect this preliminary November report to be positive
Fifth – BLS Consumer Price Index (CPI) report (Nov. 14)
The key inflation data (particularly for the “core CPI” that excludes food and especially variable energy prices) will likely show a trailing 12-month number for October that is similar to September
The bottom line – Relax for now, but it’s too soon for optimism
Just because we have been hearing about the economy and business negatives for many months doesn’t mean we should ignore them. However, do understand that those issues were behind the 3-month stock market selloff -and- they haven’t gone away.
Instead, expect some less stock market turmoil for a while. Those issues above are stepping stones that will take us to the generally positive holiday period. Then comes the first quarter’s seasonally weak sales, production and employment.
Looking out this far is always iffy. Any outlook is filled with probabilities and expectations that could change. Nevertheless, there is a serious outcome that remains ripe for fulfillment ahead – A distressing plummet to reset stock market valuations and investor expectations, particularly among the last bull market’s favorites. It would be the second of four stages I described in my Oct. 25 article below (Stage one, a disturbing selloff, is now complete.)