Hard to know what to focus on at the moment, politics as the Clinton v Trump war gets nastier, results season offers a very mixed picture and macro data likewise. The final debate between the two contenders for the Whitehouse degenerated into another shouting match as Donald Trump refused to say whether he would acknowledge the outcome of the election. The world could not be in more need of leadership, and the leader of the largest economy in the world is either going to be deeply distrusted or deeply disliked, and most likely both.
The equity market remains as mixed picture. Large cap developed indexes have stalled, however the mid-sized indexes in the US, The Russell 2000 and that of the FTSE 250 are flagging. The Dow Jones Transportation Index has likewise rolled over from the recent peak. The Vix index remains close to historic lows, and the latest AAII investor survey continues to suggest equity sentiment amongst retail investors reports that just over 23% believe equities will be higher in 6 months’ time. This is against a long term average of almost 40%. The US dollar continues to climb as Federal Reserve member Dudley commented on Thursday that he believes rates will rise before the end of the year.
Results season has shown that companies that fail to meet expectations are being severely punished, Laird group falling nearly 50% on its earnings being a good example. In the US, financials continue to do better than generally expected, American Express rose almost 10% after its earnings report. This is probably partly due to the bar being set pretty low into the number. Industrial and the telecoms sector is not fairing so well, where expectations are slightly higher.
The latest meeting of the ECB council left interest rates where they were, and in the following press comment Mario Draghi said that there had been no discussions regarding extending the monetary stimulus program. Some press reports suggested that the tone of the comments were that the ECB were looking to prepare the markets for a weaning off sovereign QE.
October has been historically a volatile month for stock markets, the crash in 1987 is one example that is often quoted. One cannot argue that there are not enough reasons currently for another bout of volatility with all these uncertainties around. Earnings, as much as anything, will be pivotal as we come into the home straight for the final part of the year. If the markets can survive this tricky month, then attention will be turning to Christmas and the hopes for a yule tide rally.