The Kindest Quarter Arrives for a Stock Market That Nothing Can Rattle

Theories abound as to why the fourth quarter is so often the best one for equity bulls. Fund managers need to catch up, holiday spending spreads cheer, investors celebrate the January effect in December.

Or maybe it’s just dumb luck. Whatever the case, the S&P 500 Index has risen seven times in the last eight years between October and December. And while calendar effects just took a beating with a volatility-free September, betting against any form of momentum remains a losing trade until proven otherwise.

Indeed, equities just capped an eighth straight quarter of gains, the longest winning streak since the start of 2015. The S&P 500 climbed 4 percent as corporate earnings posted the first back-to-back double-digit advance in six years, helping stocks endure mounting tension with North Korea, a deadly U.S. hurricane season and escalating political turmoil.

Along the way, returns have started to spread out as money shifted from high-flying tech giants to laggards such as small-cap and value shares. The rotation, spurred by higher bond yields, accelerated this week as President Donald Trump and Republican congressional leaders released a framework for overhauling the U.S. tax code.

All four major major U.S. equity gauges — the S&P 500, Nasdaq Composite Index, Dow Jones Industrial Average and Russell 2000 Index — ended September with year-to-date gains gains of at least 9 percent. The last time that happened, in 2013, the S&P 500 rallied an additional 9.9 percent.

In fact, betting on a sloppy close to any year has been a losing proposition since the global financial crisis ended. The S&P 500 rose an average 6.2 percent in the fourth quarter since 2009. Matching that return would lift the index to 2,676 by December from Friday’s close of 2,519.36.

“Seasonality is a starting consideration but never an end to itself,” Stifel Nicolaus & Coo. chief equity strategist Barry Bannister, wrote in a note Thursday. He raised his year-end S&P 500 target 100 points to 2,600, citing catalysts including Trump’s fiscal plans and stronger global growth.

Not everyone is as bullish. Ten of 18 Wall Street strategists surveyed by Bloomberg see the S&P 500 ending the year at 2,500 or below. David Kostin at Goldman Sachs Group Inc. reiterated his call for 2,400, saying the start of the Fed’s balance sheet reduction will result in higher bond yields, weighing on equities.

Others see the rotation into small-caps and banks weakening the bear case for stocks. Jason Hunter, an analyst who watches charts to predict markets at JPMorgan Chase & Co., has expected the summer swoon in tech stocks to lead to a market correction. The breakout in the Russell 2000 doesn’t bode well for that cautious call, he said, adding he’s watching whether the new leadership groups can power through resistant levels.

The latest rally has revived a buy signal from a century-old charting technique. The Dow Jones Transportation Average rose for eight days in a row, climbing to all-time highs and helping the group catch up with the rally in the industrial measure after they spent the last two months diverging from each other.

That’s a relief to adherents to the Dow Theory, an investment approach that stems from observations Charles Dow made a century ago and holds that moves in transportation stocks must be “confirmed” by industrials, and vice versa, to be sustained.

Where should investors put their money heading into the final months of the year? Gina Martin Adams, chief equity strategist at Bloomberg Intelligence, says technology and consumer-discretionary stocks are the two sectors that tend to enjoy seasonal tailwinds because of holiday spending.

Chris Harvey, a strategist at Wells Fargo, recommends investors favor the recent Trump trade, such as small-caps. “We’re placing more faith in a rotation rather than an upward market ‘pop’,” he wrote in a note.

    Read more: http://www.bloomberg.com/news/articles/2017-09-29/kindest-quarter-arrives-for-stock-market-that-nothing-can-rattle

    U.S. Stocks Hit Records, Fed Talk Weighs on Bonds: Markets Wrap

    U.S. stocks surged to all-time highs while Treasuries slumped amid reports that President Donald Trump and Treasury Secretary Steven Mnuchin met with former Federal Reserve governor Kevin Warsh to discuss the role of Fed chair.

    The S&P 500 Index, Nasdaq Composite Index and Russell 2000 Index all set records, with the S&P 500 closing out its eighth straight quarterly gain. Trump, who also reportedly met with former Fed governor Jerome Powell, said he expects to make a decision on the central bank’s leadership in two to three weeks.

    Financial shares, which would stand to benefit from Warsh’s views on deregulation, helped spearhead the stock market gains as the KBW Bank Index leaped to the highest since March.  But despite the enthusiasm, some investors predicted that Warsh’s nomination would hurt equities.

    “I don’t think a Warsh nomination would bring confidence to the markets and would expect equities to sell off if he was announced,” Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC, wrote in a note to clients Friday. “Normally, the FRB staff assumes the chair knows the ins and outs of monetary economics at least as well as they do. Warsh would not be afforded that assumption. That is a big problem.”

    Prior to the Fed news, Treasuries and the dollar dropped as the PCE core deflator, a key gauge of inflation, rose less than economists expected, deepening concern about the stickiness U.S. consumer prices and what it could mean for an expected interest rate hike this year. Personal spending also cooled.

    “Inflation data today was weak, but Janet Yellen was pretty adamant when she spoke that they’re going to remain on course, and even though the numbers missed expectations today the headline number is still the same level, so it’s not a big downtick,” Michael O’Rourke, chief market strategist at JonesTrading Institutional Services LLC, said by phone. “It’s not optimal to keep policy on course, but it’s not enough to knock policy off course.”

    European shares closed out their best month of the year. European government bonds rebounded. Emerging-market assets rallied, with stocks rising and most currencies strengthening against the greenback.

    Data out of Europe underscored the region’s economic recovery. German unemployment fell to a record low in September, providing encouragement for the European Central Bank as it contemplates reducing asset purchases in coming months. Euro-zone inflation undershot estimates, though not by much. The U.K.’s benchmark stock index was buoyed by data showing that British consumers are in better shape than previously thought.

    Terminal subscribers can read more in our Markets Live blog.

    What to watch out for prior to the weekend:

    • Chinese markets will be shut next week for a holiday.
    • South Korea’s markets will be closed next week as well.

    Here are the main moves in markets:

    Stocks

    • The S&P 500 gained 0.4 percent to a record 2,519.35, putting the benchmark up 3.7 percent for the quarter.
    • The Nasdaq Composite surged 0.7 percent, bringing its quarterly increase to 6.3 percent, while the Russell 2000 rose 0.1 percent on the day and 4.5 percent for the quarter. Both gauges hit all-time highs.
    • The Stoxx Europe 600 Index jumped 0.5 percent, reaching the highest since June. 
    • The MSCI All-Country World Index bounced 0.4 percent. 

    Currencies

    • The Bloomberg Dollar Spot Index fell less than 0.1 percent. 
    • The euro rose 0.3 percent to $1.1819. 
    • The British pound declined 0.3 percent to $1.3401. 
    • The MSCI Emerging Markets Currency Index gained 0.2 percent, the first advance in a week.

    Bonds

    • The yield on 10-year Treasuries rose by three basis points to 2.3354 percent. 
    • Germany’s 10-year yield declined two basis points to 0.462 percent. 
    • Britain’s 10-year yield decreased one basis point to 1.365 percent.

    Commodities

    • West Texas Intermediate crude was little changed at $51.57 a barrel. 
    • Gold retreated 0.6 percent to $1,280.28 an ounce.
    • Copper fell 0.9 percent to $2.9545 a pound.

      Read more: http://www.bloomberg.com/news/articles/2017-09-28/asian-stocks-round-out-strong-quarter-with-caution-markets-wrap

      Stocks Climb, Dollar Slumps on Trump Tax-Cut Plan: Markets Wrap

      U.S. stocks rose to record levels and headed for an eighth straight quarterly gain, while the dollar slipped as investors assessed the implications of Donald Trump’s tax proposal. Oil slid back after bouncing into bull market territory earlier in the session.

      The S&P 500 Index inched up to all-time high and has increased about 3.5 percent over the last three months. The small cap Russell 2000 Index added to its advance after jumping nearly 2 percent on Wednesday following the tax-cut plan announcement. The gauge is up more than 5 percent for the quarter.

      Trump’s tax plan is expected to be a boon for businesses and the wealthy, with specific cuts aimed at them. However, it’s difficult to determine precisely what the benefits would amount to since there are few details so far. This puts investors in a quandary, trying to guess which parts of the package the administration is prioritizing. And that’s before the fighting begins in Congress over passing it as a bill.

      “U.S. tax policy is key right now but we don’t have a lot of details,” said Mark McCormick, North American head of foreign-exchange strategy at Toronto-Dominion Bank. “The key is we don’t know the trade-off, we don’t know who wins and we don’t know who loses.”

      Bloomberg’s dollar spot index headed for a third straight quarterly drop, pushing its loss in 2017 above 8 percent. Gold traded near the lowest since August, on track for the worst month of the year. Oil fell below $51 a barrel, and yields on 10-year Treasuries were flat.

      German and French debt was lower. The euro posted its first rise in four days as a regional economic confidence index climbed to a decade-high, giving European Central Bank policy makers more positive signals as they decide on the future of their bond-buying program. But the policy outlook for the world’s biggest economies isn’t the only thing on investors’ minds: end-of-quarter volatility may be near and major markets, including China, will shut next week for a holiday.

      Terminal subscribers can read more in our Markets Live blog.

      What to watch out for the rest of this week:

      • Japan August industrial production and retail sales are due Friday as is South Korea’s current account balance for August.
      • The euro-area inflation rate may have accelerated a touch to 1.6 percent in September from 1.5 percent but the core will probably remain at 1.2 percent. The data is out on Friday.

      And here are the main moves in markets:

      Stocks

      • The S&P 500 added 0.1 percent to a record 2,510.07. The small cap Russell 2000 climbed 0.3 percent bringing its increase for the week to more than 2.5 percent, while the Nasdaq 100 Index fell 0.1 percent.
      • The Stoxx Europe 600 Index rose 0.2 percent. 
      • Germany’s DAX Index jumped 0.4 percent to the highest since June. 
      • The MSCI All-Country World Index gained 0.2 percent.

      Currencies

      • The Bloomberg Dollar Spot Index dipped 0.2 percent.
      • The euro advanced 0.3 percent to $1.1783, the biggest gain in a week.

      Bonds

      • The yield on 10-year Treasuries were unchanged at 2.3103 percent. 
      • Germany’s 10-year yield climbed one basis point to 0.479 percent. 
      • Britain’s 10-year yield fell one basis point to 1.375 percent.

      Commodities

      • West Texas Intermediate crude fell 1 percent to $51.59 a barrel, reversing course after touching the highest level since April earlier in the session. 
      • Gold added 0.3 percent to $1,286.54 an ounce. 
      • Copper advanced 1.6 percent to $2.9775 a pound.

        Read more: http://www.bloomberg.com/news/articles/2017-09-27/bonds-slide-as-dollar-climbs-on-tax-plan-economy-markets-wrap