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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

      Apple Updates Key iPhone Line to Try to Reignite Sales Growth

      Apple Inc. rolled out updated products and new features Wednesday that mostly relied on an old strategy. The most-valuable technology company is targeting pent-up appetite for new iPhones to reignite sales growth amid mounting investor concern that its pace of innovation is slowing.

      The iPhone 7 line includes camera upgrades, a faster processor, longer battery life and a new water and dust-resistant design, the company said during an event at San Franciscos Bill Graham Civic Auditorium. Apple also ditched headphone jacks to make room for other features and the company showed off new $159 headphones called AirPods that connect wirelessly to the new iPhones.

      This is the best iPhone weve ever created, Chief Executive Officer Tim Cook told an audience of reporters and Apple employees.

      First Look at the New iPhone 7 and iPhone 7 Plus

      Others werent so enthused and Apple shares ended up less than 1 percent in Wednesday trading, leaving the stock up 3 percent so far this year. The Nasdaq Composite index has gained 5.5 percent in the same period.

      In the past theyve had a brand new user experience, and we havent seen that today, said Gartner Inc. analyst Brian Blau. I dont think its going to change peoples opinions of smartphones. Its not going to jack up interest but its not going to reduce it either.

      Apple, based in Cupertino, California, also announced a new water-resistant Watch with GPS tracking, a faster processor and brighter screen, along with an iPhone payments service for Japan, updated work software and the addition of a Nintendo Co. Super Mario mobile game to its App Store.

      The
      The new Apple Watch 2.
      Photographer: David Paul Morris/Bloomberg

      Apples previous CEO Steve Jobs introduced the iPod, iPad and original iPhone at similar events in the past, helping revenue and profit surge. Yet sales this fiscal year are forecast to decline for the first time since 2001, prompting questions among some investors and analysts about Cooks ability to deliver such innovations. Hes trying to increase sales of software and services, while greater investment in research and development has yet to yield new product lines such as an Apple car or virtual reality offering.

      Muted Expectations

      Expectations for the iPhone 7 had been muted, with anticipation instead mounting for the model to be introduced in 2017, when Apple celebrates the devices 10th anniversary. Apples smartphone market share is likely to slip to 13.9 percent this year, compared with 15.8 percent in 2015 and an estimated 14.2 percent in 2020, research firm IDC estimated before Wednesdays event. It also forecast slower growth in overall smartphone sales as consumers upgrade less frequently.

      The latest iPhone is similar in design and size to its predecessor, the iPhone 6S. The larger 7 Plus handset has a back-facing dual camera which allows for crisper images, particularly in low light. It also comes with a new pressure-sensitive Home button that provides a vibrating sensation in response to button presses instead of an actual physical click.

      QuickTake Apple

      The smaller of two models, the iPhone 7, will cost $649 and the larger 7 Plus will cost $769. Both are available for pre-order on Sept. 9, and come in silver, gold, rose gold colors and two new black finishes.

      Theres a big enough pool of iPhone 6 users waiting for an upgrade and there was enough new technology in there to make us comfortable about growth heading into next year, said Gene Munster, a Piper Jaffray analyst who has an overweight rating on Apple stock.

      The
      The dual cameras on the Apple iPhone 7 Plus.
      Photographer: David Paul Morris/Bloomberg

      Apples failure to completely overhaul the design, as it has previously done every two years, shouldnt hurt sales, said Lauren Guenveur, an analyst at Kantar Worldpanel.

      Most people upgrade because theyre looking for better battery life, better storage capacity, and a faster processor and thats everything that they highlighted today, she said.

      China Upgrade

      China has been a drag on Apples performance this year as local rivals introduce cheaper handsets with similar functionality. 

      Apple said Wednesday that its iPhone Upgrade subscription program — where users pay a monthly fee to get a new phone each year — will be extended to Asias largest economy. That could help it boost future revenue in China, where the third-quarter sales decline was bigger than the revenue drop in the Americas and Europe combined.

      To make inroads with the next 500 million Chinese consumers, they need to find a way of making their devices affordable without compromising on their premium brand — this might help them do that, Julie Ask, a Forrester Research analyst said. The program, introduced in the U.S. last year, will also be extended to the U.K.

      Tough Cell

      The new Apple Watch may disappoint customers who had been hoping for a cellular chip that would have given it mobile network connectivity and un-tethered it from the iPhone. Apple had been in talks with mobile phone carriers earlier this year to introduce such a version, but the plans hit hurdles on concern about reduced battery life, people familiar with the discussions said last month. Samsung Electronics Co. unveiled its own smartwatch with cellular connectivity last week.

      The model unveiled on Wednesday — dubbed the Apple Watch Series 2 — targets fitness fanatics. Waterproofing down to 50 meters has allowed Apple to build swim tracking into the device, while GPS means joggers can plot their runs without carrying an iPhone. Apple also teamed up with Nike Inc. to release a version the two companies call the Apple Watch Nike+. The partnership will let Apple sell products with the worlds largest sport brands well-oiled marketing machine and sales network.

      First Look at the Series 2 Apple Watch

      When the Apple Watch first reached stores in April 2015, some hoped it would become a new revenue source to match the iPhone and early iPad sales. Apple still doesnt break out sales of the smartwatch, lumping it with “Other Products” in financial reports. That segment generated $2.2 billion of revenue in the three months through June — less than half the sales from iPads and an even smaller fraction of the $24 billion in iPhone sales that quarter. IDC estimated Apple shipped 1.6 million Watches in that period, down 55 percent from the same period a year earlier.

      This fall, Bloomberg’s global technology team is launching a newsletter. Click here to be the first to get it.

      Read more: http://www.bloomberg.com//news/articles/2016-09-07/apple-updates-key-iphone-line-to-try-to-reignite-sales-growth