A Heavy Week Of Economic Data Lies Ahead

Key Takeaways

• Markets Closed 3Q In The Red
• Dollar Strength Could Prove To Be A Headwind
• Employment Report On Friday

Friday’s close marked the end of the third quarter and it was the first quarter in which broad market indices were down. The S&P 500 fell by 3.7% and the Nasdaq Composite was down just over 4%. On Saturday, we received encouraging news as a government shutdown was averted. For now. It was really more of a kick the can down the road, as Congress will need to reach agreement by November on a spending bill. Getting a bill through Congress could become more difficult as Speaker McCarthy may face a vote to have him removed as House Speaker.

While we wait on Congress, we have a lot of economic data coming this week that could make for heavier trading. Taking a look at the headline acts for the week: This morning saw the release of the ISM Manufacturing Report and later this morning, Fed Chairman Powell will speak. On Tuesday, the latest job openings report (JOLTs) is scheduled for release. 8.83 million job openings is the number most are looking for. Wednesday we’ll get a look at Services PMI along with ISM non-Manufacturing. Then on Friday, the latest jobs numbers will be released. Economists are forecasting 163 thousand non-farm payroll jobs created and an unemployment rate of 3.7%.

Last week’s Personal Consumption Expenditures (PCE) report was largely in line with expectations and as a result, expectations that the Fed will raise interest rates when they next meet in November are just 31% according to the CME. I’ll be watching to see if those probabilities change at all or if the probabilities in December change. Currently, there is a 39% chance the Fed will raise rates then.

One thing that could definitely factor into a rate hike decision is oil. Prices of oil have been rising steadily and are now over $90 a barrel. As I’ve mentioned, if there is a commodity that can ignite inflation, it’s oil. Another item to keep an eye on is the U.S. dollar. Since mid-July the dollar is up 6%. For multinational companies dependent upon overseas sales, a strong dollar can be a drag. Earnings season will kick off the end of next week with banks reporting first. But I’m very interested to see how the dollar is affecting companies such as Apple
AAPL
, which has had a pullback of nearly 14% since hitting $198 back in July. In fact, the Magnificent Seven, as they’re known, have all seen pullbacks recently, leading Goldman Sachs to declare the group looks cheap as their price to earnings (P/E) ratio has fallen from 18 to 16.

For today, I’m keeping a close eye on volatility. After falling some last week, the VIX is back up near 18. Given the amount of data coming this week, I think it’s possible we’ll see more volatility as the week progresses. Stocks were relatively flat on the open; however, bonds are down once again and yields are on the rise. As always, I would stick with your investing plans and long term objectives.

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