All anyone is talking about these days is the spike in market volatility.
“It has been an insane week for stocks, that’s for sure,” NYSE floor governor Rich Barry said. “The market traded down 747 points from Monday’s highs to Wednesday’s lows — then reversed by 545 points from Wednesday’s low to [Friday]’s session-highs… Amazing.”
Here’s your Monday Scouting Report:
Tumbling Oil Prices Are Also Bad: Falling oil prices and gasoline prices are going to put a lot of extra money in the American consumers’ wallets. “If the current 40 cent decline in energy costs is maintained, then consumer cash flow would improve by roughly $US40 billion; this is equivalent to almost three-tenths on annualized GDP growth,” Deutsche Bank’s Joe LaVorgna said. Morgan Stanley’s Ellen Zentner said this would contribute to “more and/or higher-dollar gifts under the tree this year.”
Unfortunately, falling prices are bad news for the big oil-producing economies. These economies include Texas, which has been experiencing an oil production boom developments in hydraulic fracturing. “While large US energy companies are sitting on a great deal of cash, at some point they will begin to cut portions of the higher cost development and production,” writes Walter Kurtz of the Sober Look blog. “And private investment into energy and oil services firms, which has been brisk lately, is likely to moderate.”
This is particularly problematic for the many middle market energy firms, which operate on heavy amounts of debt and are facing surging financing costs.
Kurtz also adds “this is terrible news for the development of alternative energy sources. At these prices, fossil fuels are becoming increasingly difficult to compete with.”
- Existing Home Sale (Tues): Economists estimate the pace of sales climbed 1.0% to 5.1 million units in September. “We look for existing home sales to tick up to 5.09 million saar in September, partly reversing the 1.8% decline in August,” Bank of America Merrill Lynch economists said. “Pending home sales declined 1.0% mum in August, but the recent trend has been higher, albeit in a choppy fashion. The inventory data will also be of interest given the drop in August, the first decline since last December. After controlling for seasonality, inventory has decreased slightly over the prior two months.”
- Consumer Price Index (Wed): Economists estimate CPI went nowhere month-over-month in September and climbed just 1.6% year-over-year. Excluding food and energy, core CPI is estimated to have increased by 0.2% month-over-month and 1.7% year-over-year. “Gasoline prices fell 10 cents in September, slightly more than seasonal norms,” Credit Suisse economists said. “Much larger declines in oil and gas prices will likely register in next month’s October report. The headline CPI could fall outright in Q4. ”
- Initial Jobless Claims (Thurs): Economists estimate weekly claims climbed to 284,000 from 264,000 a week ago. “Jobless claims reached a 14.5-yr low in the latest week, suggesting solid improvement in labour market performance,” Nomura economists noted.
- Markit US Manufacturing PMI (Thurs): Economists estimate this preliminary PMI fell to 57.0 in October from 57.5 in September. “In Q3, the Markit PMI (and manufacturing ISM) signalled much stronger manufacturing activity than actual output growth,” UBS’s Kevin Cummins said. “Early signals of October activity — the NY and Philadelphia Fed manufacturing surveys — have suggested more moderate growth.”
- New Home Sales (Fri): Economists estimate the pace of sales fell 6.8% in September to an annualized rate of 470,000. “New home sales are likely to decline to 470,000 in September after the sharp 18% pop in August,” Bank of America Merrill Lynch economists said. “We also think that the risk is that the data get revised lower in August, which would be typical for this noisy series. The gain in August was concentrated in the West, and although we have seen opportunity for new construction in certain “hot” markets, it seems like an outsized increase for the month. Looking past the volatility in the data, we think new home sales will be up nearly 7% on the year, a notable slowdown from the annual pace over the past two years.”
Despite the market volatility, money managers don’t seem to worried. Indeed, according to Barron’s just-released “Big Money” poll, 59% of money managers are bullish or very bullish. That’s up from 56% in the spring.
“Based on their mean forecasts in the Big Money poll, the bulls see the Dow Jones industrials topping 18,360 by the middle of 2015, and the Standard & Poor’s 500 index hitting 2173,” Willoughby continued. “While their targets, which imply a gain of about 12% for the Dow and 15% for the S&P 500, might seem aggressive after last week’s rout, their commitment to U.S. equities remains intact.”
Then again, some folks would argue this is actually a very worrisome development.
For more insight about the middle market, visit mid-marketpulse.com.