U.S. markets rebounded Friday to just about break even from a triple-digit loss on the Dow Jones Industrial Average as traders digested a week of earnings.
“We have seen mostly improved earnings results across the board,” said Chris Dearborn, managing director of Nasdaq’s market Intelligence Desk. “Granted third-quarter comparisons were light, but companies are coming through on the sales side and beating substantially.”
One of the earnings standouts this week was Microsoft, handily beating top- and bottom-line estimates, prompting a rating upgrade from analysts at Wunderlich Securities. Ryan MacDonald, research analyst at the firm said in a note, “We believe the best is yet to come, as we expect revenue growth acceleration and margin expansion based on improving profitability metrics for commercial cloud.”
Corporate action
AT&T is in talks to acquire Time Warner, which could happen as early as this weekend, according to sources familiar with the matter quoted by the Wall Street Journal. A deal would unite AT&T’s portfolio of wireless, broadband and satellite TV services with Time Warner’s entertainment empire, including cable networks such as TNT, TBS and CNN; the coveted premium channel HBO; and the Warner Bros. film and TV studio. Details such as price, debt and regulatory approval are still unknown.
CNBC had previously reported that AT&T wanted to buy a media company, including potentially Time Warner, as rivals Verizon and Comcast have made moves in the media business, with ownership of properties like AOL and NBCUniversal, respectively. AT&T recently acquired satellite television service DirecTV.
Oil crosses $50
Crude oil traded as high as $52 a barrel this week to settle just below $51 on Friday after comments Wednesday in London by Saudi Arabia’s Minister of Energy and Industry, Khalid Al-Falih. The minister said that other nations are willing to join Organization of Petroleum Exporting Countries in cutting production to secure improvement in oil prices, but did not specify which countries. So far, only Russia has made that commitment.
OPEC will officially meet in Vienna on November 30 to provide details of the quota system. Members failed to cap production at OPEC’s June and April meetings, which has kept a lid on crude oil prices.
Trading week ahead: Busiest week of the quarter
More than 170 S&P 500 firms will report third-quarter earnings next week and provide guidance for the fourth quarter and 2017. They include two of the three most widely owned stocks, Apple and Alphabet (Google). The energy sector will see the biggest portion of its constituents report, while a significant number of reports from health care, consumer staples, and technology companies are due out.
The Federal Reserve Bank’s quiet period ahead of the Federal Open Market Committee meeting November 1-2 kicks in Tuesday afternoon, but not before several appearances by Fed officials Monday and early Tuesday. While expectations are low that the committee will vote to raise interest rates during the November meeting, there could be some volatility around the announcement. Traders are now pricing in a 74 percent chance the Fed will raise rates in December, up from 64 percent two weeks ago, according to the CME Group’s FedWatch Tool.
Apple
On October 27, the iPhone maker will hold a keynote event at 1 p.m. (EDT). According to market speculation over the past few months, the company is planning to unveil its biggest MacBook Pro update in years, as well as software updates to macOS Sierra, Apple’s latest desktop operating system. Note that Apple reports earnings after the market closes October 25.
End-of-year projections
With less than 50 trading days to go to close out 2016, analysts are starting to look at trends to determine how the market will close out the year. The good news is the last 50 days of the year have been historically strong for the S&P 500, according to LPL Research. Going back to 1980, the final 50 days of the year are up 3.6 percent for both the average and the median return, while higher 78 percent of the time.
Ryan Detrick, LPL’s Senior Market Strategist, puts it into perspective.
“The end of the year historically has been the feel-good time of the year, and the last 50 days have a nice track record for higher equity prices, as long as the economy isn’t in a recession,” Detrick said. “With the earnings recession showing signs of ending this quarter, the economy is on firmer footing, which could lead to your typical end of year strength in 2016.”
