October certainly proved to be a bruising month for US equity indices. The S&P suffered its worst one-month decline in seven years despite yesterday’s last ditch attempt at a rally. The question now however is that with some decent gains having been posted in recent days, is the rout behind up and how far can the market rise from here? The Federal Reserve’s stance over monetary policy could prove critical here – yesterday’s upbeat ADP payroll survey and the fact that labour costs continue to rise suggests that inflationary pressures are still in play. This is pointing towards a rate hike in December, but concerns are building that the US economy’s capacity to absorb these rate rises will eventually run out.
Earnings season remain in play, with heavyweights Kraft-Heinz and Apple both on the slate to produce numbers today. The impact of Chinese trade tariffs will be under scrutiny, especially with the tech giant’s numbers, although tomorrow’s financial update from Chinese ecommerce giant Alibaba is likely to be even more telling here.
Ahead of the open we’re calling the DOW up 124 at 25240 and the S&P up 10 at 2722.
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In January the Fed needed to put the Taper Genie back in the bottle; now they need to convince the short end crew to back off repricing the Fed Funds strip