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Ahead of Wall Street

Tuesday, October 4, 2016

After finishing calendar Q3 on a solid positive note last Friday, U.S. indices were down moderately to kick off Q4 yesterday. This morning we are seeing flat-to-down futures for the S&P 500, Dow and Nasdaq.

Overseas, with Great Britain marching forward to implement its exit from the European Union (EU) yesterday, indices all around Europe were up from 0.2% (in Italy) to 1.8% (FTSE) Tuesday, as the British Pound dropped to its lowest level in 31 years. German markets were closed for a holiday Monday, but came out strongly on Tuesday.

Yet here at home market participants are treading with caution. No major economic data is out before today’s opening bell, although the much-anticipated monthly non-farm payroll report from the Bureau of Labor Statistics (BLS) on Friday. Because weekly initial jobless claims have been steady and lower than historical averages of late, analysts are looking forward to a healthy jobs number at the end of this week.

Which may, conversely, be the reason for the tepid trading currently going on. Zacks VP Steve Reitmeister points this out in his latest Profit from the Pros column this morning, which you can read here: Twisted Logic. Basically, the stronger our economic reads are, the higher the likelihood that the Fed will get on with raising interest rates.

No one expects the Fed to raise rates at its next meeting, which happens to occur less than a week before the General Election. But come December, odds of a 25-basis-point hike have gotten a lot narrower. Recall the last time the Fed raised rates — which was the first time since before the Great Recession hit 8 years ago — was last December.

At the start of 2016, analysts had been expecting one or two rate hikes by this time. But various outcroppings of economic issues, mostly elsewhere around the globe — Brexit being a prime example — have managed to put a stop to Chairwoman Janet Yellen and her team of Fed presidents from pulling the trigger. That said, Richmond Fed President Jeremy Lacker has now said there is a “strong case” for raising rates.

Darden Restaurants (DRI - Analyst Report) posted a solid fiscal Q1 2017 earnings report, beating analyst estimates and raising guidance for the full fiscal year. The owner of Olive Garden and other domestic chains also announced a new share buyback program.

Mark Vickery
Senior Editor

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