History Predicts a Good 4th Quarter
If history is a guide, the market will continue the rally into the end of the year.
The S&P 500 dodged sell offs in the often weak months of August and September, by gaining 0.05% and 1.93% respectively. The S&P 500, Nasdaq, and Russell 2000, all finished Q3 all time high.
Whenever the S&P 500 has been up in August and September, the S&P has risen in price 13 of 16 times since World War II for the remainder of the year. The index averaged a 2% gain in the final quarter of the year in the 16 occurrences. Q4 will start Monday.
Another set of data: since 1950, the S&P 500 has gained 3.9% on average in the fourth quarter, advancing 79.1% of the time.
Well, that is history. There are always some risks.
2. One more interest rate hike by the end of the year.
3. Tax reform will never be easy. Republicans are desprite to get something done this year. They haven't done anything except bluffing. The current plan seems unrealastic, and benefits the rich mostly. Dems will defintely fight back. Back and forth is expected. If it is not passed this year, it is a hit to S&P 500 because CEOs need to plan their next year. Uncertianty is a bad thing.
4. The valuations (P/E ratios) are stretched a bit. I have presented the chart in the Q3 review post.
5. Dollar is bouncing back.
2. If tax reform is approved, it could add 5 ~ 10% to earnings growth in 2018. It is estimated that it could add 1% to earnings in that calendar year for every 1 percent point cut in the tax rate. The proposed tax rate for corporations is now 20 percent, down from 35 percent, but the average tax rate that S&P 500 companies actually pay is about 25 percent. Small caps will benefit most from a tax cut since their earnings are domestic.
Meanwhile, durable goods order and purchasing managers index readings are also due next week, which will serve as indicators for global demand and growth, as well as a driver for commodity prices. The September jobs report due on Friday, for clues while also bracing for the start of earnings season.
The S&P 500 dodged sell offs in the often weak months of August and September, by gaining 0.05% and 1.93% respectively. The S&P 500, Nasdaq, and Russell 2000, all finished Q3 all time high.
Whenever the S&P 500 has been up in August and September, the S&P has risen in price 13 of 16 times since World War II for the remainder of the year. The index averaged a 2% gain in the final quarter of the year in the 16 occurrences. Q4 will start Monday.
Another set of data: since 1950, the S&P 500 has gained 3.9% on average in the fourth quarter, advancing 79.1% of the time.
Well, that is history. There are always some risks.
Risks
1. North Korea. It is unpredictable. The good thing is that the situation seems cooling down a little.2. One more interest rate hike by the end of the year.
3. Tax reform will never be easy. Republicans are desprite to get something done this year. They haven't done anything except bluffing. The current plan seems unrealastic, and benefits the rich mostly. Dems will defintely fight back. Back and forth is expected. If it is not passed this year, it is a hit to S&P 500 because CEOs need to plan their next year. Uncertianty is a bad thing.
4. The valuations (P/E ratios) are stretched a bit. I have presented the chart in the Q3 review post.
5. Dollar is bouncing back.
Positive Sides
1. Earnings should continue to be a positive for the market.2. If tax reform is approved, it could add 5 ~ 10% to earnings growth in 2018. It is estimated that it could add 1% to earnings in that calendar year for every 1 percent point cut in the tax rate. The proposed tax rate for corporations is now 20 percent, down from 35 percent, but the average tax rate that S&P 500 companies actually pay is about 25 percent. Small caps will benefit most from a tax cut since their earnings are domestic.
Coming Week
The week ahead is packed with Federal Reserve speakers, whose words could rattle markets. Dallas Fed President Robert Kaplan, who is a voter on the Federal Open Market Committee, kicks things on Monday. Other events to watch include Yellen’s opening remarks at a conference on community banking at the St. Louis Fed on Wednesday.Meanwhile, durable goods order and purchasing managers index readings are also due next week, which will serve as indicators for global demand and growth, as well as a driver for commodity prices. The September jobs report due on Friday, for clues while also bracing for the start of earnings season.
Tillerson is trying to negotiate with North Korea to calm down the tension. But Orange Man just twittered this morning that "he is wasting his time trying to negotiate with Little Rocket Man ... Save your energy Rex, we'll do what his to be done!" WTF, he really wants a WAR to save his Russian mess! Expecting market to open lower tomorrow.
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