U.S. stocks gained fractionally last week, despite challenges from mixed corporate earnings reports and soft economic data. Of the 116 S&P 500 companies that have so far reported third quarter results, per share profits have grown by 3.8% over the past year. While this is favorable early on in the earnings season, overall earnings are still expected to decline by 0.4% for the quarter. Also concerning is the lower percentage of earnings topping analysts’ forecasts and just half exceeding their revenue estimates. Uncertainty ahead of the November 8th elections and interest rate prospects also weighed on investor sentiment.
For the week, the S&P 500 rose +0.41%, the Dow Industrials gained just eight points (+0.04%) and the MSCI EAFE (developed international) advanced +0.49%.
What We’re Reading
Stocks Climb to Two-Week High -- Reuters
China Buys More Foreign Firms than the U.S. -- Bloomberg
Existing Home Sales Rebound Strongly -- PR News Wire
Chart of the Week: Retail Sales Slip, Trend Remains Cautiously Steady
The slow start to the summer quarter retailing season was particularly evident in the General Merchandise, Apparel, Furniture and Others (GAFO) sales in chain and department store sales, which slumped 0.7% and 0.3%, respectively, in July and August. As Argus Research notes in the above chart, GAFO sales – and general merchandise in particular – slowed year-over-year growth in core retail sales from 4.1% in the second quarter to 3.2% growth in the summer quarter (second quarter 2016).
Quite notably, GAFO sales slid at a 2.8% rate in the third quarter, and have now fallen 1.3% in the past year. Outside of recessions and very cold winters, this is the first annual decline in GAFO sales since at least 1993. Moderating this somewhat, on continued shopping shifts from brick & mortar stores to the internet, web-based sales grew at a double-digit pace throughout the quarter.
In terms of GDP contribution, total real consumer spending is expected to slow from 4.3% to about 2.5% in the third quarter. In response, the Federal Reserve Bank of Atlanta had reduced their GDPNow real economic growth estimate from 2.1% to 1.9%. Following Thursday’s strong 3.2% existing home sales increase, the Fed District’s GDP forecast was revised higher to 2% growth.
Some materials are chosen by the Cetera Investment Management team and summarized by Jason Vitucci who is not affiliated or registered with Cetera. Cetera Investment Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. Cetera Investment Management individuals who provide investment management services are not associated persons with any broker-dealer. International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.