U.S. equities finished marginally higher on Monday in what was a fairly quiet session. Investors are braced for a surge of earnings reports this week including Yahoo! Inc. (NASDAQ:YHOO), Verizon Communications Inc. (NYSE:VZ), Morgan Stanley (NYSE:MS), The Coca-Cola Co (NYSE:KO), Caterpillar Inc. (NYSE:CAT) and American Airlines Group Inc (NASDAQ:AAL).
In the end, the Dow Jones Industrial Average gained 0.1%, the S&P 500 gained a fraction, the Nasdaq Composite gained 0.4% and the Russell 2000 gained 0.2%. The dollar gained 0.4%, gold lost 0.9% and crude oil fell 2.5% to close at $46.09 a barrel.
Consumer discretionary stocks led the way with a 0.5%, the highlight being the 105% gain in Weight Watchers International, Inc. (NYSE:WTW) after announcing a partnership with Oprah Winfrey, who bought a 10% stake in the company and joined the board of directors.
Energy stocks were the laggards, falling 1.9%. Morgan Stanley lost 4.8% after reporting a big third-quarter earnings per share miss on a notable drag from fixed income, currencies and commodities trading.
After the close, International Business Machines Corp. (NYSE:IBM) reported better-than-expected earnings of $3.34 per share (vs. the $3.33 analysts were looking for), but disappointed on top-line growth and lowered its forward guidance (fiscal 2015 earnings of between $14.75 and $15.75 per share vs. $15.75 to $16.50 previously). Shares dropped more than 5% in after-hours trading.
New York Federal Reserve Bank President William Dudley stated that while policymakers had previously believed they could raise rates by the end of 2015, the situation has made that less likely now. Problems cited included financial market turbulence, modest global growth and low energy prices.
While none of this is really new, Dudley’s line that it’s “still too early to think about raising rates” represented a dovish turn from its comments last week that he was prepared to raise rates at the Fed’s December policy meeting if the economy performed in line with his forecast. A poll by the Financial Times found that 65% of 46 economists believe rate liftoff will still happen in December, but many note that the Fed’s communication has become confusing lately.
Given all the machinations, media leaks and obsessions over economic data points and the “dot plot” they are being modest. The Fed has made a mess of its communication; a symptom, no doubt, of its confusion about where policy should go when there are no good options left. I prefer former Fed chairman Alan Greenspan’s “syntax destruction” to this nonsense. For real.
On the economic front, the attention was on China.
Better-than-expected GDP figures were reported overnight, with growth of 6.9% over last year ahead of the 6.8 % analysts were forecasting. Still, this is down from the 7.0% rate posted in both the first and second quarter. Within the data, there is evidence that Beijing’s desired rebalancing away from industry towards service-sector activity is underway.
Retail sales growth is edging higher. Real estate activity is picking up as well, with the amount of new floor space under development surging to levels not seen since late last year. During the Oct. 1-7 National Day Golden Week holiday, Chinese tourists shied away from crowded domestic destinations to travel internationally with visits to Japan, Thailand and Korea surging at annual growth rates of 30% or more.
To be sure, the country isn’t out of the woods just yet. The deterioration of things like auto sales or the warning by Yum! Brands, Inc. (NYSE:YUM) last week that its same-store sales in China are set to decline as much as 4% over last year remain worrisome.
But assuming the Federal Reserve delays its rate liftoff to March 2016 or beyond — as the futures market currently expects — the relief rally in Chinese equities and the stabilization of China’s economic data should continue.
For American investors looking to get in on the turnaround, keep an eye on the iShares FTSE China Index Fund (NYSEARCA:FXI) which has posted an upward cross of its 20-day moving average over its 50-day moving average — a confirmation of a medium-term uptrend — for the first time since early April. Edge subscribers are enjoying exposure to the move via their iShares Emerging Markets (NYSEARCA:EEM) position.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to Investorplace readers.
