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Stocks Head for Third Consecutive Winning Week Amid String of Record Closes
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The secular bull market continues to chug along, buoyed by strong economic data and a resilient corporate earnings backdrop. With stocks surpassing former resistance levels recently, the breakout to all-time highs has kept any selling pressure to a minimum.
Markets applauded several critical data points this week. The US economy grew at a 3% annualized pace during the second quarter, faster than economists had projected. This is another confirmation signal for this ongoing bull market.
Stock returns are primarily driven by two things – economic activity and corporate earnings. And with the economy showing resilience over the last two years during a period of high inflation, lower rates are set to provide a boost in the coming quarters.
We also learned via the Labor Department that initial jobless claims for the week ended September 21st came in at 218,000, below expectations of 223k. It marked the lowest level of weekly claims since May.
Stocks on Pace for Their Third Straight Weekly Gain
Tech stocks have been on fire ever since last week’s rate cut. The Nasdaq surged back above 18,000 thanks to a bullish earnings report out of semiconductor stock Micron Technology (MU - Free Report) , with the index climbing to a 2-month high. We had a period of defensive outperformance over the summer, but it appears the technology sector has taken back the reins.
Image Source: StockCharts
Meanwhile, the Dow and S&P 500 have broken out to all-time highs. It’s been a thing of beauty to see stocks notch new records in the normally weak month of September. Of course, September isn’t quite over yet, but if the S&P 500 finishes positive on the month, that would mark 8 out of the first 9 months of the year higher.
Looking back at market history, there’s been 9 other times that has happened. Each time, the fourth quarter was positive and up 6.7% on average. Past performance doesn’t guarantee anything about the future, but it’s always good to know where the probabilities lie.
FOMC Mainly Supportive of Last Week’s Jumbo Cut
We heard from several Fed officials following the central bank’s first rate cut in more than four years. Atlanta Fed President Raphael Bostic and Minneapolis Fed President Neel Kashkari both reiterated that they favored a 50-basis point cut last week, pointing to underlying progress on the inflation front along with a cooling labor market.
Those two indicators “have emerged much more quickly than I imagined at the beginning of the summer,” Bostic stated during his speech.
Chicago Fed President Austan Goolsbee sees “many more” rate cuts over the next year, as he also supported the central bank’s half-point cut last week. He noted that labor market deterioration can happen quickly.
Meanwhile, Fed Governor Michelle Bowman said on Tuesday that she was against last week’s (jumbo) 50-basis point cut and would have preferred a (smaller) 25-basis point move instead, citing “upside risks to inflation.”
China Stimulus Sends Foreign Stocks Soaring
Earlier in the week, China’s central bank unveiled its biggest stimulus package since the pandemic in an effort to reel the economy back towards their growth targets. The bank will cut the amount of cash that banks must hold in reserves by 50 basis points, freeing up 1 trillion yuan ($142 billion) for new lending.
The People’s Bank of China also unveiled a swap program that will allow funds, insurers and brokers easier access to funding in order to buy stocks, along with a second program providing cheap loans to commercial banks to help them fund other entities’ share buybacks.
On Thursday, President Xi Jinping pledged to halt the declines in the country’s real estate market, a vital move that should help to stabilize a crucial sector after new home prices fell in August at the fastest pace in a decade. Chinese stocks jumped on the news.
The KraneShares CSI China Internet ETF (KWEB - Free Report) , which consists of China-based companies whose primary business focuses on internet-related technology, has come roaring back to life. The KWEB ETF has surged nearly 36% from the August low. Given that many Chinese companies are relatively undervalued and had been lagging in performance for several years, investors are wondering if there is a lot more upside ahead for this latest move.
Image Source: StockCharts
One of the top KWEB holdings at 6.57%, JD.com (JD - Free Report) operates as an online commerce provider, offering a wide range of consumer products. A Zacks Rank #1 (Strong Buy) stock, JD trades at just 9.57 times forward earnings despite skyrocketing more than 57% from the August low:
Image Source: StockCharts
The company has a long history of surpassing earnings estimates, delivering a trailing four-quarter average earnings surprise of 24.04%. Analysts covering JD increased their current-quarter EPS estimates by 5.15% in the past 60 days. The Q3 Zacks Consensus Estimate now stands at $1.02/share, reflecting a 10.9% potential growth rate relative to the same quarter last year.
Image Source: Zacks Investment Research
Bottom Line
Recent economic data reinforces the underlying strength of this bull market. Still, in the short-term, we are heading into what could be a volatile election season. Historical and seasonal statistics point to some potential weakness in October, but more strength throughout the rest of the fourth quarter.
Foreign stocks are rallying after China pledged the largest stimulus package since the pandemic. And on the domestic side, the Nasdaq is playing a bit of catch-up after lagging throughout much of the summer. Needless to say, things are looking bright for the market as a whole.
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Stocks Head for Third Consecutive Winning Week Amid String of Record Closes
The secular bull market continues to chug along, buoyed by strong economic data and a resilient corporate earnings backdrop. With stocks surpassing former resistance levels recently, the breakout to all-time highs has kept any selling pressure to a minimum.
Markets applauded several critical data points this week. The US economy grew at a 3% annualized pace during the second quarter, faster than economists had projected. This is another confirmation signal for this ongoing bull market.
Stock returns are primarily driven by two things – economic activity and corporate earnings. And with the economy showing resilience over the last two years during a period of high inflation, lower rates are set to provide a boost in the coming quarters.
We also learned via the Labor Department that initial jobless claims for the week ended September 21st came in at 218,000, below expectations of 223k. It marked the lowest level of weekly claims since May.
Stocks on Pace for Their Third Straight Weekly Gain
Tech stocks have been on fire ever since last week’s rate cut. The Nasdaq surged back above 18,000 thanks to a bullish earnings report out of semiconductor stock Micron Technology (MU - Free Report) , with the index climbing to a 2-month high. We had a period of defensive outperformance over the summer, but it appears the technology sector has taken back the reins.
Image Source: StockCharts
Meanwhile, the Dow and S&P 500 have broken out to all-time highs. It’s been a thing of beauty to see stocks notch new records in the normally weak month of September. Of course, September isn’t quite over yet, but if the S&P 500 finishes positive on the month, that would mark 8 out of the first 9 months of the year higher.
Looking back at market history, there’s been 9 other times that has happened. Each time, the fourth quarter was positive and up 6.7% on average. Past performance doesn’t guarantee anything about the future, but it’s always good to know where the probabilities lie.
FOMC Mainly Supportive of Last Week’s Jumbo Cut
We heard from several Fed officials following the central bank’s first rate cut in more than four years. Atlanta Fed President Raphael Bostic and Minneapolis Fed President Neel Kashkari both reiterated that they favored a 50-basis point cut last week, pointing to underlying progress on the inflation front along with a cooling labor market.
Those two indicators “have emerged much more quickly than I imagined at the beginning of the summer,” Bostic stated during his speech.
Chicago Fed President Austan Goolsbee sees “many more” rate cuts over the next year, as he also supported the central bank’s half-point cut last week. He noted that labor market deterioration can happen quickly.
Meanwhile, Fed Governor Michelle Bowman said on Tuesday that she was against last week’s (jumbo) 50-basis point cut and would have preferred a (smaller) 25-basis point move instead, citing “upside risks to inflation.”
China Stimulus Sends Foreign Stocks Soaring
Earlier in the week, China’s central bank unveiled its biggest stimulus package since the pandemic in an effort to reel the economy back towards their growth targets. The bank will cut the amount of cash that banks must hold in reserves by 50 basis points, freeing up 1 trillion yuan ($142 billion) for new lending.
The People’s Bank of China also unveiled a swap program that will allow funds, insurers and brokers easier access to funding in order to buy stocks, along with a second program providing cheap loans to commercial banks to help them fund other entities’ share buybacks.
On Thursday, President Xi Jinping pledged to halt the declines in the country’s real estate market, a vital move that should help to stabilize a crucial sector after new home prices fell in August at the fastest pace in a decade. Chinese stocks jumped on the news.
The KraneShares CSI China Internet ETF (KWEB - Free Report) , which consists of China-based companies whose primary business focuses on internet-related technology, has come roaring back to life. The KWEB ETF has surged nearly 36% from the August low. Given that many Chinese companies are relatively undervalued and had been lagging in performance for several years, investors are wondering if there is a lot more upside ahead for this latest move.
Image Source: StockCharts
One of the top KWEB holdings at 6.57%, JD.com (JD - Free Report) operates as an online commerce provider, offering a wide range of consumer products. A Zacks Rank #1 (Strong Buy) stock, JD trades at just 9.57 times forward earnings despite skyrocketing more than 57% from the August low:
Image Source: StockCharts
The company has a long history of surpassing earnings estimates, delivering a trailing four-quarter average earnings surprise of 24.04%. Analysts covering JD increased their current-quarter EPS estimates by 5.15% in the past 60 days. The Q3 Zacks Consensus Estimate now stands at $1.02/share, reflecting a 10.9% potential growth rate relative to the same quarter last year.
Image Source: Zacks Investment Research
Bottom Line
Recent economic data reinforces the underlying strength of this bull market. Still, in the short-term, we are heading into what could be a volatile election season. Historical and seasonal statistics point to some potential weakness in October, but more strength throughout the rest of the fourth quarter.
Foreign stocks are rallying after China pledged the largest stimulus package since the pandemic. And on the domestic side, the Nasdaq is playing a bit of catch-up after lagging throughout much of the summer. Needless to say, things are looking bright for the market as a whole.