The field of financial economics has witnessed the long-time debate of whether stock prices truly reflect all information or is it a lagged adjustment process where market participants gradually react to information which in turn reflect changes in stock market behavior.
Over the course of the last four weeks the stock markets witnessed continuous decline from the highs we had seen in the first half of September. The market recovered at the close on Friday however, a lot seems to be at stake with the release of earning and macroeconomic indicators. Investors have their watchful eyes on the FED as the time for halting QE approaches.
The image has been sourced from Yahoo Finance
Stock Market performance is often used as a leading indicator for predicting business cycle fluctuations. The current data and some analysts are pointing out to a dip in economic activity.
However, based on the strong fundamentals the US economy has displayed so far this year especially the employment numbers and consistent growth unlike similar advanced economies, the market dip triggered by the big sell is possibly a way of reflecting information and correct valuation of firms and their stock prices. This possibly attributes to the fact that prices are in reactive in nature to financial news and reflecting the lagged adjustment process whereby stock prices are perhaps closer to their true values.
There is some concern around dipping sales figures for retail and food services (declining by 0.3% in Sep’14 compared to Aug’14 however up 4.3% against Sep’13) which, is up against the acid test during Holiday season this year. The decline was mostly triggered by diminishing auto sales in September 2014.
CPI inflation dropped by 0.2% in August but is expected to improve by 0.07% in September. As far as new home sales and building permits are on a modest upward trajectory and is affirmative towards stimulating demand in complementary sectors.
Experts are of the opinion that the week ahead set for earning releases of 380 publicly traded companies (130 of which are members of the S&P500 set) will prove critical for defining the trajectory of the stock market.
Of the early releases, oil major Schlumberger’s stock traded 6% higher after modestly beating expectations with $1.49 EPS and top line revenues rising by 8.5%. This is particularly optimistic since the energy markets are flushed with excess supply and prices of crude oil futures falling below $85/barrel to $81.84/barrel. The forward guidance estimates for players with stakes in the oil industry will dampen in case we observe a further downward slide in prices.
The following graphic outlines the guidance estimates with healthcare IT and utilities set to outperform the index.
The image has been sourced from a blog post published on Yahoo Finance
So what are your thoughts and predictions about this coming week?
The content for the blog has been sourced using:
The 10 Reports To Look Out For This Week , ADVANCE MONTHLY SALES FOR RETAIL AND FOOD SERVICES SEPTEMBER 2014, US Economy Is In Decent Shape, Story Stocks from Briefing.com, Stratfor: Oil Prices Continue to Define Geopolitics, Could Another Sell-Off Be Lurking This Week?, http://seekingalpha.com/article/2572875-weighing-the-week-ahead-is-the-stock-market-correction-over?ifp=0
