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Key Takeaways Markets Fall As Tech Stocks Lead Weekly Declines Amid Valuation Concerns Shutdown Deal Progress Sparks Optimism And Lifts Premarket Sentiment Higher Earnings Beat Expectations But Consumer Sentiment And Jobs Data Weaken Broad market indices ended last week lower despite a wild Friday that saw the S&P 500 trade in a 1.5% price range. For the week, both the S&P 500 and Russell 2000 lost 1.6%. The Dow Jones Industrial Average fell 1.2%. Technology stocks were the largest losers for the week, where the Nasdaq Composite fell 3%. Despite the losses, there was some good news to come out of Friday and the weekend. To begin, stocks managed to recoup losses on Friday after being down significantly early in the day. The 50-day moving average, which sits at 6670 in the S&P and is a key level of support, managed to hold as stocks bounced off that level. Psychologically, that was a key test for equities, at least in the short-term. We also received good news on Sunday that the government shutdown may be coming to an end. The total damage from the shutdown remains to be tallied, but as air travel was being heavily curtailed, and with it, a slowdown in supply chains, ending the shutdown may salvage the holiday season. The other positive has been earnings. According to FactSet, with 80% of companies having reported, third-quarter earnings are on pace to rise 13.1% year-over-year. That number has far outpaced initial estimates of just under 8% at the end of September. However, there is a flip side to this. Despite the strong growth in earnings, market valuations remain extended. The 12-month forward-looking P/E ratio for the S&P 500 is 22.7. That is well above its 5- and 10-year average of 20 and 18.6, respectively. As I mentioned last week, the earnings growth is coming at a time when layoffs are accelerating and net job growth may in fact be negative. It's difficult to know with certainty what the employment situation looks like because of the government shutdown, but based on private estimates, it's safe to say job growth is at best anemic. Accompanying the jobs situation is a sharp drop in consumer sentiment. Friday's release of the Michigan Consumer Sentiment was just 50.3, one of the lowest levels we've seen. And, despite the impressive earnings being reported, stocks are up just 1.3% since earnings season began. Right now, markets feel like they're in a bit of a holding pattern. While the Senate appears close to passing a resolution that would reopen the government, the House would have to agree to that as well and there are legitimate reasons to worry that may not happen. Still, this is the closest we've been to reopening and the progress is optimistic. Not only would a resumption of normal government functions mean paying federal workers and benefits going out to people in need, but it would also allow us to get a better look at the broader economic picture. That could prove crucial for a Federal Reserve that seems somewhat split, based on comments made, as to what will come next with respect to interest rates. Currently, according to the CME Fed Watch Tool, there is a 65% chance of a quarter-point cut at the next Fed meeting, scheduled for December 10th. MORE FOR YOU For today, I'll be closely monitoring events in D.C. If the deal agreed to in the Senate can pass, House Speaker Johnson has said he will give members 36 hours to return to Washington to vote on the bipartisian legislation. Markets are clearly optimistic for a deal to pass with equities trading higher by around 1% in the premarket. However, should we see a hold up or the legislation fail to pass, I will be keeping an eye on that 6670 level in the S&P 500 as it could again be tested. As always, I would stick with your investing goals and long-term objectives.
