VIDEO: Navigating Treacherous Financial Waters

Welcome to my latest video presentation for Mind Over Markets, for Monday, October 16. The article below is a condensed transcript. For additional details and several charts, watch my video.

In this video, I recap the major events of the past week in the stock market, analyze their impact, and take a closer look at what investors can expect in the week ahead.

Investors must be prepared for heightened volatility this week. In these treacherous times, diversification and adaptability are especially important for investors.

Until we get through this autumnal rough patch, stay patient and keep your emotions in check. At least 15% of your portfolio’s allocations should be in cash, so you can pounce on buying opportunities as they arise.

Last week marked the beginning of the third quarter earnings season, with major companies reporting their quarterly results. Early reports showed positive results.

JPMorgan Chase (NYSE: JPM), Wells Fargo (NYSE: WFC), Citigroup (NYSE: C), and PNC Financial Services (NYSE: PNC) all reported earnings that beat expectations. More about earnings season, in a minute.

Geopolitical risk has come to the fore, with a vengeance, as the Israel-Hamas war plunges the Middle East into its worst violence in 50 years. However, history tells us that the shock of military conflict to investor confidence tends to be short lived. Stocks always revert to the more sustainable fundamental and technical drivers of returns.

Back here at home, political dysfunction in the leaderless U.S. House of Representatives is making investors leery and voters angry. It’s anybody’s guess as to when the clown show to find a new speaker finally ends.

The specter of inflation continues to haunt investors. The consumer price index (CPI) and producer price index (PPI) reports for September, released last week, indicated a higher-than-expected increase in prices, sending anxiety through the market.

Inflation has been moderating over the long haul but remains persistently elevated. The Fed doesn’t have sufficient cause to claim victory over inflation, just yet.

Amid this mixed inflation data, investors nervously await the next Federal Open Market Committee (FOMC) monetary policy meeting October 31-November 1. Wall Street is betting that the Fed will hit the pause button on rate tightening, but the central bank could deliver an unpleasant surprise and decide to hike instead.

Last week’s volatility is likely to carry into the coming week. The CBOE Volatility Index (VIX) has surged past 19, to knock on the door of the pivotal threshold of 20. A reading of the VIX above 20 indicates that the markets during the next 30 days will undergo sharper volatility.

The good news is that the S&P 500 notched its second consecutive week of gains last week (see my video for charts).

In a bullish technical sign, the S&P 500 currently hovers above its 200-day moving average and it’s getting closer to its 50-day moving average, denoting upward momentum.

Discussions surrounding increased regulation of the technology sector gained traction last week. Antitrust concerns and data privacy issues are pushing governments to consider stricter regulations on tech giants, which could hurt their profitability and market dominance.

Regardless, Microsoft (NSDQ: MSFT) last week finally cleared regulatory hurdles and closed its $69 billion acquisition of gaming giant Activision Blizzard (NSDQ: ATVI), a reflection of the limits of government power over Big Tech.

Outlook for the week ahead…

Earnings reports will continue to play a pivotal role in shaping market dynamics in the coming week. For Q3 2023, with 6% of S&P 500 companies reporting actual results, 84% of S&P 500 companies have reported a positive earnings surprise and 66% of S&P 500 companies have reported a positive revenue surprise, according to research firm FactSet.

In aggregate, actual earnings reported by these companies have exceeded estimated earnings by 10.1%. Therefore, although it’s still early in the season, both the number of companies reporting positive earnings surprises and the magnitude of these surprises are trending above the five-year averages.

For Q3 2023, the blended year-over-year earnings growth rate for the S&P 500 is 0.4%. If 0.4% turns out to be the actual growth rate for the quarter, it will mark the first quarter of year-over-year earnings growth for the index since Q3 2022.

The following economic reports are on the docket in the coming days:

Retail sales and homebuilder confidence index (Tuesday); housing starts, building permits, Fed Beige book (Wednesday); initial jobless claims, existing home sales, and U.S. leading economic indicators (Thursday).

Throughout the week, various Fed officials are scheduled to speak. Watch for clues in these remarks as to the Fed’s intentions.

Amid this frustrating investment climate, are you looking for market-thumping gains? Consider the advice of my colleague Jim Pearce, chief investment strategist of Personal Finance.

Case in point: If you had taken the initial recommendation of Personal Finance to buy Chevron (NYSE: CVX), and held on, you’d be sitting on a whopping return of nearly 3,200% (that’s not a typo).

Want to get aboard “The Next Chevron?” Click here for details.

John Persinos is the editorial director of Investing Daily.

To subscribe to John’s video channel, click this icon: