The most recent week of trading on Wall Street saw the major U.S. equity indexes seesaw back and forth around the neutral line, with the swings, at times, somewhat pronounced. In general, volatility has picked up on the last fortnight, but neither the bulls nor the bears were able to throw what would be considered a knockout punch last week. When all was said and done, the major averages were none too far removed from where they started the week. The Dow Jones Industrial Average finished the five-day stretch with an advance of 0.4%, while the NASDAQ and small-cap Russell 2000 recorded respective losses of 0.6% and 0.3%. The broader S&P 500 index was relatively flat for the week.

In recent weeks, the investment community has had a lot of information to digest. The bears have been emboldened by rising bond yields; an uptick in inflation; international trade concerns, particularly the trade dispute between the United States and China; and geopolitical tensions, the latest being the situation with Saudi Arabia. These events have led to increased market volatility and taken some starch out of the long-extended bull run on Wall Street. However, the bulls got some good news last week in the form of some mostly impressive third-quarter earnings results from Corporate America. That, along with the recent strength of U.S. economy, save for a disappointing report on existing home sales for the month of September on Friday, is providing some much-needed support for stocks during the recent spate of volatility. The CBOE Volatility Index (or VIX) finished last week just short of 20, a level that shows that investors were a bit unnerved by the recent international worries.      

On Friday, the trading session was a microcosm of the whole week, with the major averages finishing in mixed fashion. The Dow ended with a gain of 65 points; the NASDAQ fell 36 points; and the broader S&P 500 Index was relatively flat. The biggest move was in the small-cap sector, with the Russell 2000 falling 19 points (or 1.2%). Investors are worried that inflation and rising bond yields will hurt the smaller-cap companies, making the cost of running their businesses more restrictive and could impair their ability to growth operations. Overall, the spread between winning and losing issues was razor thin on the New York Stock Exchange, while the decliners led advancers by a wide margin on the NASDAQ. The technology stocks have been under a lot of pressure in recent weeks, as investors are worried that the United States’ trade squabble with China will hurt the performance of the technology companies that do quite a bit of business in Asia.

Looking ahead to the new trading week, the equity market is likely to be again driven by many of the aforementioned issues. The drama with Saudi Arabia will likely continue to unnerve investors, given the impact it could have on an area of the world that is already quite unstable. Stateside, the attention will be on Corporate America, with another heavy slate of earnings reports due this week. The earnings news will be highlighted by quarterly results from 10 Dow-30 companies.  On Friday, the Dow got a nice boost from a positive reaction by the investment community to the latest results from consumer goods giant Procter & Gamble (PG - Free P&G Stock Report). The bulls are hoping that the Dow-30 companies can have a similar impact on trading this week and draw investors’ attention away from the geopolitical worries emanating from the Middle East. On the economic front, we will get data on new home sales (Wednesday), durable goods orders (Thursday), and the first reading on third-quarter GDP (Friday). The Federal Reserve also will release its latest Beige Book summation of economic conditions on Wednesday afternoon. As noted above, the news from the business beat has been rather encouraging for quite some time.

With less than an hour to go before the start of the new trading week stateside, the equity indexes are indicating some buying when the U.S. stock market opens at 9:30 A.M. (EDT). So far overseas it has been a rather bullish day for equities. Overnight, the main indexes in Asia, most notably China’s Shanghai Composite, surged after China’s government promised to support the economy and companies in the coming months. Likewise, the major European bourses, led by Germany’s DAX, are higher, as investors cheer a host of positive earnings reports on Continent. Stay tuned. 

- William G. Ferguson  

 At the time of this article’s writing, the author did not have positions in any of the companies mentioned.