S&P 500; US Indexes Fundamental Forecast – October 11, 2016

With the U.S. Non-Farm Payrolls report out of the way, U.S. equity market traders finally got the chance to react to the price action in the crude oil market on Monday. Although it was a U.S. bank holiday and trading volume was below average, investors took advantage of the situation to drive the S&P 500 and Dow Jones Industrial Average futures higher. The catalyst behind the rally was a sudden turnaround in the crude oil market.

Crude oil rose over 3.0% after Russia said it wants to participate in OPEC’s plan to reduce output. This news sent crude oil to multi-month highs while driving up energy stocks. The Dow Jones Industrial Average rose about 88 points and the S&P 500 Index gained about 0.5 percent. The popular December E-mini S&P 500 Index closed at 2159.00, up 12.50 or 0.58%. The energy sector itself increased by 1.5 percent.

In addition to the bullish crude oil news, the market also picked up strength after the second Presidential debate. Although no candidate won the debate, investors liked the fact that Democratic candidate Clinton remained in the lead in the polls. She represents the status quo which investors like.  Republican candidate Trump represent volatility.

Forecast

Stocks are likely to be influenced today by the direction of U.S. Treasury yields since there aren’t any major reports. We could see some consolidation as investors prepare for the release of the latest Fed meeting minutes on Wednesday.

On Monday, the U.S. Treasury markets were closed so today’s price action will reflect traders’ first reaction to Friday’s disappointing U.S. Non-Farm Payrolls report. This may be a moot point, however, since several FOMC members have already said the report is good enough for the Fed to continue on a path towards a rate hike in December. If yields go up on Tuesday then this will mean that Treasury traders also liked the report.

If we continue to get mixed results from the markets and if stocks continue to fail to breakout to the upside then I think it will be safe to say that investors don’t want to commit to the long side at current price levels because of uncertainty over the November election and worries about earnings season which begins shortly.

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