S&P 500; US Indexes Fundamental Forecast – October 18, 2016

Falling oil prices, corporate earnings, economic data and Fed official comments weighed on U.S. equity markets on Monday. In the cash market, the Blue Chip Dow Jones Industrial Average closed at 18086.40, down 51.98 or -0.29%.

The benchmark S&P 500 Index finished at 2126.50, down 6.48 or -0.30%. The tech-based NASDAQ Composite ended the session at 5199.23, down 14.93 or -0.29%. The popular December E-mini S&P 500 Index closed at 2123.00, down 4.00 or -0.19%.

Crude oil prices dragged down the energy sector as investors continued to express concerns over the supply glut. For the most part, the earnings season is off to a good start. Of the number of companies reporting, 79 percent had beaten Wall Street estimates.

On the economic front, U.S. Industrial Production came in at 0.1 percent in September, below the consensus estimate of 0.2 percent.

The Empire State business conditions index showed manufacturing in New York contracted for the third straight month. In came in at -6.8, below the 1.1 forecast.

The Capacity Utilization Rate was 75.4%, slightly below the 75.6% forecast and slightly above the previous 75.3% read.

FOMC Member and Fed Vice Chair Stanley Fischer said, “We are very close to our targets” of full employment and 2 percent inflation. He also added that “So we’re not in deep trouble with monetary policy at the moment.”

Fischer also warned of the dangers of low interest rates, suggesting they could lead to longer and deeper recessions, making the economy more vulnerable.

FORECAST               

There was little reaction to Fischer’s comments on Monday. I’m not sure if this means investors are digesting his words, or if they have become immune to Fed speakers. The same goes for Fed Chair Janet Yellen. She suggested on Friday that the Fed could delay an interest rate hike even if inflation reaches the 2.0% target.

Today, investors will get the opportunity to react to the latest U.S. Consumer Inflation data. The month to month CPI is expected to come in at 0.3%, up from the previous 0.2%. Core CPI is forecast at 0.2%, lower than the previous 0.3%.

If inflation comes in lower than expected, stocks could rally because this would probably raise concerns about a December interest rate hike.

Trades should also watch the U.S. Dollar and Treasury yields. If both continue to fall then stocks could rise.

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