S&P 500; US Indexes Fundamental Forecast – October 25, 2016

The major U.S. equity Indexes rose on Monday as investors reacted positively to strong corporate earnings and renewed merger and acquisition activity (M&A). Gains were limited, however, because of the worries over the strengthening U.S. Dollar’s possible negative impact on the economy and falling crude oil prices.

In the cash market, the Dow Jones Industrial Average finished at 18223.03, up 77.32, or +0.43%. The NASDAQ Composite Index ended at 5311.50, up 54.10 or +1.03%. The benchmark S&P 500 Index closed at 2151.33, up 10.17 or +0.47%. Finally, the popular December E-mini S&P 500 closed at 2144.25, up 9.50 or +0.45%.

Higher markets in Europe helped support the U.S. markets early in the pre-market session. The Dow Jones Industrial Average was further supported by strong performances by 3M and Boeing. Shortly after the cash market session, the Dow spiked up 129.33 points before the rising dollar and falling crude oil prices encouraged investors to book profits.

Technology issues helped support the S&P 500 Index and NASDAQ Composite Index, but the oil sector dragged the benchmark index off its high. The NASDAQ was driven higher by a strong technology sector, helping it to outperform all of the S&P 500 and the Dow.

Increased M&A activity also helped support the major indexes. AT&T reached a deal to buy Time Warner over the week-end for more than $85 billion. TD Ameritrade also announced it was buying rival Scottrade for $4 billion. Finally, airplane interior maker B/E Aerospace was being bought out by Rockwell Collins.

Helping to dampen the rallies on Monday were a stronger dollar, which reached its highest level since February. Traders are worried that the strong Greenback will hurt U.S. exports and international corporations.

Crude oil prices fell in reaction to the news that Iran wanted to be exempt from an OPEC deal which would cut production. This news helped drag down energy stocks which are key components of the S&P 500 Index and Dow.

Forecast

Today’s direction will likely be influenced by the same factors driving the market higher on Monday and the same factors limiting the rally. Earnings and M&A activity are likely to remain supportive while a stronger dollar and weaker crude oil prices will likely put a cap on gains in the Dow and S&P 500 Index. The NASDAQ could continue to be the leader since it appears to be immune from any weakness in crude oil.

Minor U.S. reports include the Home Price Index, S&P/CS Composite-20 HPI, IBD/TIPP Economic Optimism Index and the Richmond Manufacturing Index.

The major report is Conference Board Consumer Confidence at 1400 GMT. It is expected to come in at 101.5, down from the previous 104.1.

All of these reports could cause intraday volatility, but none are likely to derail the idea of the Fed raising rates in December.

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