While you were sleeping: Entering no-man's land

Tuesday 1st November 2016

Wall Street was mixed amid better-than-expected report on US consumer spending and disappointing corporate earnings such as from Exxon Mobil.

Meanwhile, the flurry of corporate deals continued as General Electric and Baker Hughes agreed to merge their oil and gas businesses, while Level 3 Communications accepted a US$34 billion cash-and-stock takeover offer from CenturyLink.

A Commerce Department report showed that US consumer spending, a strong driver of the US economy, rose 0.5 percent in September, following a 0.1 percent decline in August.

The Federal Reserve is starting its two-day policy meeting on Tuesday. While few expect policy makers to hike interest rates this month, most expect a move in December.

"The latest data should be of comfort to the Fed," Greg Daco, head of US macroeconomics at Oxford Economics in New York, told Reuters. “Spending continues to underpin growth and, combined with positive developments on the labour market and inflation, should enable the Fed to tighten policy in December.”

Wall Street was mixed. In 2pm trading in New York, the Dow Jones Industrial Average eked out a 0.2 percent gain, while the Nasdaq Composite Index inched 0.08 percent higher. In 1.46pm trading, the Standard & Poor’s 500 Index rose 0.15 percent.

In the Dow gains in shares of Chevron and those of IBM, recently trading 1.4 percent and 0.7 percent higher respectively, offset declines in shares of Nike and those of Exxon Mobil, down 3.3 percent and 1.6 percent respectively.

Shares of Chevron rose, bucking the trend in energy stocks, after the company posted better-than-expected third-quarter profit. Meanwhile, Exxon Mobil posted a slide in profit for the eighth quarter in a row.

Shares of Nike dropped after Bank of America Merrill Lynch downgraded its rating on the stock to underperform from neutral.

"We now expect Nike's market share loss to Adidas and Under Armour to continue through 2017 as our meetings with manufacturers/suppliers and competitors indicated a potential narrowing of the innovation gap for Nike's pipeline relative to the competition compared to historical levels, in our view," equity analyst Robert Ohmes wrote in a research note, according to CNBC.

Also weighing on sentiment was the US presidential election, as the latest polls showed a shrinking of Democratic candidate Hillary Clinton's lead over Republican rival Donald Trump.

“The narrowing of the polls is making the market a little bit nervous because it had priced in a Clinton victory," Thomas Wilson, senior investment manager at Brinker Capital, Berwyn, Pennsylvania, told Reuters. “This has caused some uncertainty and we all know the market hates that. I expect the market to be stuck in a no-man's land until the election."

In Europe, the Stoxx 600 Index ended the day with a drop of 0.5 percent from the previous close. Germany’s DAX Index slid 0.3 percent, while the UK’s FTSE 100 Index fell 0.6 percent, and France’s CAC 40 Index dropped 0.9 percent.

“Holding extra cash in case of a surprise seems more prudent to a lot of managers,” Michael Ball, president and lead portfolio manager of Colorado-based Weatherstone Capital Management, told Bloomberg. “Once that’s done, they’re likely to go back to their favourite companies and sectors. That will be the primary focus as they try to make gains going into year-end.”

BusinessDesk.co.nz

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