Looking forward, a diminishment in this drag, even as fiscal policy tightens next year, would be a large positive for the economy and investor sentiment. In the short run then, while the consolidation in risk asset prices may continue, we think conditions for a full-blown correction are not present.
-Bob Doll, senior advisor, BlackRock
A Mixed Week for Stocks
Equity markets were mixed last week, with strong gains early on largely given up on Friday amid some difficult earnings reports. The Dow Jones Industrial Average added 0.11% to close the week at 13,344 and the S&P 500 rose 0.32% to 1,433. Meanwhile, the Nasdaq Composite lost 1.3% to end the week at 3,006.
We learned last week that retail sales were stronger than expected for the month of September, and that the prior two months were revised upward as well. As a consequence, real consumer spending is on a track to advance roughly 2%, giving more credibility to the 2% gross domestic product (GDP) growth forecast.
There’s little doubt the US credit creation process, although still impaired in many areas, is on its way to recovery. Barring any exogenous shock from Europe or elsewhere, we would expect that process to continue.
Eyes on Third Quarter Earnings
Earnings are coming through for the third quarter and have been guided down enough that most companies, we believe, should be able to beat the lowered estimates. At this point, it appears earnings will fall by 1