S&P 500 posted best monthly performance in four years

BY  | FROM  | 2015-11-05 16:54

“And the beat goes on.”  It was the fifth week of gains for the index, as the week ended with the best month (up 8.30%) since the recession rebounding of October 2011 (10.77%).  Pushing up issues was a trifecta.  Coming in first was earnings, which were coming in better than expected (and slightly better than the whisper number), with forecasts pointing to continued growth, as Q4 2015 is expected to set record earnings (be it only by USD 0.01 – but being in the area is a plus).  In second was the Fed, which remained pat, but kept December on the table, as the game of “when” continued. 

Currently, Q1 2016 is the favorite, with December only slightly behind.  However, most agree that the Fed remains data dependent, with expected economic reports (employment, GDP, consumer and production costs) between now and their December 15-16, 2016, meeting having a major impact on their decision.  And coming in a distant third, but still placing, was M&A, where major deals continued (and they should therefore continue to fill the pockets of investment advisors, underwriters, accountants, lawyers, etc.).  Also in the race was the U.S. Congress, which changed leadership in the House and approved a two-year budget deal, with a “fix” to the debt limit issue—which could have shut down the government (personal belief: I know it is difficult to believe, but I believe the U.S. is better with the government open than shut – but not all agree).  In economic news, the September New Home Sales disappointed, came in at 468,000, when a much higher 549,000 was expected, but the S&P Case/Shiller Home Price Index showed a 5.1% year-over-year gain (showing solid growth).

The September Durable Orders slightly disappointed, coming in with a 1.2% decline for the month. The PCE came in up 0.2% year-over-year, as the Core PCE came in up 1.3%. The first third quarter GDP report came in at 1.5%, surprising few.  It was a steep decline from the second quarter’s 3.9% rate; the report will be updated in November, before the next Fed meeting. The big news was the notes to the Fed report, released Wednesday at 2 p.m., which showed the Fed kept the rates unchanged but kept the door open for a December increase.  Most of the wording in their statement was unchanged, but they removed a reference (from their September statement) that global economics could restrain growth. 

The market reacted with a broad 1.18% gain for the session. Earnings (and the Fed) continued to support the market, as 75% of the issues have reported.  The takeaways appear to be that earnings were modestly up, with guidance supporting continuance of that growth, and the other takeaway was that companies continued to reduce share count, helping EPS. 

M&A was active and large.  Equity Residential said it would sell 23,000 multi-dwelling units to Starwood Capital Group for USD 5.4 billion.  Last week, Blackstone (BX) announced the purchase of a New York City multi-family complex of 11,300 units for USD 5.3 billion. Atlanta-based energy commodity trading exchange Intercontinental Exchange Group (ICE; up 1.4% for the week) said it would buy Interactive Data for USD 5.2 billion, as electric & gas utility Duke Energy (DUK; down 3.1% for the week) said it would buy Piedmont Natural Gas (PNY; up 35.7% for the week) for USD 4.9 billion. 

Bridgestone said it would buy Pep Boys (PBY; up 23.8% for the week) for USD 0.8 billion.  Commercial regional bank KeyCorp (KEY; down 1.0% for the week) said it would buy First Niagara (FNFG; up 1.8% for the week) for USD 4.1 billion.  However, the headline went to the merger talks between healthcare products maker Pfizer (PFE) and off-patent medications Allergan (AGN) in what could be a USD 300 billion plus deal.  The market posted its fifth week of gains (cumulatively 7.66%), posting a 0.20% gain, to close at 2,079.36. 

The October gain was 8.30%, which was the best month since October 2011.  Year-to-date, the index is up 0.99% and 2.41% away from its May 21, 2015, closing high (of 2,130.82). Breadth continued to be positive, but not as strong, with 281 issues gaining, which was down from last week’s 344 issues (and 252 the week before), and 247 issues declined, up from last week’s 160 (and 251 the week before that).  Seven issues gained at least 10% (eight did last week), and another 29 issues were up at least 5% (52 last week).  Four declined at least 10% (12 last week), and another 33 issues lost at least 5% (27 last week).

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