Dollars and Sense: Wall Street looks to finish the year strong

Steady as she goes. The Dow and the S&P 500 indexes set more records last week, but mostly they were pretty steady, with not a lot of ups and downs. That’s kind of what we expected. We’re certainly not going to see any big gains when the indexes already are at record highs. It’s possible we could see some big moves downward, if we got some bad news or some geopolitical shock. But that didn’t happen this week, so stocks traded in a fairly narrow range.

Japanese sun setting? I say we didn’t get any global shocks, but we did get some news out of Japan. The Japanese government said Japan’s economy contracted at a 1.6 percent annual rate for the third quarter. The drop marks the second consecutive quarter that Japan’s economy has contracted, and most economists accept two quarters of negative growth as the technical definition of a recession. That news, however, didn’t qualify as the kind of shock I mentioned above. Tokyo’s Nikkei dropped 3 percent in the hours following that news. But British and German markets actually rose. Most of the rest of the world took the news from Japan as merely confirming what most analysts already knew. The hard reality of the numbers will force the Japanese government to take strong steps, which they have already started doing by implementing a quantitative easing, or bond-buying, program.

Inflation under control. Last week, I said I would be paying attention to a couple of reports that might give us an indication of where inflation was headed. How did that turn out? On Tuesday we got a report noting wholesale inflation ticked up. The producer price index rose 0.2 percent in October, but the markets didn’t seem to consider that bad news. This number is still historically low, and it seemed to allay fears of deflation that some analysts say could have a negative effect on global economies. As I also said last week, analysts are divided on exactly where inflation should be for optimal economic health. No one wants deflation, and there’s a general consensus that more than 2.5 percent has the effect of creating a tax, especially on poor people. We seem to be in the Goldilocks zone now, where inflation is not too hot or too cold. Retail stocks are posting strong earnings. Last week, for example, both Target and Lowe’s posted results that significantly beat expectations. That means most Americans are gaining confidence in both their financial present and their financial future.

Earnings season finishing strong. We’re now at the end of third-quarter earnings season. What’s the final assessment? It was particularly strong. We still have a few more companies from the S&P 500 to report, but they won’t change the exception 11.9 percent third-quarter earnings growth. Revenues are anticipated to come in at a 5 percent growth rate. All 10 sectors of the S&P 500 will have positive year-over-year growth in both earnings and revenue.

The week ahead. It’s a holiday-shortened week. You might guess that means not a lot of news. That would be a good guess, but it would be wrong. We get a couple of key reports—on gross domestic product and new home sales—this week. Also, dare I say the words, we have Black Friday.It’s the most watched shopping day of the year, and we’ll have analysts as early as late Friday morning making predictions about what the turnout says about the entire shopping season. I predict a lot of traders will be eating turkey sandwiches at their desks on Friday.