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There were some interesting developments over the weekend.
- Israel finally struck back at Iran for its missile attack on Israel, but its retaliation focused on military targets and spared Iran's oil/nuclear facilities.
- Japan's ruling Liberal Democratic Party lost its majority in the lower house, suffering its worst electoral reversal since 2009.
- China's September industrial profits declined 21.7% year-over-year and were down 3.5% year-to-date.
- The 2-yr Treasury note yield went as high as 4.14% and the 10-yr Treasury note yield went as high as 4.29%.
Some first impressions related to these developments include the following:
- Israel's response was better than feared; hence, oil prices have come in sharply (WTI crude futures -6.3% to $67.29/bbl) and geopolitical tension has eased, evidenced by a 5.6% decline in the CBOE Volatility Index to 19.20.
- There is a contention that Japan's election result could spell the leadership end for Prime Minister Ishiba and possibly forestall near-term rate hikes by the Bank of Japan.
- The stark decline in industrial profits in China is fueling speculation that additional policy stimulus will be enacted.
- Higher Treasury yields could pose a headwind for stocks.
Strikingly, the equity futures market has taken a positive-minded track. The S&P 500 futures are up 33 points and are trading 0.6% above fair value, the Nasdaq 100 futures are up 157 points and are trading 0.8% above fair value, and the Dow Jones Industrial Average futures are up 182 points and are trading 0.4% above fair value.
The drop in oil prices has helped sentiment, and it needs to be noted that Treasury yields have pulled back from their overnight highs. The 2-yr note yield is at 4.10%, unchanged from Friday's settlement, and the 10-yr note yield is at 4.24%, up one basis point from Friday's settlement.
The biggest driver, though, is the upside action for the mega-cap stocks in pre-market trading. NVIDIA (NVDA), for instance, is up 1.2%, and Apple (AAPL) is up 0.6%.
Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG), Amazon.com (AMZN), and Meta Platforms (META) are all set to report earnings this week along with roughly 165 of their friends in the S&P 500. To say the least, it will be a big week for earnings.
It will be a big week for economic data, too, with the October Consumer Confidence, September JOLTS, October ADP Employment Change, Advance Q3 GDP, weekly Initial Jobless Claims, September Personal Income and Spending, Q3 Employment Cost Index, October ISM Manufacturing, and October Employment Situation Reports all on the docket.
This week will also include the fiscal year-end for many mutual funds; and it is the last full week of campaigning ahead of the November 5 election.
There won't be any shortage of trading catalysts this week, but with the election looming, one has reason to wonder if those catalysts will be fully embraced -- for better or worse. The answer awaits at the end of the week, but the very start of the week will at least start with a hopeful hug.
