The “Heat Map”

Posted on November 7, 2016 by The Weekly Commentary

Most of the time, the U.S. stock market looks to 3 factors (call them the “pillars” which support the stock market) to support its upward trend – let’s grade each of the pillars.

CONSUMER SPENDING: This grade is A- (very favorable). Favorable activity in the housing market continues to support growth in the level of spending.

THE FED AND ITS POLICIES: This factor is rated A (very favorable). Following the Federal Open Market Committee meeting last Wednesday; the Fed left monetary policy on hold. A quarter-point hike in the federal funds rate, to 0.5%-0.75%, is expected at the next meeting, on Dec. 13-14 and indicating the Fed probably will remain on a long and slow path to hiking rates.

BUSINESS PROFITABILITY: This factor’s grade is rated a B- (above average). FactSet Research says that with 85% of the companies in the Standard & Poor’s 500 index reporting, 71% beat earnings-per-share estimates. Third-quarter aggregate growth in per-share earnings is currently 2.7%, which would be the first quarterly rise since March 2015.

OTHER CONCERNS: The “Heat Map” is indicating the U.S. stock market is in OK shape ASSUMING no international crisis. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these international risks collectively as a 4. These risks deserve our ongoing attention.

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