Stocks launch into November at record highs, as if October was just a bad dream.
But that does not mean the volatility that punctuated October's roller-coaster trading will end, as markets focus on the activities of global central banks and weigh the health of the world economy. In the U.S., this Friday's October jobs report could be a major market event, especially since the Fed ended its bond buying program in the past week and has said its future path on interest rates will be dependent on the economy.
The Bank of Japan Friday juiced global stock markets by announcing the expansion of its already massive monetary stimulus program, and separately, the Japanese government's pension fund expanded its purchases of foreign and domestic stocks. The Dow and jumped more than a percent, adding to the week's gains. The Nikkei Friday jumped nearly five percent, and the yen plummeted to a near 7-year low against the dollar.
"Obviously, you're going to get a lot of carryover from this (past) week, and the BOJ was a seminal act. It reaffirmed the yen's premier status as the funding currency of choice," said Alan Ruskin, global head of G-10 currency strategy at Deutsche Bank.
Focus will turn to Europe where the European Central Bank meets Thursday, but while it is expected to expand its asset purchase program, Ruskin said it is too soon for the ECB to act. Traders, however, are hoping to get clues about further ECB easing steps.
Ruskin said the U.S. data will be key though, particularly if it shows further strengthening. Economists expect 235,000 nonfarm payrolls, and an unchanged unemployment rate of 5.9 percent, compared with 248,000 jobs in September.
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"If we start to get continued stronger data, it would affirm that the pendulum swung too far away from rate hikes. That's where there's some danger now," Ruskin. He said the Fed in its statement this past week sent a warning to markets to not get too carried idea with the idea that inflation is too low, something that could stop the Fed from hiking rates. "They felt the market was tilting too far in one direction."
Fed officials will be out in force this week, with more than a half dozen speaking, including Fed Chair Janet Yellen who discusses policy in Paris Friday. Traders will be watching for any clarity on policy and when the Fed might begin raising rates. The markets expect the Fed's first rate hike from its current zero level in late 2015, but the Fed's forecasts put the first rate hike at midyear.
"The reason why the market made this big rally is the Fed, in essence, is cornered by the BOJ and ECB. You could probably take a rate raise off the books for 2015," said Steve Massocca of Wedbush Securities. "I don't think the Fed can raise rates. The dollar will explode to the upside if we raise rates right now. That's going to hurt our competitive position in the world."
The dollar index rose 1.4 percent last week, and the dollar was higher Monday. Treasury yields were higher, and stocks bounced last week. The Dow was up 3.5 percent for the week at 17,390, while the S&P 500 rose 2.7 percent to 2,018, both record highs. Nasdaq rose 3.3 percent to 4,630, and the Russell 2000 jumped 4.9 percent to 1,173.
"Stocks are expensive, but they're not ridiculous," said Massocca. The S&P 500 is now more than 10 percent above its Oct. 15 low, a rapid snap back from the 9.8 percent tumble it made between mid-September and mid-October.
Analysts said earnings have been supporting the market's gains, with 76 percent of the earnings reported by S&P 500 companies coming in better than expected. According to Thomson Reuters, earnings are also up about 9.3 percent, when considering those companies that reported and estimates for those that have not.
"I don't think the market is as expensive as it feels…We were up 194 percent without (counting) dividends since the March lows of 2009. It feels like this market should be expensive. It's just feels the market is very well supported by earnings and P/E ratios just returning to more normal levels. I think we're in a reasonably valued market," said Leo Grohowski, chief investment officer of BNY Mellon Wealth Management.
There are also midterm elections on Tuesday, and some strategists do not believe they are fully priced in. Republicans could pick up a majority in the Senate, an outcome that could lift the market.
Grohowski said the election is fairly low on the list of things investors are talking about. "Our view is there's about a 70 percent probability of a Republican takeover of the Senate priced into the market, and if that doesn't happen, I think the downside for the market the day after the election is greater than what the upside would be if in fact they do take the Senate," he said.
But he added any volatility would likely be limited. "The outcome next Tuesday just doesn't change our year-end forecast. I just don't think it will be a big market mover," Grohowski said. He expects to see the S&P 500 around current levels—at about 2,000 at year-end, and 2,200 by the end of 2015.
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Monthly auto sales
9:30 a.m.: Chicago Fed President Charles Evans
10:00 a.m.: ISM manufacturing
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12:40 p.m.: Dallas Fed President Richard Fisher
2:00 p.m.: Senior loan officer survey
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8:15 am ADP employment
9:15 am Minneapolis Fed President Narayana Kocherlakota
9:30 am Richmond Fed President Jeffrey Lacker
10:00 am Boston Fed President Eric Rosengren
10:00 am ISM nonmanufacturing
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European Central Bank meets
Monthly chain store sales
8:30 am Initial claims
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10:40 a.m.: Chicago Fed's Evans
7:05 p.m.:Cleveland Fed President Loretta Mester
Earnings: Berkshire Hathaway, Allianz, Nippon Telegraph, ArcelorMittal, Humana
8:30 a.m.: Employment report
9:15 a.m.: Chicago Fed's Evans
10:15 a.m.: Fed Chair Janet Yellen on policy in Paris
1:00 p.m.: Chicago Fed's Evans
2:30 p.m.: Fed Vice Chair Daniel Tarullo
3:00 p.m.: Consumer credit