No Tricks, Just Treats for Wall Street in October

October might be home to the scariest holiday of the year (Halloween), but not even the Fed, or tepid data could spook Wall Street this month.

Though they capped the session solidly lower, the major averages closed out the month on Friday with the biggest gains in four years. During the month, materials, energy and technology were the biggest gainers, while utilities lagged.

Here are the biggest takeaways from the week on Wall Street, and what you might have missed.

Economic Growth Fails to Excite

On Thursday, the Commerce Department said the first reading on third-quarter gross domestic product was in-line with expectations. The world’s biggest economy expanded at an annualized pace of 1.5% during the third quarter, compared to expectations for a 1.6% rate of expansion. The reading, however, was significantly below the second quarter’s 3.9% pace of growth.

During the quarter, businesses cut back on spending as they tried to make inventory supplies shrink. The drawdown in inventories shaved off 1.44 percentage points from GDP as they fell from $114 billion to just $57 billion. Still, economists expect the effects to be only temporary.

“That subpar number should not be mistaken for slower underlying growth,” IHS Chief Economist Nariman Behravesh said in a note. “Much of the weakness stemmed from the onset of a long-awaited correction to private inventories.”

To further the point, Behravesh pointed to gross domestic purchases figures – items U.S. residents buy regardless of where they were produced, up 1.5% during the quarter, final sales of domestic product, up 3%, and final sales to domestic purchases, up 2.9% for the period.

Economists at Deutsche Bank, though, said they’re reviewing their fourth-quarter GDP growth projection in the wake of the tepid 3Q read.

“We are likely to see a further, albeit more modest, unwind of stock piles this quarter, enough to take a few tenths off growth. Net exports had no bearing on Q3 growth, but this is unlikely to be the case this quarter, in which we project significantly lower exports,” a note Thursday said.

Fed Stays the Course

The Federal Open Market Committee met for its two-day policy setting meeting Tuesday and Wednesday, and made no change to monetary policy at the meeting’s conclusion. However, while the central bank stood firm on its decision – as was widely expected – not to raise short-term interest rates just yet, they did make a slight change to the policy statement.

Wall Street was flooded in the wake of the meeting, which was not followed by a press conference, with talk that the change in the Fed’s language leaves the door slightly more cracked for a rate hike at its final meeting of the year in December.

Peter Kenny, independent market strategist, said the meeting’s results spoke to both the hawks and doves – a rarity.

“The bottom line it’s been very constructive for the markets. We’ve seen the markets today after a very strong October, holding on to gains. And that’s a vote of confidence that the markets and the Fed are moving in the right direction,” he said.

Deutsche Bank economists said the statement was hawkish, but the lukewarm GDP data should be of some concern for the central bank – after all, it was data they didn’t have the opportunity to parse before the October meeting.

“Policymakers sounded like they want to raise interest rates in December. Whether that happens will depend on the strength of the data, in particular, the next couple of employment and inflation reports,” the note read. “We are very cautious on the near-term outlook because the latest GDP data were soft and the industrial economy is on the cusp of entering a recession.”

M&A on a Roll in October

October brought with it a slew of activity in the deal making space as the markets saw a wave of consolidation including big potential deals between beer giants Anheuser-Busch InBev (NYSE:BUD) and SAB Miller (NYSE:SAB), Rite Aid and CVS (NYSE:CVS), Valeant (NYSE:VRX) and Pfizer (NYSE:PFE), and a range of others.

EY released its 13th global capital confidence barometer this week, highlighting the main drivers for companies looking to get deals done. According to the data, 26% of respondents said the biggest driver for M&A was to improve structural tax efficiencies, while moving into new product and service areas came in second, and gaining market share in existing geographical markets was the third-biggest reason.

Kenny said a big contributing factor to the deal making frenzy is cheaper borrowing costs thanks to low interest rates. But he added that a move by the Fed likely won’t spook executives with acquisition hopes.

“I would not suspect that a move in rates, the way it’s being framed by the Fed, will have a necessarily dire impact on the size and scope and magnitude for M&A activity…I expect M&A activity to continue to be really quite robust well through the end of this year and into next year, in spite of the fact that we might see a move in rates,” he said.

To that point, the EY barometer shows 83% of respondents view the global economy today as improving, compared to just 53% during the same time last year.

“Having acclimatized to low growth globally, executives remain resilient about the economic big picture,” EY said. “Corporate leaders, whose investment decisions have impacts that span years or even decades, generally do not overreact to short-term volatility. Executives have become less sensitive to daily speculation around such issues as an emerging market slowdown or the potential timing of a US interest rate hike.”

Oil, Social Media Earnings

Third-quarter earnings season rolled on with results out from tech giants Twitter (NYSE:TWTR) and Apple (NYSE:AAPL).

The social giant’s shares were walloped after the company revealed weak revenue guidance, sending shares more than 11% lower in after-hours action. The company said it is forecasting revenue in a range of $695 million to $700 million compared to expectations for $739.7 million. However, Twitter said its user growth, which is a closely-watched metric for investors to gauge the size of the company’s ad potential, grew more than expected. It added 321 million users, up 1.6% from the previous quarter, and faster than the 0.66% growth in 2Q.

Apple revealed a beat on both lines during its fiscal fourth quarter thanks in part to the launch of its newest iPhone 6s and 6s Plus devices. The tech titan saw sales of $12.52 billion after it sold more than 48 million iPhones in the quarter.

It was another story for the nation’s oil majors.

ExxonMobil (NYSE:XOM) shares were higher after the oil and gas company reported a beat on both lines. Exxon’s CEO said the company continues to focus on business fundamentals and cost management in the face of low commodity prices. The company’s downstream and chemical units helped boost growth in the quarter. Still, the company’s earnings fell 47% from the same period a year ago.

Chevron (CVX) also posted much better-than-expected results on both lines in the third quarter. The company said it earned $1.09 in profits per share for the quarter compared to expectations for 76 cents. Revenue came in at $34.32 billion compared to the $29.76 billion estimate. Shares jumped.

Still, the company said its earnings were 64% lower from the same time a year ago. It also said capex would be about 25% below the budget, while reductions are likely on tap for spending through 2018. Chevron added it will cut its workforce by between 6,000 and 7,000 employees.

Keep an Eye on Next Week: J-O-B-S

While there aren’t a huge number of economic reports out next week, there are a few key figures to watch, including the all-important October jobs report.

“I suspect we’re going to see the rate unchanged from September and I think that orders very well to this landscape the Fed has laid out that December is the likely timeframe for a move in rates,” Kenny said.

Keep an eye on these figures due out next week as well.

  • Monday: ISM manufacturing
  • Tuesday: Auto sales
  • Wednesday: ADP private-sector jobs, trade deficit, ISM non-manufacturing
  • Thursday: Weekly jobless claims
  • Friday: October jobs report