Wall Street apparently didn’t get the memo that September is over; the Dow and S&P 500 finished about 1.4% lower for the day. Global growth concerns are once again the main driver behind the selloff, but there were a few domestic worries that added to market jitters.
Across the globe, pro-democracy protests in Hong Kong continued for the sixth consecutive day; some fear that this could spark a crackdown from the Chinese government. The Chinese government also announced yesterday that its Purchasing Manager’s Index (a key measure of manufacturing activity) remained unchanged at 51. A reading of 50 indicates expansion, so it’s clear that China’s factories have slowed down.
Russia continues to be another key concern, with the European Union announcing that it will maintain its tough economic sanctions against the country’s financial, defense and energy sectors. As a result, Western oil giant ExxonMobil Corp. (XOM) has halted operations in the Russian Artic. Meanwhile, the allied offensive against ISIS continues to gather steam, with Britain launching its first airstrikes and Turkish forces mobilizing against the Syrian border. Ongoing concerns about Russia, Iraq and Syria have weighed on oil prices, and the overall energy sector, in recent weeks.
Back in the U.S., investors and economists alike are waiting on the end of Quantitative Easing, the Fed’s ongoing asset purchase program since the end of the financial crisis. Fed chair Janet Yellen recently announced that the stimulus program will end in October, but that there were no near-term plans to allow interest rates to rise.
With all of these macro forces at play, it’s not difficult to see why the market is still choppy. However, I do expect this choppiness to dissipate in a matter of days. The catalyst, in my opinion, is going to be third-quarter earnings season. At last count, the S&P 500 is expected to post 4.7% earnings growth and 3.7% sales growth. Those are modest estimates overall, but there are still plenty of high-quality stocks that are expected to trounce this average.
This quarter, there is one way to ensure market-beating returns: Buy stocks with the strongest sales and earnings prospects, those that are going to blow analyst estimates out of the water when they post quarterly results. For those of you that have been following my posts in recent weeks, you should be fully invested, or close to fully invested.
For those of you who haven’t, with earnings season kicking off with Alcoa Inc. (AA) on October 8, there’s little time to waste. The good news is that you can get caught up quickly and easily with my just-released Portfolio Grader 500 report for Q4. This helpful resource details the best 250 stocks and the worst 250 stocks for the next three months—including the all-important upcoming earnings season. If you’d like to learn more, you may click here for complete details.
In the meantime, as earnings season kicks off, I’ll be posting regular updates to the blog, so please stay tuned!