Inside Markets — More Challenging

Last week’s uptick in volatility and this week’s rotation out of momentum stocks have made the near-term equity backdrop more challenging. However, the price action since the trade-induced sell-off on 10/10 makes the pullback look like normal consolidation in a bull market.  And pullbacks should be bought in a bull market until there’s a change in macro/business fundamentals.  We’re missing some important US data, but the tools we have suggest the economy could now be accelerating with the Atlanta Fed Nowcaster pointing to Q3 real GDP in the +3.9% range vs. sell side consensus of +3%.  In terms of business/micro fundamentals, Q3 earnings season (still very early) is now on track to deliver ~12% YoY earnings growth vs. expectations for ~8% at the end of the quarter. Trade has been the wild card all year, but tensions may be thawing again as reports suggest a deal with India (tariffs may be cut to 15% from 50%) in imminent and the Trump-Xi meeting is officially scheduled for next Thursday.  Additional near-term tailwinds include positive seasonality, the resumption of corporate buybacks and M&A activity once the government reopens.