The fourth quarter is here.
After a third quarter that saw the S&P 500 return more than 7%, investors will head into the final three months of the year wit each of the major averages up more than 7% year-to-date and just below record highs.
And the recent strength in markets we’ve seen tends to beget more strength into the end of the year. Ryan Detrick at LPL Research noted Friday that since 1950, the fourth quarter has been higher in 13 of the 14 years since 1950 the S&P 500 added 7% or more in the third quarter, with the average return coming in at 5.9%.
This past week, the Federal Reserve’s decision to raise interest rates was the biggest economic news, while GDP revisions and consumer confidence data affirmed the strength of the U.S. economy.
Investors and the general public, however, had most of their attention on different news out of Washington, D.C., as the Supreme Court nomination for Brett Kavanaugh dominated the news cycle on Thursday and Friday, with the White House on Friday approving a week-long FBI probe into allegations of sexual misconduct by Kavanaugh.
“We understand the widespread frustration with Washington’s dysfunction, which was so ugly [on Thursday],” Greg Valliere, chief global strategist at Horizon Investments, said Friday. “But an unmistakable trend is that the markets don’t seem to care.”
Valliere added that, “Most of you get this: Savvy investors have looked past the dysfunction and instead have focused on the fabulous economic fundamentals that have propelled the stock market to record highs. Along the way, there have been partisan issues that investors do have to follow – trade, deficits, tax policies, etc. But the Kavanaugh hearings, the Trump tweets, and the political ugliness have not moved the markets.”
Expect this trend to continue in the week ahead, though the midterm elections — now just 37 days away — could buck the trend of markets remaining indifferent to political outcomes. Investors, however, seem content to cross that bridge when we get to it, much as they did ahead of the 2016 presidential election.
On the schedule in the week ahead, investors will get one of the month’s crucial economic reports, with the September jobs report due out on Friday.
Wall Street economists expect nonfarm payrolls grew by 185,000 during the month with the unemployment rate expected to fall 0.1% to match the post-crisis low of 3.8% first hit back in May.
Average hourly earnings will also be closely tracked with wages set to rise 2.8% over last year in September, a slight deceleration from the 2.9% pace of growth seen in August which matched a nine-year high.
Elsewhere on the economic calendar, investors will get key manufacturing readings for September and the monthly report on auto sales.
And on the earnings side, PepsiCo (PEP), Paychex (PAYX), Lennar (LEN), Constellation Brands (STZ), and Costco (COST) are the members of the S&P 500 reporting earnings. Expect investors to key in on Constellation’s report as it will be the company’s first quarterly update since the company announced a $4 billion investment in cannabis company Canopy Growth.
Economic calendar
Monday: Markit U.S. manufacturing PMI, September (55.6 previously); ISM manufacturing PMI, September (60 expected; 61.3 previously); Construction spending, August (+0.5% expected; +0.1% previously); Auto sales, September (17 million annualized vehicle pace expected; 16.6 million previously)
Tuesday: No major economic data set for release.
Wednesday: ADP private payroll, September (+185,000 expected; +163,000 previously); Markit services PMI, September (52.9 previously); ISM non-manufacturing PMI, September (58 expected; 58.5 previously)
Thursday: Initial jobless claims (211,000 expected; 214,000 previously); Factory orders, August (+1.9% expected; -0.8% previously)
Friday: Nonfarm payrolls, September (+185,000 expected; +201,000 previously); Unemployment rate, September (3.8% expected; 3.9% previously); Average hourly earnings, month-on-month, September (+0.3% expected; +0.4% previously); Average hourly earnings, year-on-year, September (+2.8% expected; +2.9% previously); Trade balance, August (-$52.4 billion expected; -$50.1 billion previously); Consumer credit balances, August (+$15 billion expected; $16.6 billion previously)
Musk settles
On Saturday, the SEC announced that it had reached a settlement with Tesla (TSLA) CEO Elon Musk over his infamous “funding secured” tweet.
As part of the settlement, both Musk and the company will pay $20 million fines and Musk will step down as chairman of the company’s board without the possibility of being re-elected for three years. He will be replaced by an independent chair. Musk will remain CEO of the company.
Tesla will also appoint two new directors to the board and establish a “new committee of independent directors and put in place additional controls and procedures to oversee Musk’s communications.” In essence, the SEC would like Musk to stop tweeting, for the good of his company’s shareholders.
The settlement comes as something of a surprise to investors who on Friday saw shares of Tesla fall 13% after the SEC announced securities fraud charges against Musk. Subsequent reporting revealing that these charges were only filed after Musk backed out of a settlement agreement with the SEC.
The SEC’s announcement on Thursday predictably brought out the so-called “innovation defenders” who think securities law is a key impediment to economic progress. One wonders how this view holds up in light of Musk’s settlement, which was always the prudent thing for him to do and the most likely outcome of this saga.
In a separate announcement on Saturday, SEC commissioner Jay Clayton said, “This matter reaffirms an important principle embodied in our disclosure-based federal securities laws. Specifically, when companies and corporate insiders make statements, they must act responsibly, including endeavoring to ensure the statements are not false or misleading and do not omit information a reasonable investor would consider important in making an investment decision.” (Emphasis added.)
And it is responsibility that is really at the heart of this matter.
Elon Musk is loved by his fans and investors because he speaks off the cuff. Or at least, his communications come across that way. And in a world where executive communications with the outside world are measured at best and outright scripted in many cases, Musk’s use of Twitter is refreshing.
But Musk has tapped public markets to fund his company. It is a company which he believes will re-orient how the world understands transportation and energy consumption. (Remember, Tesla also owns solar power company SolarCity.) In exchange for this capital, securities law requires Musk to communicate to all shareholders certain things about these businesses in a timely manner, and also requires that he don’t tell shareholders other things. Like, for instance, loose verbal agreements to maybe take the company private.
And while many might view disclosure requirements by the SEC as onerous, the Commission ultimately wants and encourages innovation because public markets provide companies the most ready access to the largest pools of capital on the best terms. All you have to do in exchange is follow the rules.
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Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland