Stock market outlook, week of October 22

The stock market is looking for direction.

Last week, the markets had some ups and downs, before ending the week largely unchanged. The Nasdaq, which has a high technicality, fell slightly while the S & P 500 closed at a 200-day moving average, a level that has particularly attracted the attention of the markets during the last trading sessions.

"Stock market volatility has continued this week as a long list of national and global concerns has overshadowed US optimistic economic data and a positive start to the Q3 earnings season," Gregory said. Daco, head of the US economy at Oxford Economics.

In the coming week, the third quarter earnings season will begin to peak with 160 S & P 500 members and 10 Dow members expected to release their results.

<p class = "web-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Notable companies reporting profits include McDonald's (MCD), 3M (MMM), Caterpillar (CAT), Verizon (VZ), Lockheed Martin (LMT) and Harley-Davidson (HOG) on Tuesday, Microsoft (MSFT), Boeing (BA), UPS (UPS), AT & T (T), Visa (V), Ford (F), AMD (AMD) and Whirlpool (WHR) on Wednesday; Alphabet (GOOGL), Amazon (AMZN), Gilead (GILD), Chipotle (CMG), Merck (MRK) , Twitter (TWTR), Altria (MO), Discover Financial (DFS) and Comcast (CMCSA) on Thursday, and Moody's (MCO), Philips 66 (PSX), Colgate-Palmolive (CL), and Weyerhaeuser "Data-reactid =" 19 "> Among the notable companies reporting their profits include McDonald's (MCD), 3M (MMM), Caterpillar (CAT), Verizon (VZ), Lockheed Martin (LMT) and Harley- Davidson (HOG) on Tuesday, Microsoft (MSFT), Boeing (BA), UPS (UPS), AT & T (T), Visa (V), Ford (F), AMD (AMD) and Whirlpool (WHR) on Wednesday; Alphabet (GOOGL), Amazon (AMZN), Gilead (GILD), Chipotle (CMG), Merck (MRK), Twitter (TWTR), Altria (MO), Discover Financial (DFS) and Comcast (CMCSA) on Thursday, and Moody & # 39; s (MCO), Philips 66 (PSX), Colgate-Palmolive (CL) and Weyerhaeuser (WY) on Friday.

Boeing and Caterpillar's revenues will be closely monitored as both companies are seen as indirect representatives of the US-China trade dispute. Last week, Caterpillar shares fell more than 7% and their numbers have fallen more than 15% since the beginning of the year.

Amazon, Alphabet and Microsoft will also be crucial reports from the tech sector, with the Nasdaq lagging behind the Dow and the S & P 500, with Netflix (NFLX) action having failed to retain its gains after profits and stocks falling from 4% to close the week.

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On the economic front, the highlight will come Friday as investors get a first glimpse of economic growth in the third quarter of this year.

The economy is expected to grow at an annualized rate of 3.4%, down from 4.2% growth in the second quarter, but continues to reflect an acceleration in growth after the Trump government passed tax cuts at the end of 2017.

"Next week's data should point to a slowdown in GDP growth to 3.3 percent annualized in the third quarter," Capital Economics said in a note to customers this week. "This would stay well above the potential growth rate of the economy but, if we look under the hood, there is reason to believe that a more pronounced slowdown is coming."

Whatever method is used, the coming week may be very busy. Buckle your belt.

Economic calendar

• On Monday: Chicago Fed National Activity Index, September (0.25 expected, 0.18 previously)
• Tuesday: Richmond Fed Manufacturing Index, October (24 expected, 29 previously)
• Wednesday: FHFA real estate price index, August (+ 0.3% expected, + 0.2% previously); Markit Economics flash manufacturing PMI, October (55.4 expected, 55.6 previously); PMI Flash Services Markit Economics, October (54 planned, 53.5 previously); New home sales, September (-0.6% expected, + 3.5% previously)
• Thursday: Initial applications for unemployment (213,000 expected, 210,000 previously); Orders for durable goods, September (-1.4% forecast, + 4.4% previously); Pending home sales, September (-2.5% previously)
• Friday: Third quarter GDP, first estimate (expected annualized growth rate of + 3.4%, previously 4.2%); Consumer Consumption at the University of Michigan, October (99 expected, 99 previously)

The housing market sends worrying signals about the economy

The stock market says that everything is not going well in the US economy.

A glance at the XHB ETF (XHB) that tracks house builders' stocks and the chart is not good. On 20 of the last 23 trading days until Friday, the XHB declined. Since the beginning of the year, the fund is down 24%. Just last week, homebuilders' shares fell by 3.5%.

So, what are the home builders trying to tell us about the economy?

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In a note addressed to clients this week, Bank of America Merrill Lynch economists, led by Michelle Meyer, said that "if housing is no longer a wind back, its headwinds blow very slowly."

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = ""We are making a number of changes to our housing projections, which reflect a lower trajectory of sales, housing starts and real estate prices, "the firm said in its note. "The revisions largely reflect the decline in affordability – which is likely to continue to deterioratee with new rate increases – and a shift to more negative perceptions about housing. " "data-reactid =" 78 ">"We are making a number of changes to our housing projections, which reflect a lower trajectory of sales, housing starts and real estate prices, "the firm said in its note. "The revisions largely reflect the decline in affordability – which is likely to continue to deterioratee with new rate increases – and a shift to more negative perceptions about housing. "

The story continues

The lack of affordable housing in the economy has long been a major economic phenomenon.

In July, Yahoo Finance's Amanda Fung noted that the residential real estate market was losing steam and that the pace of existing home sales was actually starting to stabilize. On Friday, September data on existing home sales indicated that the pace of sales was down 3.4% from August and had reached its lowest level since November 2015.

"The high mortgage rates of the last decade are preventing consumers from making quick decisions about home buying," said Lawrence Yun, chief economist at the National Association of Realtors. "All the while, the number of affordable home listings remains low, continuing to boost underperforming business activity across the country."

And if the cost of housing is a story that is being felt, the most important economic change this year has been the rise in interest rates. The Federal Reserve has raised interest rates three times this year. Investors expect the central bank to raise rates once again in December and up to four times in 2019, even as the Fed expects a slowdown in economic growth while the benefits of tax cuts Trump fade. Higher rates will not go away.

The rate hike had a major impact on the 30-year fixed mortgage rate increase, a mechanism by which many Americans are actually experiencing a change in interest rates. Earlier this month, the 30-year fixed rate reached 4.9%, the highest level since 2011.

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So with rising rates, low inventories and high prices, it should not be surprising that most people see the housing market as a market that currently favors sellers.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "BAML economists led by Joe Song wrote in a separate report this week that "Consumers believe that the housing market has favored the seller this year. "data-reactid =" 109 "> BAML economists led by Joe Song wrote in a separate report this week that"Consumers believe that the housing market has favored the seller this year.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = ""When we ask consumers if it's a good or bad time to sell a house, the The majority of respondents have always indicated that the time has come to sell. Not surprisingly, this has not been great for potential buyers. " "data-reactid =" 110 ">"When we ask consumers if it's a good or bad time to sell a house, the The majority of respondents have always indicated that the time has come to sell. Not surprisingly, this has not been great for potential buyers. "

Perhaps even more discouraging for those looking for a rebound in home sales – and spending on things like furniture and home improvements – the gap between current selling prices and what people think they can do. to allow is very big.

According to BAML, respondents to the company's survey of more than 3,800 consumers, they think they can afford a $ 227,000 home, well below the median selling price of an existing home of $ 297,000. dollars. It may not be surprising that the millennia are furthest from the affordability scale, indicating the possibility of buying a home at $ 198,000 for a median price of $ 297,000.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "" WHouse prices continue to rise, but more gradually, finding affordable housing will be a greater challenge for the millennial generation and for all potential buyers, "said BAML. "data-reactid =" 113 ">" WHouse prices continue to rise, but more gradually, finding affordable housing will be a greater challenge for the millennial generation and for all potential buyers, "said BAML.

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<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland"data-reactid =" 135 ">Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland