Stock Market: What to Expect in the 4th Quarter
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What is the main topic discussed in this episode?
Here's your money briefing. I'm J.R. Whalen at The Wall Street Journal in New York.
What happened to stocks in Q3 and why did trade news drive volatility?
The third quarter was a roller coaster for stocks, mostly driven by trade news. We'll check in with a market strategist about where the market is likely headed in the fourth quarter and how that might affect your investments. First, some money in market news you should know. There's a little less pain at the pump. The average price of unleaded gas nationwide is about $2.63 a gallon. That's two cents lower than last week's average. Prices crept higher following last month's attack on Saudi oil facilities, but oil production has returned to pre-attack levels. There are some exceptions. In California, the average price is just over $4 a gallon, 25 cents more than last week, mainly due to maintenance at several of the state's refineries.
And the question right now isn't which came first, the chicken or the egg. It's what happens when there are too many eggs. A glut of eggs nationwide has pushed prices 30% lower than last year. Cal Maine, the nation's largest egg producer, says as of early September, there were 331 million laying hens in the U.S., up about 800,000 from a year ago. Cal Maine says the oversupply began hurting the egg market at the start of last year.
The third quarter was a mixed bag for Wall Street. Global recession fears and on-again, off-again optimism about a U.S.-China trade deal triggered sharp sell-offs. But stocks recovered when investors realized those recession fears may have been overblown. Should we expect similar market gyrations in the fourth quarter?
Which short-term market headlines and consumer-price signals should investors note?
Let's bring in Federated Investor Chief Market Strategist Phil Orlando. So Phil, stocks have been in a holding pattern in recent days, and as we wound down September, Are those worries about a recession gone or are we more in a wait and see mode?
We absolutely agree with you that the fears of recession are overblown. Our models are still suggesting no recession in 2018 or 2019 or 2020. The earliest we think that recession is coming is the first half of 2021. But we also don't think we're out of the woods yet in terms of the volatility we've seen in the market. We had taken our equity overweight down over the summer. I think it was July from about an 8% overweight to a 3% overweight because we felt that there would be significant amount of increased volatility during the August, September, October timeframe. And something in the order of a 5% to 8% correction that might take the S&P down to its 200-day moving average. Let's call it the 2,800 level.
So we did get a move down the beginning of August. The market has come back nicely over the last six weeks or so. But I don't know that we're completely out of the woods because as we look across the border, the horizon there to the end of October, you've got a bunch of things that are that are still out there. Certainly the Brexit deadline, the Japanese VAT tax decision, whether or not the German economy has gone into recession. You've got the Draghi transition at the ECB, and you've got this ongoing, you know, trade and tariff dispute with China. All of those things are still out there. And in our mind, that potentially combines and gives us, you know, something of a rocky October as well.
Let's hit on a few of the international topics that you just mentioned. The market is still responding strongly to talk of the U.S.-China trade battle, either positively or negatively. Where are we seeing the biggest impact?
In our view, the consensus view has been that this China trade deal, this trade war, if you will, has been bad. It's hurt economic growth. It's certainly impacted negatively CEO sentiment. It's resulted in a downturn in capex spending and productivity levels. We recognize all of that. In our view, we're making sufficient progress. We've got a couple of key dates coming up in the middle of October and the middle of November. And we'd like to believe that both countries desperately need and want this deal. And they're coming together such that we could have the outline of a deal by Thanksgiving.
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:05–0:09
2
What happened to stocks in Q3 and why did trade news drive volatility?
0:09–1:44
3
Which short-term market headlines and consumer-price signals should investors note?
1:44–9:02
4
Are recession fears overblown and what does Federated's recession model show?
9:02–9:09
Speakers
2 identifiedMore from WSJ Your Money Briefing
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