The  third quarter  earnings season  comes  to an end this week with a number of key retailers reporting.  With less than fifty companies in the S&P 500 left to report third quarter results, the S&P 500 remains on track for a 6% upside surprise in Earnings Per Share (18% year-over-year increase) and 2% upside in revenues (11% year-over-year increase).  We also expect a solid holiday selling season above the consensus expectations of a 3.0 to 3.5% increase, based on solid back-to-school sales and our expectation that recent stock market gains may hold through year-end.  Also supporting above average expectations in the retail sector, economic indicators such as port and rail traffic, as well as performance of transportation stocks, suggest sufficient inventories for the holiday season.  Anecdotal evidence suggests inventory discipline will be sufficient to limit aggressive discounting, thus supporting revenues and profit margins.

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Stocks  slid  on Friday,  capping off the first down week in over a month, after headlines out of the G-20 failed to inspire confidence that Greece and European policy makers had their act together.  A Greek government in turmoil added to the uncertainty, even though a vote on leaving the euro, either implicitly or explicitly, was taken off the table.  A generally as-expected jobs report provided some initial support for stocks but was quickly drowned out by news out of Europe, as all ten S&P sectors fell, with Financials leading the slide.  While it is disappointing to see stocks give back any of the recent gains, especially after a brutal third quarter, it is important to return to a more familiar pattern.  Advances over a number of weeks, followed by brief consolidations, is certainly one such familiar pattern, and if accompanied by a drop in volatility, would likely be a welcome change for investors.

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As is often the case during the first week of the month, the upcoming week is an extremely busy week for economic data, which includes key reports on ISM, chain store sales and the labor market in October.  But, the data may be reduced to a side show, given all of the other potentially market moving events on tap this week.  The Fed meets to set policy this week, and Fed Chairman Bernanke will hold a press conference and provide a new forecast for the economy.  Overseas, the Chinese PMI for October is due out tonight, and the European Central Bank and the Reserve Bank of Australia meet to set rates this week, and both could cut rates.  Finally, the G20 meets this week in France, as policymakers continue to fill in the details on the deal struck last week to shore up debt in the Eurozone.

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