Week in Review 10.25.2019

Markets ended a busy week higher, with the S&P 500 closing 0.1% from its all-time record high on Friday. Investors were kept busy with ~125 S&P 500 companies reporting third quarter earnings, and new developments pertaining to Brexit and U.S./China trade talks.On Friday, the Office of the U.S. Trade Representative stated that the U.S. and China are close to finalizing sections of the trade deal announced two weeks ago. If negotiators can finalize the deal in the coming weeks, there is hope that the leaders of the two countries will sign the deal at a meeting next month.

The drama surrounding Brexit continued unabated. On Thursday, UK PM Johnson called for a general election in mid-December, which the opposition rejected unless Johnson were willing to abandon the possibility of a no-deal Brexit, an unlikely outcome. On Friday, France introduced a new wrinkle when it blocked the EU’s decision to provide the UK with a three-month Brexit extension. Instead, France would like to see the EU provide just a one-month delay, or less, in an attempt to force Parliament to back Johnson’s Brexit deal.

Through Friday, 40% of S&P 500 companies had reported earnings, with 80% beating expectations. Aggregate earnings growth is expected to be -3.7% Y/Y. According to industry group Factset, for the third quarter, companies that derive a majority (>50%) of their revenue from the U.S. are expected to experience an aggregate earnings decline of -0.8%, while more internationally oriented companies (< 50% of revenue from U.S) will experience an aggregate earnings decline of -9.1%. The latter group has been hampered by a stronger U.S. dollar, slower global economic growth, and trade tensions.