Week In Review 11.16.2018

Markets ended the week lower as a growing sense that earnings are peaking and global economic growth is slowing, infiltrated the markets. In late January and early February, when markets sold off,  strong earnings growth helped them stabilize and rebound. Currently, investors increasingly appear to be discounting the strong earnings growth in the third quarter and expected again in the fourth quarter, and are instead looking ahead to 2019 when earnings growth is expected to slow. Signs of slowing global economic growth are also raising concerns.

Germany’s economy contracted –0.2% in the third quarter, its first quarterly decline since 2015. Weak private consumption and a slowdown in auto manufacturing– a result of German automakers’ cheating on fuel-economy and emissions tests-  weighed on growth.

Similar to Germany, Japan’s economy also contracted in the third quarter, due to the impacts of natural disasters (typhoons and an earthquake) and a decline in exports.  The latter was concerning as it suggested that global trade tensions are impacting growth. More specifically, as China’s third largest trading partner, Japan’s weaker exports suggested continued slowing of China’s economy.

Brexit proceedings appeared to make some incremental progress as PM Theresa May finalized a tentative deal with the European Union. However, after presenting the plan to her Cabinet, six ministers quit in protest, including her Brexit Secretary.  PM May is now facing the real possibility of a vote of no confidence.  Unlike the broad market volatility that followed the original Brexit vote in June 2016, reactions to more recent developments have been confined to the British pound.