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  • October 21, 2019

Week in Review

Week Ending: Friday, October 18, 2019

Recap & Commentary

Markets ended higher thanks in part to a good start to earnings season on the part of some larger, well known companies. After helping push markets higher the prior week, trade and Brexit made less of an impact for different reasons.

With trade, details about the announced deal between the U.S. and China remained scarce. Additionally, the deal is not expected to be signed until November, leading to some skepticism that it might not get completed at all.

With Brexit, investors took more of a wait-and-see approach, even as a flurry of activity resulted in an agreement between the U.K. and EU. The caution was warranted, as the deal was voted down on Saturday by Parliament. As a result, current PM Johnson was forced to request an extension from the EU until January 2020, something he swore never to do. The extension request came even as Johnson continued to champion the idea of the U.K. leaving the EU by October 31. Parliament is expected to vote again on the deal on Monday.

Through Friday, 15% of companies within the S&P 500 had reported earnings. Thus far, 84% have beaten their earnings estimates, while 64% have beaten their revenue estimates. Current estimates are for S&P 500 aggregate earnings to fall -4.7% Y/Y, which would mark the third consecutive quarter of declines.

Economic Bullet Points

The Conference Board’s Leading Economic Index (LEI) declined -0.1% in September, down for the second straight month. Half of the index’s ten components posted declines, led by weaker ISM new orders and building permits. On a y/y basis, the LEI, in addition to other forward-looking indicators, continues to trend downward, which implies weaker economic growth ahead.

Retail Sales fell 0.3% in September, down for the first time since February, but the previous month was revised up to 0.6% from 0.4%. The moderation suggests that anxiety around the trade war and the sustainability of the expansion may have started to influence consumer purchases. However, on a y/y basis, retail sales were up a healthy 4.0%, which alleviates fears of a near-term recession.

Housing Starts fell -9.4% in September. Multifamily unit starts tumbled roughly -30%, which accounted for all of September’s drop. Conversely, starts on single-family homes rose 0.3%, marking their fourth consecutive increase.

Industrial Production fell -0.4% in September, the most in five months, and double the consensus of -0.2%. But the previous month was revised up to 0.8% from 0.6%. The decline last month was exacerbated by the GM strike, which weighed on the output of consumer durables, transit equipment, and durable goods materials. On a y/y basis, core production fell a larger -0.6% y/y and has been down in five of the past six months as manufacturing output continued to contract.

Of Note

State-run Saudi oil company Aramco delayed its IPO until after the release of its quarterly results detailing the effects of last month’s attack on its facilities. The IPO is expected to be one of the largest in history, despite plans to list just 1-2% of the company. It’s valuation is expected to be $1.5-2.0T. At $1.5T, selling 2% would raise $30B, surpassing Alibaba’s record IPO of $25B in 2014.

Market Indices Week of 10/18

S&P 5000.5%
Small Caps1.6%
Intl. Developed1.4%
Intl. Emerging1.7%
Commodities-0.2%
U.S. Bond Market0.0%
10-Year Treas. Yield1.75%
US Dollar-1.1%
WTI Oil ($/bl)$54
Gold ($/oz)$1,488

The Week Ahead

  • Existing Home Sales
  • New Home Sales
  • Durable Goods Orders
  • Consumer Sentiment
  • Jobless Claims

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