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  • October 28, 2019

Week in Review

Week Ending: Friday, October 25, 2019

Recap & Commentary

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.

Economic Bullet Points

Existing Home Sales fell 2.2% to a 5.4 million-unit pace in September. Despite the monthly drop, lower mortgage rates are providing a lift to the housing market, and resales are up 3.9% year-to-date.

New Home Sales fell a modest 0.7% to a 701,000-unit pace in September, in line with expectations. Year-to-date sales are up 7.2% compared to the same period last year. Lower mortgage rates are lifting demand.

Durable Goods Orders fell a larger-than-expected 1.1% in September. While some weakness can be tied to the United Auto Workers strike at General Motors (GM) and the ongoing struggles at Boeing, stripping out transportation, orders still declined 0.3%. More ominously, core orders—or nondefense excluding aircraft—fell 0.5% and remain in a trend decline.

Consumer Sentiment--Largely ignoring other news, consumers are still focused on job and income growth, both of which remain favorable. Inflation expectations, however, remain muted and supportive of a Fed rate cut next week.

Of Note

Google announced the development of a quantum computer capable of completing in 200 seconds a task that would take current super computers 10,000 years. The news, 13 years in the making, marks a major milestone in the advancement of computer science.

Market Indices Week of 10/25

S&P 5001.2%
Small Caps1.5%
Intl. Developed1.1%
Intl. Emerging1.3%
Commodities1.1%
U.S. Bond Market0.0%
10-Year Treas. Yield1.80%
US Dollar0.6%
WTI Oil ($/bl)$57
Gold ($/oz)$1,504

The Week Ahead

  • GDP
  • International Trade
  • October Employment
  • Case-Shiller HPI
  • Personal Income & Outlays
  • ISM Manufacturing
  • Consumer Confidence

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