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  • November 4, 2019

Week in Review

Week Ending: Friday, November 1, 2019

Recap & Commentary

Equity markets ended the week higher thanks to a Fed rate cut, positive comments about trade, and more upbeat economic news, both domestically and abroad. The S&P 500 set three new record highs over the course of the week.

On Wednesday, in a widely expected move, the Fed cuts interest rates by 0.25% to a range of 1.50-1.75%. Subtle changes to the wording of the accompanying statement, and remarks by Chair Powell, suggest the Fed will now pause for some period of time to assess the efficacy of its recent cuts before determining whether further action is required. Current market expectations are that the Fed will not raise rates again until April 2020. While rate cuts seem to clearly boost investor sentiment, we question their overall benefit to the broader economy. As we have stated before, we believe that uncertainty surrounding trade policy, not access to credit, is currently the greatest hindrance to growth.

A number of global economic data points released during the week surprised to the upside including Eurozone GDP, Chinese manufacturing, Japanese industrial production, and U.S. non-farm payrolls. The data helped assuage some of the ongoing concerns about slowing global economic growth.

Through Friday, 71% of S&P 500 companies had reported earnings, of which 76% and 61% had exceeded their earnings and revenue estimates, respectively. Currently, full-quarter earnings growth is expected to decline -2.7% Y/Y, a slight improvement from the -4.1% forecast as of September 30.

Economic Bullet Points

Real GDP rose at a 1.9% annual rate in Q3, above the consensus of 1.6%. Growth has moderated over the course of this year, weighed down by trade tensions and a weaker global economy. But consumer spending has held, up and financial conditions remain favorable, providing sufficient support for the economy to continue expanding at a close to trend pace.

October Employment—Hiring slowed to 128K in October while the unemployment rate ticked up to 3.6%. However, the jobs numbers were depressed by the GM strike and Census layoffs, while stronger labor force growth boosted unemployment.

US Manufacturing—The ISM Manufacturing index remained in contraction territory in October but improved slightly to 48.3. Along with other PMIs, the ISM data points to stabilizing factory activity but shows little growth.

Personal Income & Outlays—Personal income increased 0.3% in September, in line with the consensus. Disposable personal income (DPI) also rose 0.3%, led by a 0.9% rebound in receipts on assets. Personal consumption expenditures (PCE) rose 0.2%, also in-line with the consensus, and Real PCE was up by the same amount. On a smoothed y/y basis, both real PCE and real DPI have decelerated, consistent with slower economic growth. Additionally, the personal saving rate edged up to 8.3% from 8.1%, also implying slower economic growth.

Of Note

The EU accepted the UK’s request for a Brexit extension until January 31, 2020. The UK is scheduled to hold a general election in mid-December which should provide some needed clarity as to the ultimate outcome of Brexit.

Market Indices Week of 11/1

S&P 5001.5%
Small Caps2.0%
Intl. Developed0.6%
Intl. Emerging0.6%
Commodities1.0%
U.S. Bond Market0.6%
10-Year Treas. Yield1.71%
US Dollar-0.7%
WTI Oil ($/bl)$56
Gold ($/oz)$1,517

The Week Ahead

  • Factory Orders
  • Motor Vehicle Sales
  • International Trade
  • ISM Services
  • Productivity & Costs
  • Consumer Sentiment

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