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  • November 25, 2019

Week in Review

Week Ending: Friday, November 22, 2019

Recap & Commentary

Equity markets ended the week lower as optimism for a quick trade deal waned. As we have cautioned previously, given the recent history of trade negotiations between the U.S. and China, we would resist the temptation to assume that any trade deal is a “done deal” until it is actually signed. Unfortunately, the current round of talks is feeling very similar to those held in late April and early May, when expectations were running high that the signing of a trade deal was imminent only to see the talks eventually collapse.

The “risk off” sentiment resulting from concerns about the trade deal led investors to seek the relative safety of bonds. In turn, interest rates, as measured by the 10-Year Treasury yield, slipped -0.06% to 1.77%.

While the ongoing impeachment proceedings dominated headlines throughout the week, markets had little reaction. The reason? Markets do not expect the current proceedings to result in President Trump’s removal from office. Despite the high likelihood that the House of Representatives will vote to impeach Trump, the Senate is equally likely to acquit him.

Through Friday, 96% of S&P 500 companies had reported third quarter earnings, effectively bringing earnings season to an end. According to research provider Factset, thus far 75% of companies have beaten their earnings estimates, while 59% have beaten their revenue estimates. Projected year-over-year earnings growth is expected to be -2.2%. Current projections for fourth quarter earnings growth are estimating a -1.4% decline from 4Q18.

Economic Bullet Points

Leading Indicators–The Leading Economic Index (LEI) fell 0.1% in October, its third straight monthly decline, and contrary to the consensus expectation of +0.2%. Half of its ten components made negative contributions, led by ISM new orders, factory work hours, and jobless claims. Year-over-year, however, the LEI’s rate of change remained at a steady 0.3%, although that marked the lowest rate since November 2009. In sum, LEI data suggests that economic growth will continue to slow into 2020.

Housing Starts rebounded 3.8% in October to a 1.314 million unit annual rate, above the consensus of a 3.5% gain to a 1.300 million unit rate. Revisions to the previous two months of data were insignificant. On a year-over-year basis, both housing starts and permits have accelerated, up 8.5% and 14.1%, respectively. This is the best year-over-year momentum since at least August 2018 and bodes well for residential investment growth.

Existing Home Sales increased 1.9% in October to a 5.46 million unit annual rate, matching the consensus. It was led by a 2.1% rebound in single-family homes, while condo/co-ops were flat. Year-over-year, sales were up 4.6%, the most since March 2017. Stronger sales momentum year-to-date has been aided by lower mortgage rates and continued gains in jobs and wage growth.

Of Note

Reports surfaced that brokerage firm Charles Schwab is considering buying rival TD Ameritrade for ~$28B. If completed, the deal would create a combined company overseeing more than $5T in assets.

Market Indices Week of 11/22

S&P 500-0.3%
Small Caps-0.4%
Intl. Developed-0.7%
Intl. Emerging-0.4%
Commodities-0.5%
U.S. Bond Market0.3%
10-Year Treas. Yield1.77%
US Dollar0.3%
WTI Oil ($/bl)$58
Gold ($/oz)$1,462

The Week Ahead

  • GDP
  • Case-Shiller HPI
  • New Home Sales
  • Pending Home Sales
  • Durable Goods Orders
  • Consumer Confidence
  • Personal Income & Outlays
  • Intl Trade in Goods.

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