Week in Review
Week Ending: Friday, November 9, 2018
Recap & Commentary
Markets ended the week higher thanks to a strong post-election rally. The rally was interpreted as the markets expressing relief that the outcome was largely in line with expectations of Republicans retaining control of the Senate and Democrats gaining control of the House of Representatives. However, a nearly 1% decline in the S&P 500 on Friday suggests that moving forward, there will be a renewed focus on trade and monetary policy, which could result in attendant bouts of elevated volatility.
Somewhat overlooked was oil’s tumble into bear market territory. Friday marked the 10th-consecutive daily decline for oil, the longest streak since 1984. The selloff stems from recent supply increases. With renewed U.S. sanctions against Iran expected to effectively reduce Iranian exports to zero, Saudi Arabia and Russia increased supply. Then on Monday, as sanctions went into effect, the U.S. unexpectedly granted temporary waivers to eight countries importing Iranian oil, effectively resulting in an additional supply increase and further depressing prices.
As expected, the Federal Reserve left interest rates unchanged following its FOMC meeting. The accompanying statement was upbeat with respect to economic activity, but it did note that “business fixed investment has moderated from its rapid pace earlier this year.” The Fed is expected to raise rates for the fourth time this year at its December meeting.
Through Friday, 90% of S&P 500 companies had reported third-quarter earnings. Thus far, 78% have beaten their earnings estimates, while 61% have beaten their sales estimates. According to industry group FactSet, earnings growth is on pace for 25.2%, which would be the highest growth rate since 3Q10.
Economic Bullet Points
Business Inflation—In October, the Producer Price Index, a measure of the prices businesses receive for their goods and services, rose a greater-than-expected 0.6% and 0.5% at the headline and core levels, respectively. Increases in both measures came mostly from increases in trade services costs which jumped 1.6%. However, when excluding trade services, as well as food and energy costs, the pressure on business prices eased last month to an as-expected 0.2% gain. In addition, imposed tariffs didn’t appear to have lifted prices beyond consensus expectations, which should keep the projected pace of rate increases on track with what the Fed has communicated.
Services—The ISM Non-manufacturing index moderated slightly month-over-month, but at 60.7, the measure still signals a robust pace of economic activity.
Consumer Credit growth slowed more than expected to just $10.9 billion in September, which is less than half of the upwardly revised $22.9 billion August increase. Particularly, nonrevolving credit growth (auto and student loans) slowed to $11.2 billion versus $18.3 billion in the previous month. Revolving credit growth was flat.
Consumer Sentiment indicators remained strong signaling a positive overall outlook. However several forward-looking survey components were slightly softer than in previous reports.
Jobless Claims remained low and consistent with a robust, healthy labor market.
Amazon is reportedly considering splitting its second headquarters between two cities as opposed to selecting just one. Reports indicate that the company is considering New York City and Northern Virginia.
Market Indices Week of 11/9
S&P 500 2.1%
Russell 2000 0.1%
MSCI EAFE 0.2%
MSCI EM -2.1%
Barclay’s Agg. 0.3%
US Dollar Index 0.5%
10-Yr Yield 3.20%
WTI Oil ($/bl) $60
Gold ($/oz) $1,209
The Week Ahead
- Leading Indicators
- Retail Sales
- Industrial Production
- Housing Starts
- Existing Home Sales
- Jobless Claims
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