Weekly market update
Stocks finished the week up once again with the Dow rising 1.37%, the S&P500 .93% and the NASDAQ up another 1.11%.
Traders and investors are all in the “swimming in the deep end”—or to define, becoming crazy and/or irrational. With the market breaking out to all-time highs, the media has started to once again reach for their party hats as headlines suggest clear sailing for investors ahead.
The rally has been driven by trade optimism and a belief the economy is on the mend, after all, why not?
- The Federal Reserve cut rates for the 3rd time this year.
- The Fed is also back in the “QE” game of buying bonds.
- We could be nearing some part of a trade deal.
- Corporate stock buybacks are on track for the second largest year on record.
- Earnings, due to buybacks, are beating lowered estimates.
- Consumer sentiment remains near record highs.
- Economic data is weak, but not terrible.
As far as a trade deal goes—here is what I am reading a lot about, “Mistrust dominates”.
As it looked like stocks were getting a little exhausted, we get this headline, “China and the U.S. have agreed in the past two weeks to cancel additional tariffs in phases”, Commerce Ministry says. If the Phase One deal is to be reached, some tariffs should be removed at the same time, by the same amount. How much can be negotiated? The time and place of deal signing are yet to be decided. Investors’ confidence retreated some following conflicting reports of no tariff rollbacks.
Global government bond yields were impacted by the dynamics of trade talks. U.S. Treasuries ended the week higher as talks progressed, reversing its losses earlier in the week. The 10-year-yield climbed to a high of 1.93%—the highest since July.
Turning to the economy, factory orders fell more than expected. The ISM Non-Manufacturing Index Oct: 54.7 (est. 53.5; previous 52.6). Economic resilience persists as non-factory part of the economy strengthens on broad-based gains (employment, new orders and deliveries all up). In another survey; however, Markit U.S. Services PMI saw the slowest rise in business activity since February 2016. U.S. service providers reported a further slowdown in business activity growth in October, as new business stagnated and export demand dropped further. The marginal expansion was the weakest since early-2016 and resulted in the sharpest decrease in workforce numbers since December 2009. Nonetheless, firms noted a slightly more upbeat outlook for the year ahead.
Across the pond, Germany posted a surprise rebound in manufacturing, a sign the deep recession in German industry output may be bottoming out. Data from Germany’s federal statistics office showed that new orders rose 1.3% in September, reversing a decline since June.
With just 35 trading days left in the year—and the decade—some sort of deal, any sort of deal between the U.S. and China might just be the remedy to keep stocks pushing to record highs. The Federal Reserve will probably hold off on any additional cuts to interest rates, but the market expects that. Any sort of hiccup with economic data; however, may push them to lower again at their December meeting. So, stay tuned and we’ll keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
