Weekly market update
At the close on Halloween, we got new all-time monthly closing highs in the S&P 500, the Dow, Global 100 index, NASDAQ, NASDAQ 100, Consumer Discretionary index, Technology index, Semiconductor index, J.P. Morgan Chase, Microsoft, Apple, Google among many others. My friends, these are not something you would find in a downtrend. In small-cap land; however, the underperformance has been obvious since March and is something I would like to see change.
I don’t care how often people in the business media complain about trade, Brexit, recession, Russia, Ukraine, North Korea or the President—the trend is our friend and the trend is higher for stocks. If the markets are not falling on inverted yield curves, a plague of negative interest rates, plunging ISM numbers and even Boeing texts—the markets may be telling us something:
- The bad news is already baked in and/or,
- The fundamentals are turning positive.
Earnings season has kicked into high gear over the last two weeks and most companies are reporting earnings and revenues much better than analysts have warned us about. Most of the banks crushed earnings and most of the tech earnings have followed suit. We have not been without concerns, especially with names like Amazon and Google—who are spending money hand over fist—but those concerns have only lasted maybe one day.
On the economic front, we’ll look at the latest jobs report. The Bureau of Labor Statistics (BLS) reported we added 128,000 jobs in September, which was much higher than economists expected and the last two months were revised higher by 95,000. The “economists” were telling us it was going to be a bad number especially with the autoworkers striking, but it was not to be.
We got the first read on Q3 2019 GDP and it came in at 1.9%. With all of the concerns out there about trade, I am not surprised. GDP beats estimates thanks to consumption from the consumers, core PCE price index was up 2.2% annualized despite a GDP price index miss, so everyone’s having a good time. There has been talk of a looming recession, yet it’s not out there right now.
Manufacturing numbers have been and continue to be a bit disappointing, but we are a services economy. Some of the regional FED reports have been a bit weaker and consumer sentiment has taken a hit—as you would expect with the fearmongering out there, but guess what—stocks don’t care—they’re just going higher.
The FED cut interest rates for the third time this year in October and FED Chair Jerome Powell also said that risks to the outlook have moved in a favorable direction, citing developments on US/China trade and potential for a “Phase One” Trade deal. He also hinted at the fact that they may be on pause for a while—depending on how the economy does during Q4.
Across the pond, there has been a bit of optimism that the Brexit vote finally may happen and that has helped push European equities higher. The European Central Bank Chief, Mario Draghi, completed his term and as a parting gift, he leaves Europe with QEternity and never not once raised interest rates once in eight years.
November kicks off the “best 6 months” for stocks—historically speaking—and this will help fuel the bullish thesis into year-end. We will monitor further developments here and abroad, and we are committed to keeping you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
