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Weekly Update

Market Summary

Despite some continued weakness in U.S. manufacturing activity, U.S. equity markets broadly surged higher this past week boosted by better than expected GDP growth, employment numbers, and corporate earnings results and further accommodation in monetary policy as the Federal Reserve cut interest rates for the third time this year. The S&P 500 and Nasdaq Composite closed last week at all-time highs following returns of 1.5% and 1.7% for the week, while the Dow Jones, which gained 1.4% last week, has surpassed its all-time high in early trading this week.

With over 70% S&P 500 constituents having reported third quarter earnings to date, companies have generally cleared the low bar that was set for them as over 75% have reported earnings results above analysts’ expectations, according to FactSet. The combined growth rate so far has come in at -2.4% over the third quarter of 2018 compared to expectations for a -3.7% decrease.

While the pace of job growth has certainly slowed from the high clip of 223,000+ average monthly job gains in 2018, Friday’s job report also cleared expectations with 128,000 jobs added in October compared to the consensus forecast of 90,000. Domestic consumer spending continues to the primary driver of positive economic growth in the U.S., so the stability of the employment picture helped ease recessionary fears. Such strength has offset weakness in other areas of the economy, like the manufacturing sector, which remained in contractionary territory in October for the third consecutive month according to the Institute for Supply Management (ISM).

Although the Federal Reserve delivered another 0.25% rate cut on Wednesday as anticipated, Chairman Powell indicated that it is unlikely that further changes will be made this year as long as conditions remain steady. The initial reading of the third quarter GDP growth rate of 1.9% and Friday’s employment report helped reinforce that stance.

In the week ahead, corporate earnings reports will begin to taper off as market participants focus in on progress between the U.S. and China toward a phase-one trade deal. Additionally, some important economic data is on the docket, including an update on the service sector, consumer sentiment, and labor productivity.

Economic Highlights

  • GDP Growth: The preliminary reading of third quarter GDP growth of 1.9% over the prior quarter beat the consensus prediction of 1.7%, although it slowed slightly from the 2.0% growth rate in the second quarter. Consumer spending and federal government expenditures were the bright spots, while business investment continued to be a drag on growth.

  • Manufacturing: The ISM manufacturing index disappointed last month coming in at 48.3, which was below expectations of 49.0, but it was the first increase in 6 months as the September reading was 47.8. A reading below 50 indicates contraction.

US Economy – The Week Ahead

Tuesday, 11/5/2019

  • ISM Non-Manufacturing PMI – Consensus Estimate: 53.4 (1.5% MoM), Prior Month: 52.6 (-6.7% MoM)
  • Job Openings & Labor Turnover Survey – Consensus: 7,050K (-0.01% MoM), Prior Month: 7,051K (-1.7% MoM)

Wednesday, 11/6/2019

  • U.S. 3Q 2019 Labor Productivity Quarter-over-Quarter (Preliminary) – Consensus Estimate: 0.8%, Prior Quarter: 2.3%

Thursday, 11/7/2019

  • Initial Jobless Claims – Consensus Estimate: 215,000 (-1.4% WoW), Prior Week: 218,000 (2.4% WoW)
  • Consumer Credit – Consensus: $14.8B, Prior Month: $17.9B

Friday, 11/8/2019

  • University of Michigan Consumer Sentiment Survey (Preliminary) – Consensus Estimate: 96.0 (0.5% MoM), Prior Month: 95.5 (2.5% MoM)

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