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Weekly Update

Market Summary

U.S. equities rallied last week to cap off October’s market rout that erased much of the year’s gains. For the week, the S&P 500 and the Dow advanced 2.4%, while the NASDAQ rose 2.7% to record its only weekly gain of the month. Bullish market participants saw the dip as a buying opportunity, which supported last week’s rebound in addition to some strong employment data, resumption of corporate share buybacks, and positive headlines on the trade dispute with China. However, despite the rally, the S&P 500, Dow, and NASDAQ all recorded notable losses of -6.8%, -5.0%, and -9.2%, respectively, for October with the sharpest losses occurring in cyclical sectors including the Consumer Discretionary and Energy sectors.

Stock market bulls are hoping that last week’s bounce will continue following results of the highly anticipated U.S. congressional midterm elections that will take place today. Regardless of the outcome for the House and Senate, many investors are expecting at least some level of relief in market volatility after the uncertainty revolving around the elections and future policy direction is resolved. Over the last two decades, the S&P 500 has returned 4.5% on average in the final two months of midterm election years, almost double the last two month return average in non-midterm election years of 2.3%.

Another recent tailwind to stocks over the past week was positive headlines regarding an upcoming meeting between President Trump and China’s President Xi to discuss the trade dispute at the G20 Summit in Argentina. President Trump noted optimism about the prospects for reaching a deal at the meeting, but many analysts remain skeptical and see a temporary truce as being much more likely than any substantive trade agreement.

The Federal Open Market Committee (FOMC) will meet this week to discuss the path of interest rates. Despite a recent uptick in wage growth that could begin to pressure inflation upward, the markets are not anticipating a rate increase at this week’s meeting. However, there is a 79% probability of at least a 0.25% rate increase at next month’s meeting, according to FactSet.

Economic Highlights: 

Labor: October’s employment report showed a strong 250k rise in nonfarm payrolls, well above expectations for 193k job additions. The unemployment rate stayed constant at 3.7%, but average hourly earnings rose to 3.1% year-over-year due to the tight labor market. It is the first 3%+ annual wage increase since 2009.

Manufacturing: The US ISM manufacturing index fell to 57.7 in October, below consensus expectations of 59.0 and the lowest point in the last 6 months. Much of the decline has been attributed to rising input costs and trade tensions, but the reading remains firmly in expansion territory (above 50.0).

US Economy – The Week Ahead

Tuesday 11/6/2018

  • Mid-Term Congressional Elections
  • Job Openings & Labor Turnover Survey – Consensus Estimate: 7,100K (-0.5% MoM), Prior Month: 7,136K (0.8% MoM)

Wednesday 11/7/2018

  • Consumer Credit Outstanding – Consensus Estimate: $17.0B (-15.4% MoM), Prior Month: $20.1B (21.1% MoM)

Thursday 11/8/2018

  • Federal Open Market Committee (FOMC) Meeting
  • Initial Jobless Claims – Consensus Estimate: 213,500 (-0.2% WoW), Prior Week: 214,000 (-0.5% WoW)

Friday 11/9/2018

  • U.S. Producer Price Index (PPI) Year-Over-Year – Consensus Estimate: 2.6%, Prior Month: 2.6%
  • Wholesale Inventories Month-Over-Month Growth – Consensus Estimate: 0.3%, Prior Month: 0.3%
  • University of Michigan Consumer Sentiment Survey (Preliminary) – Consensus Estimate: 98.0 (-0.6% MoM), Prior Month: 98.6 (-1.5% MoM)
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