Market Summary
U.S. equities continued to grind higher this past week with the S&P 500 finishing just barely off its all-time high of $3,026, which has been surpassed in this week’s early trading. A busy week of corporate earnings announcements drove only modest gains for the overall market as the results were a mixed bag, but reports of the U.S. and China moving closer to a phase one trade deal helped propel stocks higher on Friday. For the week, the S&P 500 and Nasdaq Composite gained 1.2% and 1.9%, respectively, while the Dow Jones returned 0.7%. Meanwhile, the 10-year Treasury yield pushed up to 1.80% from 1.75% in the week prior on rising hopes for economic growth prospects.
With over 40% of S&P 500 companies having reported third quarter earnings results to date, the disparity between slowing international demand and the more stable domestic demand environment has been on display as domestically-focused U.S. companies have fared notably better on average than their counterparts that generate significant portions of revenue overseas. According to FactSet, S&P 500 companies that earn over 50% of revenues within the U.S. are on track to post third quarter revenue and earnings growth of 4.6% and -0.2% over the prior year. Those figures compare with -2.0% and -9.1% revenue and earnings growth, respectively, for companies earning over 50% of revenues from overseas.
Abroad in the United Kingdom, the European Union has agreed to extend Brexit negotiations until January 31st, 2020. The U.K. was scheduled to leave the E.U. by Halloween, but British Prime Minister Boris Johnson was required to request an extension after his Parliament failed to agree on a deal.
The week ahead will be chock-full of potentially market moving events with the first look at third quarter U.S. GDP growth and a Federal Open Market Committee (FOMC) meeting on Wednesday and updated employment and manufacturing data on Friday, in addition to the continued flow of corporate earnings results. Markets have priced in a 94% probability of a 0.25% rate cut by the Federal Reserve at this week's meeting, according to the CME FedWatch Tool, which would be the third quarter point rate cut this year. Many expect the Fed to leave the door open for another possible rate cut at December’s Federal Reserve meeting, but this possibility will hinge on economic data like this week’s GDP growth, employment, and manufacturing announcements.
Economic Highlights
Housing: Existing home sales fell in September to 5.38 million sales from 5.45 million in August, but were up 3.9% year-over-year as mortgage rates have fallen off significantly from a year prior. According to the Wall Street Journal, U.S. mortgage originations in the third quarter amounted to $700 billion, the highest quarterly amount in 14 years.
Oil: U.S. WTI crude oil prices jumped 5.3% last week as U.S. crude oil inventory fell for the first time in six weeks and optimism on a potential phase one trade deal between the U.S. and China eased concerns of slowing economic growth.
US Economy – The Week Ahead
Tuesday, 10/29/2019
- S&P/Case-Shiller Home Price Index Year-over-Year Growth – Consensus Estimate: 2.1%, Prior Month: 2.0%
Wednesday, 10/30/2019
- U.S. 3Q 2019 GDP Growth Year-over-Year (First Preliminary) – Consensus Estimate: 2.0% (1.7% QoQ), Prior Quarter: 2.3% (2.0% QoQ)
- Federal Open Market Committee (FOMC) Meeting – Consensus expectation for a 0.25% rate cut
- ADP Employment Survey – Consensus Estimate: 125,000, Prior Month 135,000
Thursday, 10/31/2019
- Initial Jobless Claims – Consensus Estimate: 215,000 (1.4% WoW), Prior Week: 212,000 (-2.8% WoW)
- Personal Consumption Expenditures (PCE) Index Year-over-Year – Consensus Estimate: 1.4%, Prior Month: 1.4%
Friday, 11/1/2019
ISM Manufacturing PMI – Consensus Estimate: 49.0 (2.5% MoM), Prior Month: 47.8 (-2.7% MoM)
Hourly Earnings Growth Year-over-Year – Consensus Estimate: 3.0%, Prior Month: 2.9%
U.S. Unemployment Rate – Consensus Estimate: 3.6%, Prior Month: 3.5%
Nonfarm Payrolls Added – Consensus Estimate: 90,000, Prior Month: 136,000
