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Market Summary

Despite broad declines late in the week, U.S. equities finished last week in positive territory overall following a bump from mid-term election results. For the week, the Dow Jones Industrial Average notched a 3.0% return followed by the S&P 500 and NASDAQ with returns of 2.2% and 0.7%, as notable technology stocks and the energy sector continued to falter. The weakness in growth and momentum stocks has extended into this week’s early trading as concerns of peaking corporate earnings growth has once again become front and center. In fixed income, U.S. Treasury yields fluctuated a bit throughout the week but closed nearly even with the start around 3.19%, as the mid-term elections and the Federal Reserve meeting on Wednesday largely came in-line with expectations. Markets crave clarity and the lack of surprise in political and monetary policy results was well-received.

The split Congress outcome of the mid-term elections, with the House of Representatives flipping to Democrat control and Republicans maintaining their majority in the Senate, met the general consensus expectations. Accordingly, the relief of some market uncertainty led to a surge in equity prices on Wednesday, with the S&P 500 rising 2.1%, presumably as some investors who were waiting on the sidelines jumped back into the market.

Also contributing to market clarity were the results of the Federal Open Market Committee meeting on Wednesday with no increase to the Federal Funds Rate, as expected. However, the Committee continued to signal a likely 0.25% rate hike at December’s meeting and expectation of further gradual rate hikes thereafter as the U.S. economy remains on strong footing and the tightening labor market feeds inflationary pressures.

With over 90% of the S&P 500 constituents having reported third quarter earnings results, overall growth appears to have come in well above initial expectations of around 20%, as the combined reported earnings growth to date is about 26.6%, according to FactSet. Such growth has not been enough to offset investors’ forward looking concerns as the growth impact of tax stimulus fades and the headwinds of rising rates and geopolitical uncertainty remain.

Economic Highlights: 

Oil: The oil market officially entered bear market territory this last week, down more than 20% from the four-year high reached on October 3rd and near its lowest level since February. The cause has been attributed to concerns on both the supply side with excess inventories from growing U.S. stockpiles, OPEC overproduction, and reduced Iranian sanctions, and also on the demand side with a softening global demand outlook. However, prices came off lows after this weekend's OPEC monitoring meeting, in which participants signaled potential curbs in oil production going into 2019 to stabilize prices.

Consumer Sentiment: The November preliminary University of Michigan consumer sentiment reading came in at 98.3, a dip from September’s 98.6 reading but better than consensus for 98.0 and still near decade highs. The report indicated that consumers are expecting continued robust growth but also higher inflation and interest rates.

US Economy – The Week Ahead

Tuesday 11/13/2018

  • NFIB Small Business Optimism Index – Consensus Estimate: 107.0 (-0.8% MoM), Prior Month: 107.9 (-0.8% MoM)

Wednesday 11/14/2018

  • .S. Consumer Price Index (CPI) Year-Over-Year – Consensus Estimate: 2.5%, Prior Month: 2.3%

Thursday 11/15/2018

  • Initial Jobless Claims – Consensus Estimate: 215,000 (0.5% WoW), Prior Week: 214,000 (0.0% WoW)
  • U.S. Import Price Index Year-over-Year Growth – Consensus Estimate: 2.3%, Prior Month: 3.5%
  • U.S. Export Price Index Year-over-Year Growth – Consensus Estimate: 2.1%, Prior Month: 2.7%

Friday 11/16/2018

  • Industrial Production (Month-over-Month) – Consensus Estimate: 0.20%, Prior Month: 0.25%
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