Blog


Weekly Market Update — November 5, 2018

Pipe

STOCKS REBOUND AS EARNINGS SEASON WRAPS UP AND UNEMPLOYMENT STAYS AT 50-YEAR LOW

  • The major U.S stock markets gave investors a solid rebound this week, adding over 2% across the board
  • Investors were hoping for a bounce after the sell-off throughout much of October and solid corporate earnings and what appears to be easing trade tensions contributed to the bounce
  • The small–cap Russell 2000 led the way with a huge jump of 4.3%, followed by a 2.6% gain for the tech–laden NASDAQ and broad–based S&P 500 and a 2.4% move for the blue–chip DJIA
  • Cyclical sectors performed best on the week, with the Materials sector advancing over 6% and the Financials sector moving 4.4%
  • Investors welcomed easing tensions with China on trade and President Trump said he had a “long and very good conversation” with China’s President Xi
  • Earnings season is coming to a close as about 75% of S&P 500 companies have reported for the quarter. In aggregate, quarterly profits are currently set to grow at the best pace in eight years
  • On Friday, another strong jobs report confirmed the continued strength in the U.S. labor market
  • Treasuries sold–off, pushing yields higher with the sensitive 2–yr yield and benchmark 10–yr yield leaping to 2.91% and 3.21%, respectively
  • International stocks rebounded as well, with the large-cap, developed international markets (MSCI EAFE) adding 2.7% for the week


 

Weekly Market Performance


October Stunk

No matter how half-full your glass might be, the reality is that October was just a bad month for stocks, as the market dropped almost 7% and recorded its worst monthly loss since September of 2011, when they fell about 7.2%.

Optimists are quick to point out that following that decline of 7.2% in September 2011, the markets had one of their best months in 20 years with a jump of 10.8% in October 2011, but even the hardiest of optimists wouldn’t suggest we will see a similar rally in November this year.

But perspective is a good thing and the reality is that the markets are simply higher over the past one–, three–, five– and 10–year periods. The S&P 500 is simply back to its summer level and we are only about 7.5% from the all–time high.


October Employment Numbers

The Department of Labor released the October employment report and it showed that the U.S. economy added 250,000 jobs in the month and that puts the labor market at a nearly 50–year low unemployment rate of 3.7%. This should bode well for consumer spending – which is about 2/3 of our GDP – but there will be some concerns that the Fed might need to be more aggressive with rate hikes.


 

Earnings Season Winds Down

With almost 75% of S&P 500 companies having reported, numbers are mostly impressive – quarterly profits are up 25%, profit margins remain near historical highs, and sales growth is running at the best rate in years.

From FactSet:

  • 78% of S&P 500 companies have reported a positive EPS surprise
  • 61% have reported a positive sales surprise
  • All eleven sectors have higher growth rates today (compared to September 30) due to positive EPS surprises and upward revisions to EPS estimates
  • The forward 12–month P/E ratio for the S&P 500 is 15.6. This P/E ratio is below the 5–year average (16.4) but above the 10–year average (14.5)


 
Economic Data

  • October nonfarm payrolls increased by 250,000
  • The prior month’s increase was revised to 118,000 from 134,000
  • Average hourly earnings increased 0.2%
  • The average workweek was reported at 34.5
  • The unemployment rate remained at 3.7% in October
  • The Trade Balance Report for September showed a widening in the trade deficit to $54 billion
  • Factory orders increased 0.7% in September. Excluding transportation, orders were up 0.4% for the second straight month



Sources

factset.comcboe.comsec.govfederalreserve.govcommerce.govmsci.com;
standardandpoors.comnasdaq.comdowjones.commorningstar.com;
edwardjones.combloomberg.com


HighTower St. Louis is registered with HighTower Securities, LLC, member FINRA and SIPC, and with HighTower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through HighTower Securities, LLC; advisory services are offered through HighTower Advisors, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.

All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. The team and HighTower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed are solely those of the team and do not represent those of HighTower Advisors, LLC, or any of its affiliates.