Markets “In a Nutshell” for October 15, 2019
Investment Week at a Glance
Stocks finished up for the week. The Dow Jones Industrial Average was up 0.91%, the S&P 500 rose 0.62%, the New York Stock Exchange Composite (2,000 stocks) rose 0.74% and the average investors index (Value Line Index) was up 0.72%. Foreign stocks (DJ Global ex U.S.) were up 1.89%. Bond prices were down for the week, pushing the yield on the 10-year U.S. Treasury up 23 basis points to end the week at 1.75%. (Data source: Wall Street Journal)
“Phrase 1” China Trade Deal Tentatively Reached
With many of the actual key details still to come, the U.S. and China reached a handshake agreement late last week to cover some of the more minor issues involving their trade relationship and plan to use this “mini” deal as a stepping stone to the bigger issues. One take on this deal is that there’s really nothing to be certain of until the real issues are tackled, but with China agreeing to begin purchase U.S. farm goods again and the U.S. agreeing to offer some tariff concessions, some short term relief in those areas are a good sign for future talks. Getting China to agree to anything regarding intellectual property security, state subsidies for key companies and allowing foreign firms to wholly own their businesses in China is still a long way away from being solved, if it ever is. We’ve been here before in trade negotiations and we’ll see if this time is any different with an election looming in just over a year. (Barron’s)
3rd Quarter Earnings Begin
The large U.S. banks get the 3rd quarter earnings season started off and will give good insight into how lower rates have affected their profitability. Current analyst estimates show a potential for a relatively large drop in earnings this quarter for the broader market, something that hasn’t been at risk for most companies for a couple of years now. With analyst estimates being a historically low hurdle to jump over for most companies, the reality may show that earnings will most likely be closer to flat for the quarter. Investors will be particularly concerned with how the broader U.S. manufacturing and services slowdown has impacted revenues and how companies are planning to handle a bleaker outlook. (Wall Street Journal)
Inflation Continues to be Soft
A key reading of inflation showed that consumer prices through the end of September were flat and only rose 0.3% when removing the more volatile food and energy prices. While this may be a sign of a slowing economy, it’s also good news for U.S. consumers, who are largely carrying the economic growth of 2019 as business investment and falling exports to China weigh on growth. It also helps the Federal Reserve, who have opened up the economy to a potential inflationary risk by cutting rates 0.5% so far this year. With slowing, but stable job growth persisting and wage growth still running well above inflation, the key factors of a good, but not great economy are still intact, while the U.S. continues its trade skirmish with China. (Wall Street Journal)
How much of a share of U.S. GDP is consumer spending responsible for as of the 2nd Quarter?
Have a Great Week!
4) Consumer spending is responsible for 68% of U.S. GDP. (Wall Street Journal)