After a strong start, Q3 earnings season continues to be mostly positive with ~68% of companies beating earnings estimates. All broad market equity indices were positive last week with emerging markets leading the way; bonds were mostly down. Despite worries of a bear market from the Q4 drawdown last year, the S&P 500 is up over 25% year to date and again reached new all-time highs last week. Both the Dow Jones Industrial Average and NASDAQ also set new all-time highs.
US Treasury yields have experienced an eventful 2019 so far. For a yield curve that has spent much of the year with shorter maturity yields higher than many of the intermediate maturity yields, recent Fed rate cuts appear to be having the intended affect. Shorter maturity yields have declined while longer maturity yields have jumped higher. The 10-year US Treasury yield jumped from 1.73% to 1.94% in the past week alone. This tilting of the yield curve moves it more in line with what practitioners call a “normal” market. Most market participants are now betting on no further Fed action through 2020.
What is not normal is the lack of geo-political events creating market uncertainty. Phase One of the US-China trade deal is supposed to be signed this month although few details have been released from either side. The trade deal between the US, Mexico, and Canada is still waiting for US ratification. Brexit is paused until the December 12 election brings a new wave of members to Parliament. Any of these outstanding items could lead to a positive or negative surprise.
September factory orders fell with weakness in durable goods orders. The JOLTS report indicates a slowdown in job openings and job quits, but a pickup in job hiring. The ISM non-manufacturing index showed unexpected strength for October. International trade shows contraction for both imports and exports, which should come as no surprise given this year’s trade tensions and tariffs.
This week will feature a speech from Powell, and reports on CPI, PPI, retail sales, and industrial production.
We’d also like to take this Veterans day as an opportunity thank all veterans that have served to protect the USA.
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