Markets clawed back some of their losses from a bloody October. Trade and earnings had much to do with markets recapturing their footing.
Trade
At the open of the week, markets were skittish regarding trade. The prior week had ended with President Trump making indication of additional tariffs on all remaining imports from China. As last week wore on, however, the chances of a trade agreement improved. China made reference that they stand ready to talk. Additionally, President Trump and President Xi Jinping spoke last week. This prompted President Trump to request a draft trade deal for their upcoming meeting at the G-20.
Earnings
The S&P 500 earnings season is 66% over and earnings have increased on average 25% YoY. The strength of 2018 earnings have been fantastic; however, tax reform has been a large contributor. More encouraging is the average revenue growth at 8.5%. While a moderation from last quarter, it is still running at a strong pace. This means as improved earnings disappear due to tax reform, revenue shows enough strength to carry earnings forward.
Conclusion
October was a month where the S&P 500 fell as much as 9.9%. Climbing out will take time. CB Consumer Confidence has increased to 137.9, the highest level in 18 years. This is great news for the forth quarter, where consumer discretionary spending is the cornerstone to our economy. The year end has great potential, but there are always concerns on the horizon. Currently those would be the flat yield curve, the trade environment, and the strong US Dollar.
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