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AUTHOR: Jason J. Roque, CFP®, APMA®
TITLE: Investment Adviser Rep – CCO TAGS: EARNINGS, DATA, TRADE, BREXIT |
Market growth last week was modest as earnings impressed, but headlines depressed.
Earnings
Q3 earnings season started this past week with a slew of financial companies leading the way on Tuesday. Earnings impressed and gave markets their strongest day of the week. At this point, approximately 80 companies of the S&P 500 have reported and 81% have beat expectations[1].
Economic Data
Last weeks economic data was the classic, bad new is good news scenario. September housing came in weaker. Initial unemployment claims while low, did rise. September retail sales that were expected to expand actually shrunk for the first time in over 6 months. This was likely the most concerning piece of data as the consumer is relied upon to sustain this expansion. Weakness in economic data leads to the expectation the Federal Reserve Bank (FRB) should provide further monetary accommodation soon.
Trade
Markets celebrated two Fridays ago on the announcement of a phase one trade deal with China. This celebration seems to have been a bit premature. Last week confidence in this deal slipped as China indicated they wanted more meetings before agreeing to the terms. They are likely seeking additional reductions in tariffs, rather than assurances about future tariffs. Additionally, the substance of the current deal lacks much in the way of assurances regarding intellectual property rights.
Brexit
Ahhh, Brexit… The EU and UK came to a preliminary agreement on Thursday and Markets applauded it early Friday. The exuberance was fleeting however, as the stark reality that the deal would not make it through parliament set in. This creates an environment where Prime Minister Boris Johnson appears to be trying but has to ask for an extension. This gives him time to do what he really wants; call for a general election.
Conclusion
Trade disputes (US/China & UK/EU) brought the constant reminder that regardless the strength of earnings, future growth is in doubt. Until more clarity is gained on the trade front, growth on earnings data will continue to fade on geo-political friction.
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[1] www.mfs.com – week in review