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AUTHOR: Jason J. Roque, CFP®, APMA®
TITLE: Investment Adviser Rep – CCO TAGS: EARNINGS, TRADE, RATES, ECONOMY |
Markets were moving and they could not be stopped! Was important data missed on the climb to the top?
Economic Data
Q3 GDP came in on Wednesday and the economy grew by 1.9%. This was almost wholly on the back of the consumer. Business investment has been a drag on growth for the last two quarters. Sidelined businesses have negatively impacted the manufacturing industry as well. ISM Manufacturing PMI was 48.3 for October. This is the third straight month below 50. Jobs data actually marked a bright spot in data. The unemployment rate rose to 3.6%, as expected, as the participation rate rose to 63.3%. The economy added 128K nonfarm payrolls, when 95K were expected. The previous two months of data were also revised up by 95K jobs. Wages grew by 3% for the year[1].
Central Banks
The Federal Reserve Bank (FRB) cut rates by .25%. The FRB announced they are unlikely to raise rates again until inflation shows substantial pressure. This gave markets freedom to not worry about monetary tightening when considering equity pricing. The Bank of Japan (BOJ) met on Thursday and decided to leave rates unchanged. They did, however, commit to further accommodation as needed. This is not surprising as they have seen improved consumption due to a sales tax increase 10/1/2019. This commitment may be needed soon, as sales have slowed.
Brexit
Apparently, Boris Johnson went out on Halloween as an honest politician. He had promised to leave the EU by 10/31… The EU has granted an extension to 1/31/20. Rather than completing a manageable deal, the UK is preparing for an election. This likely will be a referendum on the UK’s preference on Brexit. Brexit will be less likely, as officials will be pressed for an unobtained deal.
Trade
A phase one deal appears to be nearing completion with the location of the signing being discussed. While it seems done, 1) it is not done, and 2) a phase two deal has little hope. This may sound pessimistic, the last time a deal was reached it fell apart 3 weeks prior to its intended signing.
Earnings
Last week was a busy week as 158 of S&P 500 companies reported. 76% beat earnings expectations (fairly average), while 47% beat revenue expectations (below average)[2]. Corporations have cut spending on trade and 2018 earnings figures bloated by tax reform. This sets 2020 earnings for higher spending and earnings; hopefully leading to improved revenue.
Conclusion
Markets improved much of last week. This occurred on the news of dovish FRB policy, good jobs data, and hopes on a trade deal. Though the biggest news last week was the continued struggle of companies to keep up with 2018 earnings. The lack of spending and the suffering revenues are a risk to the economy, but a turnaround is possible.
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[1] Investing.com – economic calendar
[2] Jpmorganfunds.com – economic update