Growth has been waning across much of the globe. Yet, the S&P 500 managed to be up for the week, what drove the market?
Much of the data contradicted market results:
- Pending home sales fell 1.4%
- US Trade deficit increased to -67.19B
- ISM manufacturing data fell to 50.2
- Factory orders fell 1.7%
To the contrary, there were a few high lights too:
- Core PCE, a proxy for inflation firmed to 1.3%
- Personal spending increased 0.4%
- S&P/CS Home Price Index, 20 city up 5% annually
- CB consumer confidence increased to 103.0
- Manufacturing PMI increased to 53.1.
Even with the run of negative data across the week, investor sentiment seemed to turn positive as the calendar flipped to the 4th quarter. Under heavy volume the markets moved north, great news. Even on Friday as the monthly jobs report disappointed. The markets started the day down nearly 1% and managed to rebound, leaving many indices positive for the week. This includes the S&P 500 which was up 1.1%.
The trend should continue as 3rd quarter earnings season gets under way. Expectations are for a fall in earnings, however, expectations appear to be overly pessimistic.
Manufacturing PMI pulled back, while still expansionary in nature, decreasing to 52.0 from 52.3. Sentiment indices for the Eurozone expanded across the board, signaling an improving consumer environment. The concern would be CPI pulling into a deflationary range at -0.1% in September.
Concerns over the slowing economy and deflation have caused many to call for additional stimulus activity from the European Central Bank.
Markit Caixin PMI fell to 47.2 from 47.3, showing continued contraction in the Chinese economy. Industrial profits fell at a rate of 8.8% year over year; further indication of economic woes in China.
Economic slowing across much of the globe is undeniable, however the consumer has stayed strong. That being said the case for a Federal Reserve Board (FRB) rate increase diminishes as the slowdown continues. The FRB would need to see that the current easing of growth is temporary to warrant any change.
The continued easy monetary policy across the globe should sustain the expansion through the oil glut and the China slowdown.
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