Market Perspective for October 11, 2019

The U.S. and China reached a tentative trade deal and the Federal Reserve announced another round of asset purchases. The Nasdaq advanced 0.93 percent on the week, the Dow Jones Industrial Average 0.92 percent, the Russell 2000 Index 0.75 percent and the S&P 500 Index 0.61 percent.

The U.S. and China reached a tentative trade agreement, dubbed “Phase 1” by the two sides. The U.S. will delay its planned tariff hike on October 15 as part of the agreement, but a formal deal has yet to be written and signed. iShares China Large-Cap (FXI) rallied 2.73 percent this week.

A deal on the United Kingdom’s exit from the European Union, or Brexit, also looks possible after the UK and Ireland negotiated the border with Northern Ireland. Both the UK Prime Minister and EU negotiator hinted an agreement can be reached. iShares MSCI United Kingdom (EWU) increased 3.48 percent on the week. The British pound increased 2.65 percent versus the U.S. dollar.

The Federal Reserve stated it will start buying $60 billion a month in short-term treasury debt for the next six months. The amount is smaller than the last round of quantitative easing, which was $85 billion per month. Federal Reserve Chairman Powell said this is not quantitative easing, but rather a temporary adjustment in the size of the Fed’s balance sheet. However, the central bank said the buying would last “at least into the second quarter of next year,” opening the door to more asset purchases. U.S. equity markets rallied during all three rounds of quantitative easing and asset buying will buoy U.S. stocks going forward.

Economic data remains strong. The National Federation of Independent Business showed small business optimism is elevated at a reading of 101.8. The Job Openings and Labor Turnover Survey showed 7.1 million openings, still far outstripping the number of unemployed Americans. Initial claims for unemployment remained low at 210,000.

Inflation was subdued in September. Falling oil prices helped drag producer prices down 0.3 percent. Consumer inflation was modest with core CPI up 0.1 percent and headline inflation showing no increase.

The advance reading of University of Michigan’s consumer sentiment survey showed a spike in optimism this month. Analysts were looking for a dip to 92.5, but the index spiked to 96.0. Consumers anticipate faster wage gains and low inflation in the future. This reading is even more significant because the University of Michigan survey had been the weaker of the two most widely followed consumer confidence reports.

Fastenal (FAST) beat earnings expectations this week, sending the stock up 17.15 percent on Friday. Delta Air Lines (DAL) missed forecasts, but it slipped only 1.64 percent on the week amid a strong rally in transportation stocks.

The 10-year Treasury yield climbed to 1.75 percent as investor optimism increased on news of a trade deal and Federal Reserve bond buying. Along with rising stocks, the Federal Reserve’s balance sheet expansion also resulted in higher bond yields. iShares iBoxx High Yield Corporate Bond (HYG) advanced 0.38 percent on the week as the Fed’s asset buying should also suppress credit risk. iShares Barclays 20+ Year Treasury (TLT) sank 3.77 percent. Positive trade and central bank news prompted investors to sell gold. The metal fell 1.33 percent this week.

 

The Investor Guide to Fidelity Funds for October 2019

The Investor Guide to Fidelity Funds for October 2019 is Available Now! Market Perspective: Low Unemployment Propels a Strong Domestic Economy Equities rallied in September on strong U.S. economic data. The […]

Market Perspective for October 7, 2019

It will be a significant week for the financial markets with the upcoming U.S. and China trade meeting. China said it favored a smaller deal focused on issues of mutual agreement. President Trump has previously stated he wants a substantial deal. Investors can expect elevated volatility. Even today, the S&P 500 Index jumped 10 points midday, or 0.3 percent, after China said it would seek a limited agreement.

The Russell 2000 Index was the best performing index on Monday, slipping 0.14 percent.

Federal Reserve meeting minutes will be released this week, along with several public speeches by Chairman Powell.

The National Federation of Independent Business will report small business confidence on Tuesday. Producer prices for September are also out tomorrow. Economists expect prices to have increased 0.1 percent last month.

The Job Openings and Labor Turnover Survey for August is out on Wednesday. It showed 7.2 million openings in July, still well higher than the number of unemployed Americans.

Consumer price inflation will be released on Thursday. Economists expect a 0.1 percent increase, but they forecast a decline in core CPI from August’s 0.3 percent down to 0.2 percent.

On Friday, the University of Michigan will release its advance survey of consumer sentiment in October.

Crude oil traded as high as $54 per barrel before settling at $52.75, down 6 cents on the day. Energy was the worst performing sector, with SPDR Energy (XLE) losing 0.89 percent.

The U.S. Dollar Index climbed 0.2 percent on Monday as trade news drove the greenback higher. Currency traders like the U.S. position in the trade war. In addition to the dollar index, they’ve been bidding up the Canadian dollar versus the Australian dollar. The two countries have similar economies with large resource export sectors and possible housing bubbles. Australia is heavily influenced by China’s market, while the U.S. influences Canada. The Canadian dollar’s relative strength signals traders think the U.S. economy is in better shape than China. The Chinese yuan fell to 7.13 per U.S. dollar on the day, down from 7.11 on Friday.

A few companies will report earnings this week, including Domino’s Pizza (DPZ), Helen of Troy (HELE), Delta Air Lines (DAL) and Fastenal (FAST). Analysts expect $2.07 per share in earnings for Domino’s, up from $1.95 a year earlier, along with revenues of $825 million. They see Delta delivering $2.27 per share in earnings, up more than 20 percent from over same quarter in 2018.