Market Perspective for October 19, 2018

Value stocks resumed leadership this week and the Dow Jones Industrial Average gained 0.39 percent to lead all major indexes. The Nasdaq lost 0.63 for the week as semiconductors weighed on Friday.

SPDR Consumer Staples (XLP) and SPDR Utilities (XLU) rallied 4.45 and 3.08 percent. SPDR Financials (XLF) and SPDR Healthcare (XLV) advanced 0.89 and 0.44 percent. SPDR Technology (XLK) declined 1.16 percent. iShares PHLX Semiconductor (SOXX) shed 2.10 percent.

Federal Reserve minutes confirmed officials’ plan to raise rates beyond the “neutral rate.” The odds of a December rate hike rose to 84 percent. Treasury yields rose as well, with the 10-year briefly trading above 3.20 percent mid-week. The 52-week high is 3.25 percent.

September retail sales matched August’s growth rate of 0.1 percent but missed estimates. Sales-ex autos fell 0.1 percent.

The Empire State index, the New York Fed’s measure of manufacturing in its territory, climbed in October. The Philly Fed’s manufacturing index also rose in October. These reports comport with improving manufacturing PMIs for September.

Job openings remained steady at 7.1 million in August. Initial claims for unemployment were 210,000, meeting expectations and down from the prior week’s 215,000.

The homebuilder confidence index rose in October with thanks to rising demand. Housing starts, building permits and existing home sales were all slightly below estimates.

Chinese economic data showed continued slowing. The Chinese government reported GDP growth of 6.5 percent in the third quarter, the slowest result in a decade. Fixed-asset investment and retail sales for September reflect China’s shrinking growth rate.

The U.S. dollar climbed against the euro this week. The European Commission didn’t reject Italy’s budget, but it said it was against EU rules. A confrontation could escalate on October 31, when Italy’s parliament votes on the budget. SPDR S&P 500 (SPY) gained 0.09 percent on the week. It outperformed iShares MSCI EAFE (EFA) and iShares MSCI Emerging Markets (EEM), which fell 0.14 and 1.49 percent, respectively.

Banks delivered solid earnings this week, following up on last week’s strong reports. Bank of America (BAC) beat forecasts by 4 cents. Goldman Sachs (GS) and Morgan Stanley (MS) also beat. American Express (AXP) also beat and had one of the best stock performances within the sector.

Netflix (NFLX) smashed estimates and shares jumped after hours, but weakness in tech pulled the stock down on the week.

Johnson & Johnson (JNJ), UnitedHealth Group (UNH) and Abbot Labs (ABT) all beat earnings. Proctor & Gamble (PG) surprised investors with a very strong earnings report. Shares popped 8.8 percent on the day and boosted consumer staples performance.


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