Last month fared far better for the markets than the October of just one year ago. The S&P 500 gained 2.04% during the month, topping the even mark of 3,000 once again. The Federal Reserve made its third interest rate cut of the year, which was largely expected and priced into the market. Promising develops arose between the U.S. and China with hopes that the first phase of a new, bilateral trade agreement.
Wall Street also received a boost from respectable earnings reports from many companies, especially those in the tech sector. While some fundamental U.S. economic indicators were underwhelming, the market looked past those concerns and rose towards new highs. (1)
U.S. and China Negotiations
As of the writing of this newsletter, China has reported the two countries have mutually agreed to roll back tariffs as part of a “phase one” trade agreement. The markets rose on such positive news, but faded towards the end of the day as word broke that there is still much disagreement within the White House over the deal. Notably, the White House also has not issued any official statement corroborating the statements from China. (2)
This pattern of “deal or no deal” trade talks has become a pattern as of late. Wall Street’s head has been on a swivel over the last 12 months as positive news is initially reported, only to be refuted or retracted a day or two later. Is this time any different? Probably not.
A mixed bag of economic data was released in October - some positive and some negative. On October 30, the Federal Reserve announced a third interest rate cut of 0.25%, much to the liking of the markets. However, in their official statement, they noted that exports and business investment “remain weak.” (3)
Unemployment remains a bright spot and hit a 50-year low of 3.5%, according to the Department of Labor’s latest report. Consumer spending also rose by 0.2%, signaling that consumers are not tightening their wallets and remain confident. (4,5)
On the factory front, the data could have been better. U.S. industrial production fell 0.4% in September, while manufacturing output slipped 0.5%; meanwhile, hard goods orders weakened 1.1%. The Institute for Supply Management’s manufacturing Purchasing Managers Index (PMI) spent another month below 50, falling 1.3 points to 47.8; a number below 50 means activity in the sector is slowing. (ISM’s PMI for the much larger U.S. service sector was in better shape at 52.6, though it dropped 3.8 points in September.) (6,7)
At this current juncture, there is a lot to be positive about - but there is also an equal amount of data which yields caution. Both China and the United Sates are becoming increasingly dependent on a trade deal to come to fruition, as both of their economies are showing signs of slowing growth (China in particular).
Stocks rose on several positive earnings reports, especially from tech giants such as Apple and Facebook. Of concern were disappointing earnings reports from economic bellwethers such as Caterpillar and other industrial companies. These manufacturing companies often tell a story about where our economy is heading since their businesses depend on fundamental growth taking place within our economy.
As stated in our last newsletter, we remain cautiously optimistic through the end of this year, especially if the recent reports of a “cease fire” on the trade war front turn out to be true.
Monthly Financial Tip:
As the year ends, fraudsters may approach older, high-net-worth households, pretending to be representatives of credit card issuers, banks, charities, and even federal agencies. If a stranger calls or emails you and asks you for money or financial information, hang up or disregard the message.
1 - bloomberg.com/markets/stocks [10/31/19]
2 - marketwatch.com/story/conflicting-white-house-narratives-raise-doubts-about-tariff-rollback-reports-in-china-us-trade-talks-2019-11-07
3 - tinyurl.com/y6rlmswd [10/30/19]
4 - cnbc.com/2019/10/04/jobs-report---september-2019.html [10/4/19]
5 - investing.com/economic-calendar [10/31/19]
6 - instituteforsupplymanagement.org/ISMReport/NonMfgROB.cfm?SSO=1 [10/3/19]
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.