Well the U.S. mid-term elections came and went. Outcome was as expected. Democrats took control of the House, while Republicans expanded their majority in the Senate. No major policy implications. Political uncertainty reduced, investors can focus on underlying corporate and macroeconomic fundamentals which generally remain positive.
When congress is split (like now), returns still positive
Underpinning U.S. stocks throughout the week were third-quarter earnings reports from 75 additional S&P 500 component companies (nearly 90% have now reported). Year-over-year earnings growth for the index is now 27.9%, the highest growth rate since the fourth quarter of 2010.
A positive week in spite of some profit taking on Friday. Australian dollar still a bit of a headwind.
Rates and Commodities
- 10-Year Treasury yield: -3 basis points to 3.18%
- WTI crude oil: -5.23% to $59.84/bbl.
Oil fell below the key US$60 level. That means U.S. crude is now down by around 20% since early October as rising supply and concerns of a global economic slowdown pressure prices. Fresh U.S. sanctions are unlikely to cut as much oil out of the market as initially expected since Washington is granting temporary exemptions to Iran's biggest buyers. American production has also reached a new record high of 11.6M bbl/day.
- Gold: -1.67% to $1,210.3/oz.
Notable U.S. economic stats this week
- The Institute for Supply Management (ISM) on Wednesday said its non-manufacturing index rose to 61.6 in September, the highest reading on record going back to 2008. Readings above 50 indicates activity is expanding, while a number below 50 signals contraction. Production, new orders and employment all picked up rapidly, with businesses positively affected by robust economic and jobs growth, strong consumer confidence and spending.
- The Producer Price Index (PPI) increased 0.6% for October, well above October’s +0.2% increase. Demand for services (+0.7%) underpinned the increase, the largest advance since January 2016. Core inflation, ex food, energy and trade components, rose a more modest 0.2.
- On 11 November, Alibaba Group Holding (BABA) generated some 213.5 billion yuan (US$30.7 billion) in sales for its annual Singles’ Day promotion - a new record for the company and up 27% from last year. Alibaba, China’s largest company, used a concurrent televised entertainment spectacle featuring Cirque du Soleil and Mariah Carey to promote its shopping websites. Xiaomi Corp., Apple Inc. and Dyson Ltd. products were the top three brands in early sales. The annual retail celebration, originally dedicated to the nation’s unattached, has become an important bellwether not just for the company, but also for China.
Inflation data most important this week. The CPI will be watched closely, especially after the PPI report. Retail sales are expected to show a sharp rebound – important to confirming a strong U.S. economy.
Chart of The Day
Trade and tariffs still an issue. Investors need more clarity going into 2019. Note number of “Tariff” mentions in 3Q earnings calls by industry.
Source: Avondale Asset Management
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