A few rays of sunshine last week. There’s nothing specific behind the global equity bounce that started in the U.S. on Tuesday. The initial move seemed to be some combination of oversold conditions, talk of month-end rebalancing and expectations for renewed support from corporate buybacks. Some strategists have also been defending equities, highlighting a still favourable US economic backdrop and the fact that earnings growth rates may have peaked, but earnings themselves are still strong. Earnings sentiment was helped by signs of stabilisation in results from Facebook.
November 2018 Outlook
- Strong U.S. economic performance is unlikely to reverse and economists continue to highlight very low recession probabilities.
- Corporate earnings will remain strong and revision activity remains positive.
- Corporate buybacks, the biggest source of demand for stocks, will resume.
- Potential for ongoing volatility with midterm elections beginning this week and China / U.S. trade talks. Historically the market has a tendency to outperform through year end in a midterm year regardless of election outcome.
Rates and Commodities
- 10-Year Treasury yield: +14 basis points to 3.22% (Treasury yields roared higher after the strong U.S. jobs report)
- WTI crude oil: -5.7% to US$63.14 (Oil was set for its biggest weekly loss since February as the U.S. reportedly agreed to let eight countries - including Japan, India and South Korea - keep buying Iranian crude after it reimposed sanctions on the OPEC producer)
Industry performance since Trump was elected
Notable U.S. economic stats this week
U.S. consumer confidence rose in October to an almost two-decade high, as Americans expect a strong economy and further jobs growth despite recent stock-market volatility. The Conference Board reported the index of U.S. consumer confidence rose to 137.9 in October, the highest level since September 2000.
Non-Farm Payrolls / Unemployment Rate
Some 250,000 jobs were added to payrolls in October, well above the 190,000 jobs expected. The unemployment rate came in at 3.7%, a 49-year low. Wages increased 3.1% from a year earlier, the biggest year-over-year gain for average hourly earnings since 2009. Employment gains were widespread, including large increases for manufacturing and construction. Manufacturing payrolls, for example, expanded 32,000 in October, the biggest monthly increase this year.
Looking at the economic calendar, much of the focus will be on Producer Price Index (PPI) data. In China, the attention will be on consumer and producer pricing data, as well as trade reports.
Chart of The Day
Tesla is now the largest electric vehicle manufacturer. Tesla stock has rallied some 38 % after a 52-week low on 8 October 2018.
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