We believe we are in the first innings of a new investment cycle. As the market transitions from the initial ‘Hope’ phase – driven by the prospect of economic recovery – into the more sustainable ‘Growth’ phase, we may experience volatility as equity returns are likely to moderate. Still, as returns transition from valuation- to earnings-led, the bull market should continue despite near-term risks in policy, the virus, and the economy.
Markets climbed last week on hopes of an economic recovery despite near-term setbacks. In the US, equities stumbled mid-week when President Trump opted out of negotiations for further pre-election stimulus, but ultimately rallied on the prospects of an eventual package. The S&P 500 Index finished the week up 3.89%, and cyclical stocks notably outperformed their defensive counterparts by 45 bps. In Europe, stimulus optimism and stronger oil prices supported equities despite new coronavirus restrictions. Read More
Oil prices jumped as markets turned risk-on and supplies were shut off. Hurricane Delta’s approach limited output in the US Gulf, while a labor strike in Norway limited production in the North Sea, and Saudi Arabia considered production cuts. WTI and Brent crude prices finished the week up more than 9% at $40.60 per barrel and $42.85 per barrel, respectively. Read More
US Treasury yields rose across the curve last week on hopes of fiscal stimulus progress despite a brief mid-week pause. Bond prices fell as investors anticipated that a bill of the magnitude being discussed ($1.5-$2 trillion) would require increased issuance of US government debt. US 2-year and 10-year Treasury yields ended the week 2 bps and 8 bps higher, respectively. Hopes for US fiscal stimulus also helped boost yields in Europe, with yields on the UK 10-year Gilt and German 10-year Bund rising 3 bps and 1 bps, respectively. Read More
The US dollar index slipped last week, falling -0.81% as hopes for further fiscal stimulus measures saw investors moving away from the safe haven currency. In the UK, increasing Brexit pressure ahead of the upcoming October 15 deadline kept the pound range-bound against the USD, ending the week at $1.3037. Read More
Industrial production (IP) in the Euro area and UK was weaker than expected in August following several months of improvement. Euro area IP fell 0.2% from the month prior, but output on the continent has recovered to approximately 90% of pre-crisis levels. In the UK, IP rose 0.7% in August versus expectations for 3.0% month-on-month growth. In China, September’s services Caixin PMI moved up to 54.8 from 54.0 for its fifth consecutive month of improvement, while the Caixin composite PMI slipped to 54.5 due to softness in manufacturing. Read More
Initial jobless claims increased slightly for the week ending October 3, up to 840k against expectations for a decline to 820k. For the week ending September 26, continuing claims fell more than expected to ~11 million, down from nearly 12 million unemployed individuals the week prior. The August Job Openings and Labor Turnover Survey, which is posted with a one month lag, showed that job openings decreased by 204k to 6,493K in August. The hiring rate remained unchanged at 4.2%, the quits rate decreased by one tenth to 2.0%, and the layoff rate decreased by three tenths to 1.0%. Read More
For style performance, Large, Mid, and Small refer to the Russell 1000, Russell Midcap, and Russell 2000 indices, respectively. Value refers to companies with lower price-to-book ratios and lower expected growth values, and Growth refers to higher price-to-book ratios and higher forecasted growth values. Government, Corporate, and High Yield refer to the US Treasury index, the US Corporate Credit index, and the US High Yield index, respectively. Short, Intermediate, and Long refer to the Short, Intermediate, and Long segments of their respective curves. Quality returns refers to the credit quality of asset classes ranging from Government, highest quality, to High Yield, lowest quality.
NFIB Small Bus. (Cons: 101.0, Prior: 100.2)
US Core CPI YoY (Cons: 1.7%, Prior: 1.7%)
UK ILO Unemp. (Cons: 4.3%, Prior: 4.1%)
China CPI YoY (Cons: 1.9%, Prior: 2.4%)
US Jobless Claims (Cons: 825k, Prior: 840k)
Philly Fed Survey (Cons: 14.0, Prior: 15.0)
US Retail Sales MoM (Cons: 0.8%, Prior: 0.6%)
US IP MoM (Cons: 0.6%, Prior: 0.4%)
UMich Cons. Sent. (Cons: 80.5, Prior: 80.4)
“Euro PMI” refers to the Markit Eurozone Composite Purchasing Managers’ Index. “Cons. Conf.” refers to US Consumer Confidence. “GE IFO Business” refers to the German Ifo Business Climate Survey. “New Home Sales” refers to US New Home Sales (MoM). “Dur. Gd. Ord.” refers to US Durable Goods Orders. “UK GDP” refers to the QoQ estimate of the United Kingdom’s Gross Domestic Product for Q3. “Euro M3” refers to the YoY change in the Eurozone’s M3 Money Stock. “US GDP” refers to the estimate of US Gross Domestic Product for Q3. “Pers. Cons.” refers to US Personal Consumption. “UMich Cons. Sent.” refers to the University of Michigan Consumer Sentiment Index. “Japan Core-Core CPI” refers to Japan’s Consumer Price Index (ex- Food, Energy YoY).
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