A smaller-than-expected decline in S&P 500 Q2 EPS at -0.4% reflected the moderating yet resilient expansion. While the earnings growth rate has likely peaked, we believe EPS levels will reach new highs this year and next. Historically, a peak in earnings growth has not marked the beginning of the end for investors. Strong returns have often followed, with positive returns 91% of the time over the subsequent two years.
Stock markets moved higher last week as trade developments improved investor sentiment. Officials from the US and China agreed to resume negotiations in October just days after a 15% tariff on $125 billion of Chinese goods went into effect on September 1. The MSCI China index rose 3.04%, driven by this optimism. The S&P 500 rose 1.83%, boosted by a jobs report suggestive of long-term economic health. European stocks gained on global tailwinds while Brexit-related uncertainty was a drag on the FTSE 100, which ended the week up just 1.20%. Read More
Oil prices rose last week as an improving global economic outlook undergirded a favorable technical environment. US crude stockpiles dropped nearly twice as much as expected and active rig counts declined, helping WTI prices gain 2.58%. Brent crude rose 1.84% as OPEC and Russia increased production in August, weighing on prices. Read More
While the 2-Year Treasury yield slumped midweek to its lowest level in two years, 10-Year yields climbed on the back of renewed trade talks, ending at 1.53% and 1.55%, respectively. In Europe, weak German economic data and an unsuccessful attempt by PM Johnson to push for a ‘no-deal’ Brexit led to German Bund and UK Gilt yields rallying 6 bps and 3 bps, respectively. Read More
The US dollar index hit a two-year high then retreated after a weak US manufacturing data release, closing the week down -0.53%. Meanwhile, the euro strengthened slightly against the USD after Italy’s favorable coalition outcome lifted investor sentiment and helped circumvent a general election. The GBP/USD rate fell below $1.20 for the first time in almost 3 years, rocked by Brexit confusion, before reversing to end up 1.16%. Read More
Global data was mixed with underlying indicators showing trade effects. August’s US ISM manufacturing index declined to 49.1, against expectations for a slight increase. With production, new orders, and employment components all falling below 50, the index breached contractionary territory for the first time since 2016. Chinese manufacturing PMI rose to 50.4 in August, expanding for the first time since May and beating consensus expectations. Underlying indicators showed stronger production, better employment growth, and potential export front-loading ahead of new tariffs. Read More
A mixed August US jobs report reflected tensions underlying the late-cycle, trade-uncertain economy. The headline unemployment rate held steady at 3.7% as expected, remaining near 50-year lows. Average hourly earnings beat expectations, rising 0.4% from July and 3.2% year-on-year. However, total nonfarm payrolls disappointed, growing by 130k vs. 150k consensus. The weakness reflected private businesses' response to slowing growth and trade concerns, as well as a temporary boost in federal payrolls from workers being employed in preparation for the 2020 census. 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.
UK IP MoM (Cons: -0.3%, Prior: -0.2%)
US Core CPI YoY (Cons: 2.3%, Prior: 2.2%)
US CPI YoY (Cons: 1.8%, Prior: 1.8%)
Euro area IP MoM (Cons: -0.1%, Prior: -1.6%)
ECB Deposit Rate (Cons: -0.5%, Prior: -0.4%)
“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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