The S&P 500 notched its third straight quarter of gains in 3Q for a total return of ~20% year-to-date. But a closer look reveals a market struggling with uncertainty. Equities have been roughly flat over the past 12 months amid heightened volatility. Bouts of trade optimism and central bank accommodation may continue to support the market, though going forward we expect earnings to be the primary driver of returns.
Markets responded strongly to economic data last week as investors sought direction amid uncertainty. The S&P 500 finished -0.30% lower on disappointing manufacturing data, despite recovering some losses late in the week on the back of more supportive services and jobs numbers. The UK’s FTSE 100 dropped -3.54% as an unexpectedly sharp downturn in services data signaled its economy may have slipped into contraction in September. Across Europe, elevated geopolitical tensions with both the UK (Brexit) and the US (trade) sank the Euro Stoxx 600 -2.92%. Read More
Oil prices fell last week as Saudi Arabia announced that oil production is back at pre-attack levels and global growth fears dragged on market sentiment. Brent prices dropped -5.54%, while WTI fell -5.72% despite a surprise decline in US inventory. Read More
US government bond yields slumped amid concerns about the US economy. The US 2-Year Treasury yield fell -23 basis points (bps) to 1.39% on weaker-than-expected US economic data and increased odds for an additional rate cut in December. Euro zone bond markets struggled with weak economic data, elevated trade tensions with the US, and uncertainty in the ECB’s accommodative policy. The 10-Year German Bund edged lower 2 bps, ending at –0.59% for the week. Read More
Combined headwinds of US economic slowdown worries and global trade tensions brought the US dollar index down -0.22%. The pound sterling jumped on hopes of a Brexit deal passing the UK parliament after the head of a group of Eurosceptic lawmakers in Prime Minister (PM) Johnson’s party, who opposed former PM May’s proposals, said the latest Brexit proposal offered the possibility of a “tolerable deal.” Read More
The US September jobs report reflected underlying economic uncertainties. Positively, the unemployment rate dropped to a 50-year low at 3.5%, surprising economists expecting it to hold 3.7%. Nonfarm payrolls rose by 136k, missing expectations but exceeding the 120k required to maintain the unemployment rate. Wages also disappointed as hourly earnings growth slowed to 2.9% YoY. In the euro area, August unemployment hit the lowest level since May 2008 at 7.4%. Read More
Euro area core HICP rose to 1.02% in September, in line with expectations, though still far below the ECB’s 2% target rate. Read More
The US ISM manufacturing index fell to 47.8 in September, against expectations for a rebound out of contractionary territory. Retesting 2009 lows, the composition of the report was weak as production, employment, and new export orders declined. The ISM non-manufacturing index also declined more than expected in September, though it held in expansionary territory at 52.6. With similarly soft composition, respondents indicated that they were mostly concerned with “tariffs, labor resources, and the direction of the economy.” The S&P 500 tumbled on both reports’ releases. 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.
German IP (Cons: -0.1%, Prior: -0.6%)
US Core CPI (Cons: 2.4%, Prior: 2.4%)
UK IP (Cons: -0.8%, Prior: -0.9%)
Umich Cons. Sent. (Cons: 92.0, Prior: 93.2)
“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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