Investment Commentary – October 30, 2018

Year to Date Market Indices as of Market Close October 30, 2018
Dow 24,874 (0.63%)
S&P 2,682 (0.34%)
NASDAQ 7,161 (3.74%)
Gold $1,224 (-7.86%)
OIL $66.35 (14.67%)
Barclay Bond Aggregate (-1.99%)
Fed Funds Rate 2.25% (last increase was 9/26/18)

Stocks rally to close higher after Monday’s big reversal

Stocks closed higher Tuesday as President Donald Trump signaled that the U.S. is ready to reach a deal to ease trade tensions with China, giving the market some much-needed relief.
However, trading was volatile with the indexes choppy a day after the Dow Jones Industrial Average staged an ugly reversal to end the session with a triple-digit loss, partly on the back of tariff worries amid fears about global growth and peak earnings.

How did major benchmarks fare?

The Dow DJIA, +1.77% rose 431.72 points, or 1.8%, to 24,874.64; the S&P 500 index SPX, +1.57% gained 41.38 points, or 1.6%, to 2,682.63; and the Nasdaq Composite Index COMP, +1.58% climbed 111.36 points, or 1.6%, to 7,161.65.

On Monday, all main indexes finished sharply lower, with the Dow swinging more than 900 points. The reversal added to the market’s October woes, with the blue-chip index down about 6% month-to-date, while the S&P 500 is off 8% and the Nasdaq has fallen 11%.

What drove the market?

Stocks have entered a decidedly more volatile phase of trade, fueled by myriad concerns, with doubts about the health of the global economy chief among them.
Moreover, shares of companies that have done the most to help drive the U.S. stock market to repeated highs have come off the rails. So-called FAANGs, the acronym referring to technology and internet-related giants Facebook Inc. FB, +3.99% , Inc. AMZN, +1.21% , Apple Inc. AAPL, +0.56% , Netflix Inc. NFLX, +1.42% and Google-parent Alphabet Inc. GOOGL, +0.90% GOOG, +1.58% were all trading sharply lower for the month. Amazon on Monday fell into bear-market territory, wiping out about $120 billion in market value in two trading sessions.

The composite purchasing managers’ index (PMI) for the eurozone fell to 52.7 in October. Although this is still consistent with expansion it is a considerable fall from the 58.8 seen in January of this year. Not all the indicators of eurozone activity are so disappointing. Loan growth to non-financial corporates for September picked up to 3.1% year on year – the highest since 2009. The European Central Bank (ECB) is scheduled to end net asset purchases by the end of this year, but has committed to maintain interest rates at current levels until at least the summer of next year. Markets are increasingly concerned that trade tensions and/or a global slowdown will prevent the ECB from normalizing policy at all. In which case, negative interest rates may continue to weigh on the financial sector, which dominates many of the European stock markets.

Around the web

October retreat: For the second time in three weeks, major stock indexes posted steep declines, and the S&P 500 and Dow turned slightly negative year to date on a price return basis. The NASDAQ remained positive for 2018, but it was about 12% below its record high reached on August 29, putting that index in correction territory.

GDP strength: In a further sign that a recession is unlikely in the short term, the U.S. economy generated its strongest back-to-back quarters of GDP growth since 2014. The government’s initial estimate of third-quarter growth was 3.5%—down from the second quarter’s strong 4.2% pace, but slightly above most economists’ expectations.

Hit from all sides: The negative factors for stocks were wide ranging in the latest week. Among the headwinds were disappointing earnings and revenue guidance from key technology companies, worries about further U.S.-China trade tariffs, continued economic weakness in China and Europe, anxiety over U.S. interest-rate hikes, and the aging of a bull market that’s almost 10 years old.

Other Notable Indices (YTD)
Russell 2000 (small caps) -2.85
EAFE International -10.78
Emerging Markets -14.49
Shiller Annuity Index 4.34

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.

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