Markets see new all-time highs

Market Recap Week ending 11/1/2019

The S&P 500 and NASDAQ inked new all-time highs last week on the back of the Federal Reserve, cutting the Fed Funds rate, constructive tones on the completion of Phase 1 in trade negotiations between the US and China, on a healthy employment number, and continued better than expected earnings.  The S&P 500 gained 1.47%, the Dow was higher by 1.44%, the NASDAQ increased 1.74%, and the Russell 2000 outperformed with a gain of 1.96%.  US Treasuries also forged gains during the week.  The 2-year note yield fell six basis points and closed at 1.56% while the 10-year bond yield fell seven basis points to close at 1.73%.  Gold gained ~ $6 on the week to close at $1511.10 an Oz.  Oil lost a fraction with WTI closing at $56.21 a barrel.  We had a few changes in our Core Satellite product last week.  We sold some of our Investment-grade debt, reduced exposure to mid duration bonds, and slightly reduced our exposure to the S&P 500.  We added positons in international equities, international real estate, and US real estate.  Please let us know if you have any questions regarding these changes. 

As expected, the Federal Reserve cut its benchmark interest rate range by 25 basis points last week.  However, more importantly, the Fed Chairman indicated the Fed would likely take a pause in making further interest rate cuts and also suggested that a rate hike in current inflation environment was unlikely.  The announcement and subsequent Q&A were welcomed by investors who sent stocks and bonds higher. 

Doubts of a comprehensive trade deal between the US and China were voiced by senior Chinese officials last week, but those negative tones were somewhat diminished by news that both sides were close to agreeing on Phase 1 of the accord.  The two sides were earmarked to sign the initial agreement in Chile at the APEC summit, but due to ongoing protests within the country the summit was canceled.  Markets took the canceled summit in stride after reassurance that the two sides would meet later in the month at a different venue. 

The October employment report came in much better than expected on Friday.  A headline number of 128000 jobs was well ahead of the 80000 consensus estimate.  There were also notable upward revisions for September and August. Of note, the better than expected results came as an estimated 42000 jobs were lost due to the GM strike.  Additionally, the ISM Manufacturing Index for October came in just below the consensus estimate of 48.7% at 48.3%.  The reading still indicates that manufacturing is in contraction, but when compared to the prior months 47.8% reading it shows the pace of contraction slowing. 

Finally, on the margin earnings results continued to be better than expected.  Exxon Mobile, Google (Alphabet), FaceBook, and Apple all had strong showings with the latter helping all of its supply chain rally. 

Darren Leavitt, CFA Portfolio Manager & Sr. Market Analyst