Market Update - October 29, 2019Submitted by Jodi Vleck , Beta Wealth Group on October 28th, 2019
For the week ended 10/25, U.S. stocks gained ground driven by better-than-expected corporate earnings growth and improved sentiment/optics surrounding a US-China trade deal. By sector, energy, technology and industrials sectors ended with the strongest gains, up 2-4%, with the energy sector being helped by the recovery of oil prices and the industrial sector helped by behemoths such as Boeing and Caterpillar reporting lackluster but better-than-expected earnings. Consumer discretionary equities brought up the rear, led by a soft earnings report from online retailer Amazon.
Thus far, with respect to Q3 earnings and 40% of companies in the S&P 500 having now reported, 80% of companies have exceeded earnings estimates (per FactSet) with overall year-over-year earnings growth period remaining negative, at -3.7%, precipitated by the 40% decline in earnings for the energy sector and the 10% earnings decline for materials.
Foreign stocks fared largely in line with U.S. equities, helped by more positive sentiment involving the U.S.-China trade stalemate, with the U.K. faring surprisingly well given the likely extension of the upcoming October 31 Brexit deadline by several more months, and the decision of the European Central Bank to keep interest rates unchanged. Q3 European earnings season also kicked off stronger than expected, and while Manufacturing PMIs in Europe and Japan remain in contractionary territory, they appear to be flattening or improving from trough levels. Due in part to the trade impact, emerging markets fared slightly better than developed led by commodity producers Brazil and Russia, along with stronger energy prices.
U.S. bonds were generally flat to slightly negative for the week, with the yield curve steepening slightly at the longer end of the yield curve, even as risk-focused assets such as high yield and floating rate bank loans outperformed as expected. Foreign debt was mixed with a stronger dollar holding back developed market sovereigns, while emerging market bonds fared positively, especially local currency denominated debt.
Real estate markets posted flat to slightly negative returns for the week, underperforming broader equity markets, with declines in healthcare REITs offset by stronger performance in retail/mall REITs; European REITs fared worse than their counterparts from other regions. Commodities rose across the board despite the headwind of a stronger dollar, with the price of crude oil rising by over 5% to a shade under $57/barrel, following reports of falling U.S. rig counts and potential extensions of OPEC output cuts.