Weekly Market Update – Nov. 5, 2018

Last Week

  • Equity markets recovered from a weak start last Monday, as rumors of easing U.S.-China trade tensions helped boost non-U.S. equities especially in the latter part of last week
  • Another solid U.S. jobs report despite rising wage growth. The jobs added figure jumped from a hurricane-dampened 118k figure in September to 250k in October. The unemployment rate was unchanged at 3.7%.
  • Germany Chancellor Angela Merkel stepped down as leader of the Christian Democratic Union party but hopes to remain as Germany’s chancellor through the end of her term in 2021
  • Bank of England officials are forecasting a smooth Brexit transition that would cause the economy and inflation to run hot
  • 377 S&P 500 companies (75%) have reported earnings thus far, with aggregate y/y earnings growth of 26.5% that is 6.7% above consensus expectations. Revenue growth also remains strong at 8.8% y/y.

This Week

  • About a quarter of S&P 500 companies left to report earnings. The majority of companies yet to report results in the 3Q2018 earnings season lie in the consumer discretionary, information technology, and health care sectors. Companies in focus this week include DuPont (DD) on Tuesday and Walt Disney (DIS) on Thursday.
  • The U.S. votes in midterm elections on Tuesday, with many polls showing that Democrats will capture the House and Republicans will retain their Senate majority. A major financial market reaction is not anticipated – even with the potential changes in control.
  • Though expectations for a rate hike are very low, markets will pay close attention to the language in the policy statement from Thursday’s Fed meeting. The Fed hopes to continue on a path of gradual rate increases, as it gauges the inflation outlook as well as potentially considering stresses that tightening policy places on financial markets and the economy. Despite recent equity market volatility, Fed funds futures have been fairly unchanged and continue to show about a 75% probability of a December Fed rate hike.

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