Market Digest – Week Ending 10/23
Indications that the European Central Bank may expand its bond buying program, strong earnings by a trio of technology giants (Alphabet, Amazon and Microsoft), and a rate cut in China drove stocks higher. The S&P 500 gained over 2%, but the rally was narrow in breadth – both small cap US stocks and emerging markets stocks barely moved. Bonds, gold and oil fell.
S&P 500: 2,075 (+2.1%)
FTSE All-World ex-US: (+1.1%)
US 10 Year Treasury Yield: 2.09% (+0.06%)
Gold: $1,162 (-1.3%)
USD/EUR: $1.102 (-2.9%)
• Monday – A two minute trailer for the upcoming new Star Wars movie was shown at halftime of Monday Night Football and immediately went viral, racking up 10 million views in just 15 hours.
• Tuesday – Oprah Winfrey announced a 10% stake in Weight Watchers. Shares more than doubled, earning Winfrey a paper profit of at least $50 million.
• Wednesday – Ferrari had successful IPO. Shares rose 13%, valuing the company at $10 billion.
• Wednesday – Shares of Valeant Pharmaceuticals plunged 35% for the week after a negative research report raised questions about how it books revenues.
• Thursday – Hillary Clinton endured a day-long congressional hearing about the Benghazi attacks. By most accounts she performed well and moved toward putting the issue behind her.
• Thursday – ECB President Draghi said the bank will leave rates unchanged and signaled that it may increase its already massive bond buying program.
• Thursday – McDonalds reported stronger than expected earnings. Shares rose 7%.
• Thursday – NASDAQ acquired Second Market Solutions, a startup that facilitates trading of private companies.
• Thursday – The Treasury cancelled a sale of 2 year debt amid concerns Congress won’t act in time to raise the debt ceiling.
• Friday – Tech giants Alphabet (Google), Microsoft and Amazon beat earnings expectations, driving stocks higher.
Huge earnings results from Alphabet (Google), Amazon and Microsoft captured most of the headlines, and were a positive sign, but indications of accommodative monetary policy in Europe and China were probably the most important drivers of gains in stocks this week. This huge bull market has been fueled by central bank activity and even if the Fed is looking toward tightening, on a global basis more stimuli is still to come. It is a good reason to believe international stocks may start to close the wide performance gap with the US which has been created over the last 8 years.
Turning back to tech earnings, it is worth noting that companies with big cloud presence continue to gain momentum while more traditional players like IBM, Oracle and EMC are struggling. While largely priced into stock valuations, this trend won’t stop.
If there was a dark spot this week, it was that the US inched closer to the debt ceiling with no major signs of progress. The country is expected to run out of money under the current ceiling as soon as November 3rd. Markets clearly expect a last minute resolution as we have seen in the past, and so do we, but it is a potential short term risk.