Market Digest – Week Ending 11/7
The US continues to separate from the rest of the world. Friday’s jobs report illustrated the contrast. Unemployment dropped to 5.8% even as the labor force grew. Average hourly wages ticked up a respectable 2%. Investors also viewed the Republican surge in Tuesday’s midterm elections favorably. The S&P finished with 0.7% gain for the week while the FTSE All World ex US Index lost 1.9% in dollar terms. Increased tensions in Ukraine were largely overlooked by markets but could become more impactful again soon if conditions worsen. Bonds were relatively flat.
S&P 500: 2,032 (+0.7%)
FTSE All-World ex-US: (-1.9%)
US 10 Year Treasury Yield: 2.30% (-0.03%)
Gold: $1,171 (-5.4%)
USD/EUR: $1.245 (-0.8%)
- Monday – JP Morgan said the Justice Department is conducting a criminal investigation related to prior foreign exchange practices.
- Monday – The US denounced elections held over the weekend in Ukraine by Russian backed separatists as “illegitimate”.
- Monday – Saudi Arabia cut oil prices for supply headed to the US, driving prices to three-year lows.
- Tuesday – Apple sold $3.5 billion of Euro denominated debt at rates of 1.08% to 1.67%.
- Tuesday – Republicans scored big in mid-term elections, gaining control of the Senate and winning close governor elections in Florida and Wisconsin. The GOP now has a majority in both houses.
- Thursday – The Euro fell to a two year low after ECB President Draghi said the bank expects to massively expand the size of its balance sheet.
- Thursday – Home Depot said a hacker gained access to its systems in April, potentially compromising 56 million credit cards and 53 million email addresses.
- Friday – Non-farm payrolls grew by 214,000 in October, lowering the unemployment rate to 5.8%, the lowest since 2008.
Americans can be passionate about politics, often assuming their party of choice is “better” for the economy and stock market. In reality, there is little evidence either party generates higher returns for investors. Obama and Clinton’s time in office has coincided with huge returns in the S&P 500, while the same can’t be said for George W. Bush. But it is hard to say how much credit they deserve and how much is a function of lucky (or unlucky) timing around economic cycles.
One school of thought believes the best situation is a divided government that gets little done. The thinking is major legislation hurts some and helps some – but investors and companies suffer more from losses than they get from gains. Less legislation also usually means less government spending, which may (or may not) be a good thing.
If you subscribe to this theory, the mid-term elections were moderately bullish. Republicans will now control both houses of Congress while Obama finishes his term. Major legislation is highly unlikely. But it does set the stage for a very interesting 2016.