A “better than feared” jobs report helped boost stocks for the week. On Wednesday, the Fed cut interest rates for a third time and indicated it would likely be on hold for at least the remainder of the year. Earnings continue to come in modestly ahead of expectations, helping protect recent market gains.
S&P 500: 3,067 (+1.5%)
FTSE All-World ex-US (VEU): (+1.3%)
US 10 Year Treasury Yield: 1.72% (-0.08)
Gold: $1,514 (0.9%)
EUR/USD: $1.116 (+0.5%)
- Monday – The S&P 500 hit a new all-time high, the first since July.
- Tuesday – In a challenging Senate hearing, Boeing executives admitted the company made mistakes in developing the 737 Max.
- Wednesday – The Fed cut short rates to a 1.5% – 1.75% range and signaled additional rate changes may be on hold.
- Wednesday – US GDP growth for Q3 was reported at 1.9%.
- Thursday – The personal consumption expenditures index, a popular measure of inflation, rose 1.3% from a year ago.
- Friday – The US added 128,000 jobs in October, which was ahead of expectations.
- Friday – Google agreed to buy Fitbit for $2.1 billion.
- Friday – House Speaker Nancy Pelosi said she expects public impeachment hearings to begin this month.
Recently, stocks have reacted positively to news that feels only mediocre to us. Examples include the “phase one” trade deal, slightly negative earnings growth, Q3 GDP and Friday’s jobs report. Why? We believe it is largely a combination of low interest rates and dour sentiment.
Rather than the greed or exuberance one would expect at this stage in a long bull market, most investors fall somewhere between nervous and complacent. It could be that political divisiveness has created a sour mood. Drama at WeWork and losses in some high profile IPOs may also be contributing. Returns from investor tech favorites are mixed with Apple and Microsoft both doing well, but Amazon below its peak last summer.
There is also disconnect between media focus on the S&P 500 returns and the market overall. While the S&P 500 closed the week at an all-time high, the global stock market still remains below a high reached in January of 2018, almost two years ago. Small caps are also down overall. So it could be investors are simply frustrated based on their perception of what is happening in markets versus what is actually happening.
The upside of this pessimism is that good news is a surprise, and even ok news is frequently better than expected. Coupled with ultra-low interest rates globally, this environment provides an open path for higher highs, absent significant new negative developments.