October Market-Movers – An Overview
After a slow start, global equities marched higher in October, driven again by central bank monetary policy and encouraging signs in trade discussions with China. The Fed cut rates for a third time, but signaled there would be a pause to gather more data. This was sufficient to appease investors who have grown dependent on low interest rates but also increasingly wary of negative rates overseas. Corporate earnings also supported prices. Absolute growth is trending toward a roughly 3% decline from last year, but this is still ahead of expectations. Profits are expected to resume growth in Q4.
How is Investor Sentiment?
In our view, the reaction to earnings is a prime example of the advantage of widespread pessimism. Despite low unemployment and a long bull market, most people seem to be either complacent or scared. Many believe recession is imminent despite relatively little direct evidence of that. This creates an environment where no bad news ends up being good news for stocks, especially when the primary alternatives are low yielding bonds.
On The Trade War
On trade, the framework for a “phase one” deal was outlined, indicating a pause or minor cut in existing tariffs in exchange largely for increased agricultural purchases. The fact that the two sides are having constructive conversation is a positive, but in our view the real issues lay around intellectual property and forced technology transfers, which will be thornier subjects to tackle. We see equal upside and downside risk from trade for the remainder of the year.
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