Weekly Update – Geopolitics Overshadow Earnings, Economic Data

US: S&P 500 Index +0.0%, Dow +0.4%, Nasdaq -0.6%
Europe: STOXX Europe 600 +0.6%, German DAX +0.3% France CAC 40 -0.2%, U.K. FTSE 100 +0.4%
Asia: Japan Nikkei -0.7%, China Shanghai Composite -2.1%, Korea KOSPI  -0.3%
Rates/Commodities: 10-Year Treasury yield +4 basis points to 3.19%, WTI crude oil -3.8%, COMEX gold +0.6%

So far, October continues to live up to its reputation for being a volatility-laden month, with stocks again failing to sustain early-week gains as investors mostly shrugged off a strong start to third-quarter corporate earnings season in the U.S., which is thus far tracking to grow 19.4% year over year. Instead, the focus was on overseas headlines and potential implications of the minutes of September’s Federal Reserve policy meeting.

The S&P 500 managed to cling to weekly gains thanks in part to Tuesday’s session, which saw the S&P 500 Index, Dow, and Nasdaq all post their biggest one-day advances since March amid widespread buying. A series of economic data throughout the week that included reports on the housing market, industrial production, and retail sales indicated the U.S. economy remains on solid footing, though the data overall failed to impress. Minutes from the Federal Reserve’s September policy meeting contributed to broad equity weakness on Thursday; commodities also sank as the U.S. dollar strengthened after the documents indicated policymakers discussed letting rates eventually rise above the neutral rate (and into restrictive policy territory). Per LPL Chief Investment Strategist John Lynch, “The S&P 500 had a rough ride over the past couple weeks, but we remain optimistic on domestic equities, especially given the bright outlook for corporate profits and the continued benefits of fiscal policy amid a backdrop of strong economic growth.”

Geopolitics grabbed most of the headlines overseas. None of it was particularly encouraging, though regional indexes in Europe managed respectable gains on the week. In the U.K., Brexit talks stalled ahead of this week’s European Union (EU) Summit; economists still see a roughly 20% chance that a final deal fails to come to fruition. In Italy, stocks fell for a fourth straight week after the EU Commission rejected government officials’ 2019 budget proposal. Meanwhile, a 2.6% rally in the Shanghai Composite overnight failed to lift the index, or regional benchmarks, into positive territory for the week. The index has been hovering near four-year lows amid ongoing concerns about the government’s efforts to shore up economic growth in the face of the trade spat with the U.S., the expanded use of shares being posted as margin collateral, and mounting debt levels that are being compounded by the impact of rising interest rates.

Looking ahead, housing market data continues with U.S. pending home sales. Also look for durable goods orders and preliminary third-quarter U.S. GDP figures to garner attention. Overseas, a host of purchasing managers index (PMI) data is expected to be released out of Europe, as well as leading index data out Japan. Track these and other important events on our Weekly Global Economic & Policy Calendar.

 

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