Market Update: Thursday, November 1, 2018

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Daily Insights

  • LPL Market Signals Podcast. On the latest episode of the LPL Market Signals Podcast, listen to LPL Financial Chief Investment Strategist John Lynch and Senior Market Strategist Ryan Detrick review the S&P 500 Index’s worst month so far this year, European economic concerns, U.S./China trade issues, and Federal Reserve (Fed) policy. Market Signals by LPL Financial is now available on iTunes, Google Play and Spotify. Please join our discussion on social via #LPLMarketSignals.

  • Difficult month for global equities mercifully comes to an end. Despite a strong finish to October with a Halloween rally, the S&P 500 suffered its worst month in over seven years with a 6.9% decline (6.8% with dividends). But as has been the case virtually all year, U.S. equities held up better than their overseas counterparts. For the month, the MSCI EAFE Index fell 7.9%, while the MSCI Emerging Markets (EM) Index slid 8.7%. A strong dollar, weaker economic growth, and political risk, particularly in Italy, weighed on European equities, while trade tensions and related weaker economic data dragged broad EM equities including China lower.

  • Chinese manufacturing activity slows. For October, the official purchasing managers’ index (PMI) for China dipped to 50.2, down from 50.8 in September, the biggest drop in eight months, and below Bloomberg’s consensus forecast of 50.6. The non-manufacturing PMI also worsened, from 54.9 to 53.9. The broader Caixin measure slightly beat expectations (50.1 vs. 50), but stayed near the expansion-contraction breakpoint of 50. The U.S. trade dispute is clearly having impact–the new export orders component of the PMI signaled contraction in October–but China has responded aggressively and we believe will continue to do so. The Chinese government has discussed or proposed stimulus measures including tax cuts that could potentially total 1% of gross domestic product (GDP) in 2019, as big or bigger than this year’s tax reform boost in the U.S.

  • Europe continues to struggle to produce inflation. Core consumer prices (ex. food and energy) rose just 1.1% in October in the Eurozone on a year-over-year basis. Considering the amount of time the Eurozone has employed highly accommodative monetary policy, it is surprising inflation has stayed this stubbornly low. Low inflation and low interest rates in Europe reflect continued lackluster economic growth, as evidenced by third quarter year-over-year GDP growth reported earlier this week of just 1.7% year over year, and 0.8% quarter over quarter annualized.

  • Good riddance, October. Last month was one of the worst in years for stocks, with the S&P 500 down 6.9% for its largest monthly drop since September 2011. In addition to snapping its 6-month win streak, the S&P 500 fell 16 days for the month, tying the most down days for any month since October 2008–summing up the persistence of the selling. Today on the LPL Research blog we will take a closer look at just how rare last month was and what could happen next.

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Thursday

  • Nonfarm Productivity (Preliminary, QoQ, Q3)
  • Markit US Manufacturing PMI (Oct)
  • ISM Manufacturing (Oct)

Friday

  • Nonfarm Payrolls (Oct)
  • Durable Goods Orders (Sep)
  • Markit Germany Manufacturing PMI (Oct)
  • Markit Eurozone Manufacturing PMI (Oct)


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Index data obtained via FactSet

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