Weekly Update—Stocks Take a Breather After a Tough Month

US: S&P 500 Index +2.4%, Dow +2.4%, Nasdaq +2.7%
Europe: STOXX Europe 600 +3.3%, German DAX +2.8% France CAC 40 +2.7%, U.K. FTSE 100 +2.52%
Asia: Japan Nikkei +5.0%, China Shanghai Composite +3.0%, Korea KOSPI  +3.4%
Rates/Commodities: 10-Year Treasury yield +14 basis points to 3.22%, WTI crude oil -5.7%, COMEX gold +0.0%

U.S. stocks’ best week in six months capped an otherwise rough October for U.S. equity investors. The S&P 500 Index climbed 2.4% during the week, its biggest weekly gain since May, as the benchmark rebounded to close the month down 6.9%. The S&P 500 also gained more than 1% for three straight days, the first such streak since June 2016 (after the Brexit vote). Investors re-assessed risk following hawkish comments from the Federal Reserve (Fed) that implied that interest rates were far from neutral, and concerns of slower global growth amid trade tensions between U.S. and China. However, LPL Chief Investment Strategist John Lynch noted “While we may not again achieve the near 5% growth seen in the second and third quarters of 2015, we think the expansion is durable at least into 2019—and possibly beyond—as the growing impact of deficit-financed stimulus and deregulation outpace headwinds from trade, slower global growth, and Fed tightening.” Despite the weakness seen through most of October, earnings releases certainly were not a cause of the weakness, with 74% of S&P 500 companies having reported, putting the index on pace for 24.85% blended earnings growth rate for the third-quarter, according to FactSet.

International stocks rose during the week, closing out a losing October. The MSCI EAFE Index climbed 2.7%, while the MSCI Emerging Markets Index jumped 3.4%. Trade tensions continued to weigh on Chinese data, as the official purchasing managers’ index (PMI) dipped to 50.2, the largest drop in eight months. In Europe, a renewed appetite for risk assets from encouraging trade news overshadowed signs of weakening economic growth. Third-quarter Eurozone gross domestic product (GDP) grew at the slowest pace in four years, while Markit data showed Eurozone PMI fell to the lowest level since August 2016.

In the week ahead, earnings season begins to wind down for S&P 500 companies, though 78 are still set to report. Looking at the economic calendar, much of the focus will be on producers, as Markit PMI data and Producer Price Index (PPI) data is slated to be released next week. It’s a quiet week for economic releases in Europe, although the U.K. will be releasing headline GDP figures for the third quarter. In China, the attention will be on consumer and producer pricing data, as well as trade reports. Track these and other important events on our Weekly Global Economic & Policy Calendar.

 

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