Market Update: Thurs, Oct 17, 2019 | LPL Financial Research

Daily Insights

Stocks opened higher on Brexit news. Stock futures got a lift early this morning after reports that the U.K. and European Union had reached a Brexit deal (more on that below). U.S. and European stocks are higher on the news, which is helping offset some concerning U.S.-China trade headlines that suggest some risk to the recent “mini-deal.” Market participants will continue to digest a flurry of earnings reports, where overall results so far have fared well compared with expectations. Today’s economic calendar includes U.S. industrial output, the Philly Fed Index, initial jobless claims, and housing starts.

Brexit deal done? It appears an agreement has been reached for an orderly U.K. exit from the European Union, breaking the impasse over Irish border-related issues. However, one big hurdle remains: The deal must win the backing of the Irish Democratic Unionist Party (DUP) to get through the parliamentary process and become law–far from a slam dunk. At this point, a number of options are still on the table if the agreement doesn’t get the needed votes, including another delay, another referendum, or various “textures” of Brexit. The five-month high in the British pound reflects optimism, but comments from DUP leadership this morning do not.

Global economic growth stabilizing? The Organisation for Economic Co-operation and Development’s global Leading Economic Indicators (LEI) indicate the global economic soft patch may persist for another six months, but the slowdown may be limited given global LEIs may have hit a bottom. LEIs for most developed countries have stabilized in the past few months. Despite ongoing trade tensions, China’s LEI is turning up. Overall, these data point to continued global growth through the first half of 2020.

Uncertainty persists on Main Street. Elevated uncertainty has persisted on Main Street, according to the Federal Reserve’s (Fed) latest Beige Book. LPL Research’s Beige Book Barometer, a measure of corporate sentiment derived from the Beige Book, fell in the October 16 edition, and mentions of uncertainty remained at a multi-year high. Even though Main Street sentiment has stabilized after a slide earlier this year, there are still signs of uneasiness over trade tensions. We’ll outline more Beige Book takeaways on the LPL Research blog.

Navigating the markets. Recent progress on U.S.-China trade talks has helped industrial metals’ performance, and we continue to prefer cyclical sectors as the U.S. economic expansion continues. However, we have downgraded our view of energy commodities from neutral to negative/neutral. Find our latest views on equity, equity sectors, fixed income, and alternative asset classes in the new October Portfolio Compass.

 

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