Market Update: Tues, Nov 5, 2019 | LPL Financial Research

Daily Insights

The S&P 500 posts another all-time high. The S&P 500 Index closed just above 3078 yesterday, putting the index up just under 25% year to date on a total return basis. A more supportive Fed, increased optimism on trade, and a better-than-feared earnings season have all been supportive of gains. While the market may be starting to get a bit ahead of itself, making it more vulnerable to downside catalysts in the short term, we believe that near-trend economic growth, further gains in corporate earnings, and a supportive stance from global central banks may continue to support stock gains.

10-year yield bounces back. The 10-year U.S. Treasury yield slid eight basis points (0.8%) last week, ending a three-week rally that was the benchmark’s longest since September 2018, but has quickly bounced back. Long-term yields popped again on November 4 and are posting further gains this morning on optimistic trade headlines, suggesting the United States and China are making plans to meet face-to-face in November. The 10-year yield has pushed higher on increased risk appetite globally as trade and geopolitical tensions have eased. However, there’s still a long list of unresolved global issues, so it may take a while for the 10-year yield to creep back up above 2%.

More steepening. The Treasury yield curve continues to steepen, even though the overall shape is still historically flat. The spread between the 3-month and 10-year yields has climbed to an eight-month high, while the spread between the 2-year and 10-year yields has hovered around a three-month high. We’re encouraged by the recent steepening, and we think the Fed’s easier policy has played a key role in instilling confidence in markets. We’ll continue to monitor the yield curve’s shape, especially amid clues that the Fed is pausing rate cuts.

What happens next? The S&P 500 was up more than 20% for the year heading into the historically two most bullish months of the year for stocks. This leads to the big question, what could happen next? Since 1950, there have been seven other times the S&P 500 was up more than 20% heading into November, and November was actually higher every single time. Additionally, continued gains in December are quite normal. We will take a closer look at this potentially interesting development today on the LPL Research blog.

NEW Market Signals podcast. In Stocks Back At New Highs, we discuss the S&P 500 Index’s new all-time high, rate action by the Federal Reserve (Fed), and why we think seasonal tailwinds could blow our way for 2020. This 20-minute podcast is approved for use with clients. To listen to previous podcasts go to Market Signals podcast.

 

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