11/5/19 Market Notes
Strong enough earnings, slightly better than forecast economic data, expectations of some form of a trade deal between the United States and China, along with a general feeling that a recession is unlikely to materialize in the near term helped lift major stock indexes to new all-time highs.
The S&P 500 closed up 11 points (0.37%) as seven of the eleven sectors comprising the index rose, led by a 3.15% gain in energy. Fixed income markets also reflected the renewed confidence in the economy as the benchmark Ten Year Treasury yield rose above 1.8%, amidst a broad sell-off of safe-haven assets. Looking ahead, this morning’s Trade Deficit figure and the ISM non-manufacturing and Markit Services indexes are the key economic data releases to sustain the rally as premarket equity futures point to a higher open.
The rally, while uneven, is helping push international bourses higher as well. The Nikkei Average is up nearly 2% overnight, while its Chinese counterparts are enjoying an approximate 1% rally. European shares are also broadly higher, albeit much less so, as geopolitics and weak economic data continue to weigh on the investor sentiment.
Earnings season is still in full swing, with nearly 300 companies reporting earnings today and another 395 reporting tomorrow. According to research firm FactSet, 71% of the S&P’s constituents have reported third quarter earnings. Of these, 76% have surpassed analysts EPS estimates and 61% have exceeded sales forecasts. On a blended basis, earnings have declined 2.7% year-over-year, better than the forecast 4% y-o-y decline. The forward P/E of the S&P 500 remains well above its 10 year average at 17.2X. However, given the low interest rate environment, expectations of continued accommodative monetary policy, and good reason for an expectations of higher earnings in 2020, this metric may not be as relevant as in past years.
The 1879 Advisors Investment Committee
Disclosures: This market commentary is written by the 1879 Advisors Investment Committee and represents the views of 1879 Advisors. This commentary is not investment advice and should not be used as a basis to make investment decisions. Please consult with your registered investment advisor before making any investment decisions.