What Happened Last Week
- New All-Time High: S&P 500 notches new all-time highs and posted gains for the sixth consecutive week.
- Price Action: Financials, value, and small-caps outperformed the tech-heavy NASDAQ 100 on strong financials earnings and beat on retail sales.
- U.S. Politics: Some price action may be attributable to the rise of Trump and the “Republican Sweep” betting market odds.
What We’re Watching This Week
- Earnings: ~20% of the S&P 500 reports this week.
- PMI Surveys: U.S. and global business sentiment surveys offer key updates on growth trajectories.
- China: Markets are closely watching official press releases and the impact of their rate cut over the weekend.
Investment Management Team’s Views
- Strong earnings reports and an upside surprise to September’s retail sales data drove the S&P 500 to another all-time high as the index finished its sixth straight week of gains. Upbeat releases from many large and regional domestic banks helped value and smaller cap stocks edge out the tech-heavy NASDAQ 100 last week. Meanwhile, international stocks fell as incremental easing announcements from China and the third rate cut of the year by the European Central Bank were not enough to satisfy investors. The trend of higher yields and a steeper curve in the U.S. took a healthy pause in relatively quiet fixed-income trading.
- Many in the market are attributing the recent moves in stocks and bonds to the shift in betting odds in favor of Republicans for the looming election. No doubt election odds have something to do with it, but we don’t think they are the primary driver; better growth data and upside earnings surprises from the banks are the more likely cause, in our view. Additionally, the policy and economic backdrop and the market’s perception of the probable winner look nothing like 2016. With just over two weeks to go in a very tight race, we think this is setting markets up for some potentially counterintuitive price action in the near future.
- About 20% of the S&P 500 reports this week, with a heavy focus on Industrials, a few names important to the AI theme, and Mag-7 member Tesla. In Europe, earnings from consumer-focused companies will be heavily scrutinized after Louis Vuitton’s poor report last week. Forward-looking business sentiment surveys in the U.S. and other major economies will be a helpful update on the trajectory of global growth. Lastly, markets continue to feast on every press conference and official release out of China, although we may need to wait for the National People’s Congress meeting in 2-3 weeks for the much-anticipated stimulus number.
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