Markets, Economy

Weekly Kickstart (09/30/2019-10/04/2019)

9/30/19 8:00 AM

iStock-626627280.jpgStocks remained under pressure last week, as the S&P 500 fell by 1.01 percent to 2,961.79. That still left the benchmark index up 18.15 percent 2019-to-date, and just 2.12 percent below the record close. Even after the latest pullback, the current YTD gain is well above average. However, the S&P 500 is only 1.06 percent above its 2018 high-water mark, which some traders argue is why stocks may not be as “overbought” as others would suggest. Many investors also remain bullish domestic equities in part because of the recent improvement in incoming economic data. In fact, a new global fund manager survey by Bank of America Merrill Lynch found that the U.S. has now replaced emerging markets as the top-cited destination for equity investors to put their money to work. Similarly, last week’s AAII survey revealed that 29.37 percent of individual investors believe U.S. stock prices will generally rise over the next six months, up markedly from 21.66 percent in early August. At the same time, only 33.26 percent of respondents expect stock prices to decline over the next half a year, a big reversal from 48.20 percent just seven weeks ago.

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Challenges remain, though, and the U.S.-China trade war was unsurprisingly the most frequently cited tail risk that fund managers in the BofAML survey are worried about currently. Thirty-eight percent of respondents even said that they think the trade dispute is the “new normal” and that an accord will not be reached, perhaps highlighting the upside potential of a substantive deal announcement. Other concerns cited in the fund manager survey included waning monetary policy effectiveness and a bond market bubble, but seasonality is possibly the more immediate risk. Indeed, today is month- and quarter-end, so institutional rebalancing could exacerbate volatility in the near-term. Further, October is still a part of the historically weakest 3- and 6-month periods for the S&P 500 since 1928 in terms of average returns, but on the bright side, November will mark the beginning of the strongest 3- and 6-month periods for equities. Of course past performance does not guarantee future results, and even if stocks continue higher it does not necessarily mean it will be smooth sailing for the markets. Any regular investors unsure how to navigate this environment should consider working with a professional financial advisor and as always, we are here to help with any questions you may have.

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To recap a few of the things we learned about the economy last week, the positives included that new home sales jumped, pending home sales rebounded, income growth strengthened, demand for U.S.-manufactured durable goods increased, and the number of Americans making first-time claims for unemployment benefits held near the cycle low. As for the negatives, the nation’s trade deficit (in goods) widened, mortgage applications declined, real estate and household inflation firmed, consumer confidence weakened, consumption growth eased, core capital expenditures unexpectedly decreased, and gauges of regional manufacturing activity continued to send mixed signals. This week the pace of economic data picks up with several important reports on factory output, construction spending, the U.S. service sector, small business, and employment scheduled to be released, along with a handful of speeches from Federal Reserve officials. The standout data point this week will be the September job report from the Bureau of Labor Statistics due out on Friday. The August payrolls report was arguably a disappointment so the September figures could either alleviate or solidify concerns about the underlying strength of the U.S. labor market, and in turn the sustainability of the record-long economic expansion in America.

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What To Watch:

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Sources: Econoday, BofAML, AAII, Twitter, FRBSL

Post author: Charles Couch

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