Markets, Economy

Weekly Kickstart (10/28/2019-11/01/2019)

10/28/19, 8:00 AM

iStock-626627280.jpgStocks continued higher last week, as the S&P 500 rose by 1.22 percent to 3,022.55. That left the benchmark index up 20.57 percent 2019-to-date, and just 0.11 percent below the record close. The bulls remained in control, albeit in a mostly narrow and choppy trading range likely related to institutional repositioning ahead of the next monetary policy announcement from the Federal Reserve. Indeed, after a decade without any easing, the Federal Open Market Committee (FOMC) has now lowered the fed funds rate at two consecutive meetings, and the bond market sees a 94 percent chance of another 25 basis point cut being announced this Wednesday. Prior to last week’s blackout period, recent Fed speeches have sent conflicting signals, with some officials emphasizing how strong the economy still is, and others arguing that additional easing may be appropriate.

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Given that expectations for more accommodative monetary policy have been a big driver of the latest run-up in stock prices, another rate cut is likely already priced into the market, at least in the sense that no easing would probably be poorly received. Of course investors ultimately want an economy that is strong enough to not require highly accommodative monetary policy, but with uncertainty still elevated around the trade war and its negative spillovers, the market will likely continue to prefer more “insurance” cuts over the risk of a policy error. The FOMC is well aware of all of this, and since rising stock prices have also recently appeared very effective at boosting consumer and business confidence, it is unlikely officials will want to disappoint expectations just before the start of the critical holiday shopping season. Exactly how equities will react to what monetary policymakers decide to do this week remains unknown and could depend heavily on the accompanying statement from the committee, as well as chair Jerome Powell’s post-announcement press conference. There are several other potential volatility catalysts for the markets to deal with this unusually busy week, and any regular investors unsure how to navigate this environment should consider consulting with a professional financial advisor. 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 housing inflation pressures eased, new home sales exceeded forecasts, gauges of regional factory activity stabilized, consumer confidence improved, and the number of Americans making first-time claims for unemployment benefits slid to a near half-century low. As for the negatives, mortgage applications fell, existing home sales declined, demand for U.S.-made durable goods softened, and business investment weakened. This week the pace of economic data picks up significantly with lots of important reports on manufacturing, housing, consumers, labor costs, employment, and inflation scheduled to be released. That includes the government’s first official estimate of third quarter U.S. gross domestic product growth due out on Wednesday, and the big October job report from the Labor Department on Friday.

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What To Watch:

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Sources: Econoday, Wells Fargo, CME, FRBSL

Post author: Charles Couch

Disclosures