New Fed Chair Likely

October 30, 2017

Large Cap US equities continued their advance last week on the heels of better-than-expected company earnings and a positive GDP reading. With a little less than half of the S&P500 constituents having reported, the blended estimate of aggregate y/y earnings growth is 5.3%. The revenue projection for the quarter is 4.8%. The US economy grew at a faster-than-forecast pace of 3.0% in the third quarter, easily beating economists’ estimates of 2.5%. Hurricanes Harvey and Irma were expected to have a negative impact of growth.

For the week, the DJIA increased 0.45% while the broader-based S&P 500 climbed 0.23%. Growth oriented equities provided the boost as a number of mega-cap technology stocks reported strong earnings including AMZN, GOOG, and MFST. Small Cap US companies representing the Russel 2000 finished the week slightly down. International equities also finished the week in the red with the MSCI EAFE 0.34% lower and emerging markets down 0.84%. Yields again pushed higher with the 10YR Treasury closing at a yield of 2.42% … which is up from 2.38% the week prior. Yields should remain volatile as the nomination of the next Fed chair is expected any day.

As mentioned above, the nomination of the next Fed chair (and possibly vice chair as well) is expected any day. The nomination appears to be down to four candidates (there are some reports than current chair Janet Yellen is no longer in the running). Stanford University economist John Taylor and Former Governor and Hoover Institute Fellow Kevin Warsh are perceived to be on the more hawkish end of the spectrum and their nomination could pressure rates in the short-term; while Fed Governor Jerome Powell and current chair Janet Yellen are seen as more dovish and a continuation of current policy. None of the candidates to this point are likely to make a knee-jerk direction change to current policy but their perceived biases could increase market volatility in the short-term.

“Out of difficulties grow miracles.”Jean de la Bruyere