Weekly Commentary (10/21/19) – Markets Tread Water

October 21, 2019

Markets continued to tread water last week as the general economic backdrop remains mostly positive. Headline news, as usual, seems to be holding the markets back from moving higher.

We are right in the midst of 3rd quarter earnings season, and 81% of companies reporting have reported better-than-expected earnings. Last week saw positive commentary from the banks as they got the 3rd quarter earnings season started.

Economic news released last week was mixed. On Wednesday, the U.S. Commerce Department reported that retail and food-services fell 0.3%; however, August’s number was revised upward. On Thursday, the U.S. Census Bureau reported that housing starts fell in September to a seasonally adjusted annual rate of 1.387 million – up 1.6% from the same time last year. Building permits were better-than-expected and are up 7.7% year-over-year. Also on Thursday, the Federal Reserve reported that industrial production fell 0.4% in September (missing expectations of a 0.2% decline) while August’s reading was revised higher to a 0.8% advance versus the previous reading of a 0.6% increase. Lastly, initial jobless claims for the week ending October 12 were 214,000 and below expectations of 215,000. Claims remained under 300,000 (threshold for a typically healthy jobs market) for 240 consecutive weeks.

For the week, the DJIA slipped 0.13% while the S&P 500 gained 0.55%. The volatile Nasdaq increased 0.40%. Developed international markets fared better. For the week, the MSCI EAFE index jumped 1.24% while emerging market equities (MSCI EM) advanced 1.27%%. Have international equities found a bottom? Small company stocks, represented by the Russell 2000, finished higher by 1.57% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly higher as investors trimmed bond positions. As a result, the 10 YR US Treasury closed at a yield of 1.76% (in-line with the previous week’s closing yield of ~1.76%). Gold prices closed at $1,488.20/oz – up 0.37% on the week. Oil prices dropped $0.92 (or 1.68%) as supply appears to be more than adequate for current demand.

Don’t forget that October has been a traditionally difficult month for the markets, and we expect this October to be no different. The week ahead will see a host of potential challenges – earnings, Brexit, China trade issues, Washington histrionics, and Middle East geopolitics, etc… We suggest investors stay close to their long-term target asset allocations with a slight defensive bias.

“Keep your eyes on the stars, and your feet on the ground.”Theodore Roosevelt