Weekly Market Commentary November 12, 2018

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The S&P 500 rallied for the second consecutive week as markets have recovered nearly half of the losses since late September. S&P 500 soared 2.1% last week. Global stocks rallied as well, but lagged U.S. stocks. The MSCI ACWI climbed 0.9%. The Bloomberg BarCap Aggregate Bond Index rose 0.3%, partly on hopes a split Congress will result in lower deficits.

From October 30th, the S&P 500 has returned 5.3%. This follows a rocky October where the S&P 500 dropped more than 10% midday from its previous high. The recovery was driven by three key factors and supports our belief the market is good, just not as good as last quarter.


Key Points for the Week

    • The S&P 500 rallied for the second consecutive week.
    • A decline in prices and strong earnings made valuations more attractive.
    • Mid-term elections contained no major surprises.

S&P 500 Forward 12-Month P/E Ratio: 10 Years


Earnings

In spite of some high profile misses, earnings have been very strong. As of November 2nd, 78% of companies in the S&P 500 have beaten their earnings estimates and have beaten estimates by 6.8%, both above the 5 year averages. The trend continues when looking at sales estimates. 61% of companies have beaten sales estimates by an average of 1%. Both above the 5 year averages. Overall, year-over-year earnings growth rate is at 24.9%, way above the 19.3% estimate.


Valuations

When earnings rise and prices drop, valuations get more attractive. October’s sell off paired with companies’ strong earnings reports have given investors reason to believe stocks are undervalued. As the nearby chart shows, the combination of the decline and improved earnings pushed the price-to-earnings ratio low enough for investors to see stocks as attractively priced, adding to the market rally.


Midterm Elections

Investors hate uncertainty. The election results were largely as expected, removing uncertainty and boosting confidence in investor’s ability to predict elections. The S&P 500 climbed 2.1% the day after the midterm elections. It was the largest gain after a midterm election since 1982.


Fun Story

Curious Gecko Makes Dozens of Prank Phone Calls

A vet in Hawaii started receiving silent phone calls from The Marine Mammal Center’s Ke Kai Ola Hawaiian Monk Seal Hospital one morning, 9 to be exact, which made her think an emergency was upon her. As she arrived at the hospital, she realized a gecko was using the touch screen phone to make prank calls. The only question remains, did she take 15 minutes to save 15% or more on car insurance?


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