October produced another positive month for many major stock market indices, and the first few days of November pushed some to new highs. The S&P 500 rose 0.3%, the MSCI ACWI rose 0.6%, and the Bloomberg BarCap Aggregate Bond Index climbed 0.4%. The S&P 500 is now up more than 15% this year, and the MSCI ACWI has soared more than 18% since January.
Strong jobs numbers, the announcement of Jerome Powell as the next Fed chair, and above-average third quarter earnings held no surprises for investors. The GOP’s proposed tax plan includes lower tax rates across the board and a major cut to the corporate tax rate, which Republicans believe will fuel economic growth and strengthen American competitiveness. Investors generally responded positively to the news but certain sectors such as homebuilders declined.
Key points for the week
- 261,000 jobs were created in October.
- Jerome Powell was nominated as the next Federal Reserve chair.
- Third quarter earnings show more companies beating earnings than average.
- The proposed GOP tax plan includes big changes for corporate taxes.
What are we reading?
Below are some areas of the market we paid particularly close attention to this week. For further information, we encourage our readers to follow the links.
The U.S. created 261,000 new jobs and posted a 4.1% unemployment rate in October, according to the jobs report released Friday. The number was below Wall Street’s estimate of 310,000. Although the high expectations weren’t met, the outlook on the economy is still positive and adjustments to previous estimates showed gains.
President Donald Trump nominated Jerome Powell on Thursday as the next Fed chair. Powell is expected to track a similar path to former chair Janet Yellen in slowly raising interest rates and liquidating the Fed’s large balance sheet. The biggest potential difference is Powell may loosen regulations on banks and other financial institutions. Powell is expected to be confirmed.
Third quarter earnings season has improved significantly over previous years. Seventy-six percent of companies are beating their earnings estimates, well above the one- and five-year averages of 71% and 69% respectively. Not only are more companies beating expectations, they are beating them by a comfortable margin, 4.7% on average. That is higher than the five-year average of 4.2% but lower than the one-year average of 5.1%. Investors had little reaction as the average price increase was just 0.1% for companies with better-than-expected earnings.
Fun story of the week
A man surrendered to police in Detroit with a sweet gesture: a dozen doughnuts. Michael Zaydel, 21, was wanted for parole violations and promised to turn himself in if his mugshot was shared on Facebook 1,000 times. A week later Zaydel walked into the police department with a dozen doughnuts as an apology for inconveniencing the officers. It didn’t help him. He was sentenced to 39 days in jail. Sgt. Duane Gregg replied “no comment” when asked if the officers ate the doughnuts.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of CWM, LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI ACWI INDEX
The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.