Stocks continued their strong run last week. The S&P 500 gained an impressive 0.9%, and global stocks, represented by the MSCI ACWI, rose 0.3%. The Bloomberg BarCap US Aggregate Bond Index slipped -0.5%. The S&P 500 and the MSCI ACWI both hit new highs during the week.
Investors reacted positively to the Fed’s analysis of the economy and to speculation that Jerome Powell may become the next Fed chair. In other news, the Senate voted to pass a budget resolution that increases the chances of tax reform. President Donald Trump said the resolution clears the way for tax cuts, “which will be the biggest in history.”
Key points for the week
- Jerome Powell is a likely pick to head the Federal Reserve.
- The Fed continues to note tight labor markets and low inflation.
- China continues to show strong growth, but debt concerns and political maneuvering increase risk.
- The U.S. Senate passed a new budget that may increase the likelihood of tax reform.
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.
Although the labor market is tight, employment growth has been modest. Employers in industries such as construction and health care are not finding qualified workers, which has led to a lack of growth. Wage and price pressures have also remained modest despite the tight labor market.
Federal Reserve Governor Jerome Powell is the favored candidate of Treasury Secretary Steven Mnuchin, who is leading the search for the next Fed chair. Powell would replace current chair Janet Yellen, although Trump also met with Yellen last week and has not ruled out keeping her on. Powell is the most neutral of the Trump administration’s top candidates. The pick would imply a relatively more hawkish view, but investors should expect the Fed to follow a similar route to its current path. A decision is set to be made before November 3.
On October 18, China opened its 19th National Congress of the Communist Party of China. This marks the start of another five-year reign for President Xi Jinping. However, there is speculation Xi may run for another five years in a Putin-like move, which would change the traditional order of power in the Chinese government. An empowered Xi may position China further into the global leadership vacuum created by the U.S.’s inward turn. The first sign of how China’s global plan will play out comes in November when China hosts President Trump.
Fun Story of the Week
If you are afraid of heights, this is not the tourist attraction for you. Glass sky bridges offer tourists outstanding views at unbelievable heights. One sky bridge in Hebei, China took it a step further by creating the illusion that the bridge is cracking. Videos posted by visitors show shattered-looking glass and actual glass fragments placed between the layers cracking with each step — not something anyone wants to see or hear at an elevation of 3,871 feet. The East Taihang administration issued an apology after complaints on social media and explained the shattered glass was meant to be provocative.
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.