Weekly Market Insight – Markets Bounce Back
Markets posted strong gains last week after struggling for much of October. The S&P 500 had its best weekly performance since May, and the NASDAQ had its first positive week since September.[i] Despite domestic markets dropping on Friday, November 2, the S&P 500 added 2.42%, the Dow increased 2.36%, and the NASDAQ gained 2.65%.[ii] International stocks in the MSCI EAFE were also up 3.34%.[iii]
What drove market performance last week?
We received a fair amount of data and reports, with the following details holding particular weight for investors:
China trade updates were inconsistent.
Stocks fluctuated widely on Friday, in large part because of contradictory updates on a potential trade deal between the U.S. and China. President Trump said the two countries are a lot closer to an agreement. Larry Kudlow, Trump’s economic advisor, shared a different perspective, indicating the U.S. is not working out a trade deal with China. These conflicting reports contributed to volatility in the markets as investors tried to determine exactly where we stand.[iv]
Corporate earnings were strong but imperfect.
So far, the 3rd quarter earnings season has been a strong one. Of the 74% of S&P 500 companies that have released their data, 78% have beaten their earnings-per-share estimates, and earnings have grown 24.9% year-over-year.[v] However, concerns for at least one major tech company’s projections affected investor behavior.[vi] In addition, analysts predict that in 2019, earnings growth will not match the double-digit results we’ve experienced this year.[vii]
Labor market growth beat expectations.
The economy added 250,000 jobs in October, a stronger increase than expected. Wages also rose, posting 3.1% growth over the prior year, the fastest annual growth since 2009.[viii] Investors interpreted these results to mean that the Federal Reserve would continue raising interest rates at its projected pace.[ix]
Where should you go from here?
If you felt at all whipsawed by last week’s price fluctuations, especially after October’s declines, you weren’t alone. Even if you know that market volatility is normal, it can feel intense in the moment. Right now, many investors are also jumping in and out of popular, crowded stocks, causing market levels to shift more quickly than many people are used to. To navigate these accelerated changes, you need to remove emotion from investing decisions and stick to your long-term vision even more.[x]
Rather than trying to predict what stocks will do in the immediate future, we are here to help you plan for the financial life and legacy you desire. Please let us know if you have any questions about where you are and how to pursue your future.
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Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
[i] https://www.bloomberg.com/news/articles/2018-11-01/asia-stocks-to-extend-rally-after-trump-xi-call-markets-wrap?srnd=markets-vp
[ii] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX®ion=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
https://www.cnbc.com/2018/11/02/stock-market-triple-digit-gains-for-dow-nonfarm-payrolls.html
[iii] https://www.msci.com/end-of-day-data-search
[iv] https://www.cnbc.com/2018/11/02/stock-market-triple-digit-gains-for-dow-nonfarm-payrolls.html
[v] https://www.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_110218.pdf
[vi] https://www.cnbc.com/2018/11/02/stock-market-triple-digit-gains-for-dow-nonfarm-payrolls.html
[vii] https://www.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_110218.pdf
[viii] https://www.ftportfolios.com/Commentary/EconomicResearch/2018/11/2/nonfarm-payrolls-rose-250,000-in-october
[ix] https://www.bloomberg.com/news/articles/2018-11-01/asia-stocks-to-extend-rally-after-trump-xi-call-markets-wrap?srnd=markets-vp
[x] https://www.bloomberg.com/news/articles/2018-11-02/bulls-sit-still-as-u-s-stock-reversals-land-with-record-force?srnd=markets-vp
