There has been a spate of good news for investors as October has rolled into November.
Third quarter corporate earnings continue to come in above expectations. There has been positive news on the trade front as China says it has reached an under
standing with the US on the first phase of a deal. The Federal Reserve cut interest rates for the third time in recent months, while signaling it will be pausing its “mid-cycle adjustment” for the time being.
The latest employment report easily beat the estimate for October, with the economy adding 128,000 jobs versus the consensus estimate of 75k.
Unemployment remains around the lowest it has been in 50 years. This report is yet another sign that the economy is still strong right now and adds to a list of indicators that are looking optimistic of late.
Retailers are already priming the pump for the holidays. There are reports of smaller inventories in brick-and-mortar stores, so the trend to online buying is sure to continue. The markets will be keeping a close eye on the consumer this holiday season, and with more people working we expect a good period for retailers.
Another factor boosting domestic equity markets recently is corporate earnings. As of November 1st, with 71% of S&P 500 companies reporting, 76% have announced positive EPS (Earnings Per Share) surprises, albeit from relatively low expectations. EPS growth is projected at -2.7% over the same quarter last year, but that is up from -4.1% at the outset of earnings season.
Concerns about slower global growth and a strong dollar have been valid, as companies with higher international revenues have struggled. For example, companies with more than half of their revenues coming from the US have reported EPS growth at -.8%; those with more than 50% of their revenues from overseas have posted EPS growth at a rate of -9.1%. All-in-all, earnings have been pretty good on lower expectations.
As a whole, the economic frontier looks pretty solid going into the end of the year and the first part of 2020. President Trump and Jerome Powell are up for reelection and reappointment at the end of next year. This motivates them to keep the U.S. economy running strong.