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Weekly Update – October 11, 2019

  • U.S. equities finished a generally positive week with a strong rally on Friday on news that the U.S. and China reached a “phase one” trade agreement. Friday’s rally helped the S&P 500 snap a three-week losing streak, surging 32.14 points to close at 2970.27. The Dow gained 319.92 points to close at 26816.59, while the Nasdaq increased 106.26 points to end 8057.04. Key U.S. Treasury yields increased, with the two-year rising 8bps to 1.61% and the 10-year increasing 9bps to 1.75%.
  • With just over 4.5% of S&P 500 companies reporting third-quarter results, 91.5% have exceeded earnings per share (EPS) expectations, while 56.5% have beaten revenue expectations. As of October 11, 2019, Refinitive estimated the S&P 500 index’s third-quarter earnings growth rate at 3.5% and its 12-month forward P/E ratio at 16.8.
  • President Trump said the U.S. and China reached a “substantial phase one” trade agreement that holds off the October 15th U.S. tariff hikes and contains provisions involving intellectual property protections, agricultural purchases, foreign exchange transparency, and financial services. The deal does not include planned December US tariff hikes or Huawei restrictions. Formal signing could happen when U.S. and China meet at the November APEC conference in Chile next month.
  • The Fed said it will start buying $60 billion per month in Treasuries beginning October 15. The purchases will continue until at least the second quarter of 2020, and are needed to maintain ample reserve balances at or above the September 19 level. The move follows Fed Chairman Jerome Powell’s mid-week statement that the Fed is likely to increase its balance sheet through short-term Treasury purchases, but also that the purchases should not be confused with QE and would not materially influence the monetary policy stance.
  • September’s CPI and core CPI readings both came in below consensus expectations. CPI for the period was 0% and core CPI was 0.1%, each below expectations of 0.1% and 0.2%, respectively. Both inflation reports are likely to bolster the case for an October Fed Funds rate cut, as officials have flagged persistently weak inflation as a concern.

CPWM Weekly Market Monitor (2019.10.11)

 

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