Weekly Update - October 19, 2018
- Despite volatility throughout the week, U.S. stocks ended roughly flat. Strong corporate earnings bolstered stocks early in the week. However, investors’ negative reaction to the minutes of the Federal Reserve’s latest meeting caused stocks to plummet. After outperforming large-cap indices for much of 2018, U.S. small-cap stocks recently entered correction territory. Like large-cap stocks, the small-cap index saw gains early in the week but followed the rest of the market down later in the week and ended flat.
- With 17% of S&P 500 companies reporting third-quarter results, 80% have exceeded earnings per share (EPS) expectations, while 64% have beaten sales expectations. As of October 19, 2018, FactSet estimated the S&P 500 index’s third-quarter earnings growth rate at 19.5% and its 12-month forward P/E ratio at 15.9, below the five-year average of 16.3, but above the ten-year average of 14.5. The story of the week from an earnings perspective was Netflix as the company’s stronger-than-expected subscriber growth catapulted the stock.
- Of note, China reported third-quarter gross domestic product (GDP) growth of 6.5% year over year. This compared to a consensus estimate of +6.6% and +6.7% in the prior quarter. Oil prices declined on swelling U.S. inventories and concern that trade wars were curbing economic activity. U.S. crude stockpiles rose by 6.5 million barrels, almost triple what analysts had forecast.
- Meanwhile in the housing market, rising mortgage rates are playing a bigger role and compounding the effect of U.S. home prices that are up more than 50% since their 2012 bottom. Fixed 30-year mortgage rates averaged 4.85% for the week ending Oct. 18, according to Freddie Mac, up from 3.88% a year ago. Delinquency rates and foreclosures, however, remain low.