Weekly Market Update — October 22, 2018



• Stocks finished the week mixed, with a healthy increase in volatility, but much better than the heavy losses suffered in the prior week
• The large-cap S&P 500 finished flat and the narrowly–defined blue–chip DJIA moved up 0.4%
• The technology–heavy NASDAQ dropped 0.6%, the small–cap Russell 2000 lost 0.3% and the MSCI EAFE inched up 0.1%
• As the third-quarter earnings season starts to gather momentum, investors are starting to focus on corporate numbers and early reports suggest strong sales growth and earnings growth
• Increased volatility arrived this week as evidenced by the S&P 500 moving more than 1% in two of the five trading days
• The Leading Economic Index rose 0.5% in September and economists consider this a harbinger for solid economic growth in the next six months
• The benchmark Treasury 10–year note climbed three basis points to 3.19%
• Famed retailer Sears Holding filed for Chapter 11 bankruptcy
• The minutes from the September Fed meeting showed that officials agreed on the need for more gradual rate hikes
• The probability of a December rate hike is 83.7%, according to the CME FedWatch Tool

Weekly Market Performance

Third Quarter Earnings Season Kicks Off

  • The third quarter earnings season kicked off last Friday and moved into higher gear this week. Financial behemoths like Morgan Stanley, Bank of America, Charles Schwab, and BlackRock for the most part reported better–than–expected profits, helping to boost the financial sector on the week.
  • In health care, Johnson & Johnson and UnitedHealth beat earnings estimates and issued above-consensus guidance, pushing the health care sector to advance about 0.5% on the week.
  • A lot of eyes were on Netflix and the streaming media giant beat estimates and reported much–higher–than–expected subscriber growth as they reported adding close to 7 million new subscribers just last quarter.
  • Looking at all 11 of the S&P 500 sectors and the week ended with about half of them in the red and the rest in the green. The sectors were led by Consumer Staples which added 4.3%; Real Estate which added 3.2% and Utilities which added 3.1% – all generally considered defensive names.
  • The typically growth–sensitive groups didn’t fare so well, as Consumer Discretionary lost 2.0%; Energy lost 1.9% and Materials dropped 1.4%.
  • Research firm FactSet reported the following:
    “For Q3 2018 (with 17% of the companies in the S&P 500 reporting actual results to date), more companies are beating estimates than average, but the magnitude of the beats is smaller than average. In terms of earnings, more companies are reporting actual EPS above estimates (80%) compared to the five-year average. In aggregate, companies are reporting earnings that are 3.9% above the estimates, which is below the five–year average. In terms of sales, more companies (64%) are reporting actual sales above estimates compared to the five-year average. In aggregate, companies are reporting sales that are 0.5% above estimates, which is below the five-year average.”

Mixed Economic News

  • As the markets were mixed, so was the week’s economic news.
  • The Commerce Department announced that retail sales rose only 0.1% in September, which was pretty far below most estimates of about 0.6%. Excluding vehicle sales, retail sales actually declined 0.1% in September, which was the weakest month since May 2017.
  • The Commerce Department also announced that housing starts declined 5.3% in September, which was just slightly below economists’ consensus estimates. In the past 12 months, housing starts and new building permits are running 3.7% and 1% lower, respectively.
  • The Conference Board announced that its Leading Economic Index rose 0.5% in September, which was in-line with economists’ consensus expectations. From the Conference Board’s Release:
    “The US LEI improved further in September, suggesting the US business cycle remains on a strong growth trajectory heading into 2019. However, the LEI’s growth has slowed somewhat in recent months, suggesting the economy may be facing capacity constraints and increasingly tight labor markets,” said Ataman Ozyildirim, Director and Global Research Chair at The Conference Board. “Economic growth could exceed 3.5 percent in the second half of 2018, but, unless the momentum in housing, orders and stock prices accelerates, that pace is unlikely to be sustained in 2019.”

Sources;;; ;;;;;;;;;;

HighTower St. Louis is registered with Hightower Securities, LLC, member FINRA and SIPC, and with Hightower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities, LLC; advisory services are offered through Hightower Advisors, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.

All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. The team and Hightower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed are solely those of the team and do not represent those of Hightower Advisors, LLC, or any of its affiliates.