U.S. stocks ended slighter higher in a week when better-than-expected earnings and some newfound optimism for a positive Brexit outcome were contrasted against continuing global growth concerns. This is the kickoff of the important third-quarter U.S. earnings season. Major banks were reporting solid earnings last week despite depressed investor expectations, which lead the entire group higher. Another positive investor note was news from the EU and U.K. that they agreed in principle on a new Brexit deal following several days of negotiations. As usual, uncertainty seems to surround the deal because it will still need the approval of Parliament this weekend. In data issued this week, U.S. retail sales were a slight disappointment, while the International Monetary Fund (IMF) lowered its projections once again, this time placing global growth this year from 3.5% down to 3%. Analysts content that consumer spending is still well supported, and they believe global growth will stabilize as turmoil subsides over these events. They also expect that volatility will be similar to historical averages previously reached at this point of the growth cycle.
It’s hard for investors to know exactly which headlines to track in this very busy season. First and most obvious is the kickoff to the third-quarter earnings season. On that front, the market received new economic data showing that growth is slipping. Right alongside that, there are multiple geopolitical events to track such as Brexit, which appears to be gaining legs. So, where should investors focus their efforts? Several economic and political events are heating up in what is the latter stages of a bull market, not to mention the fact that the U.S. is about to head into the 2020 presidential-election season. Here’s some key areas that analysts focus on to help you follow investing and the U.S. economy:
- Know the key stats and know when fundamentals are slowing but still growing.
- Follow corporate earnings carefully to assess the record highs, and when stocks appear overpriced.
- Watch for the game changers, such as trade deals that could quickly become catalysts for slumping global growth.
- Beware of flashy news headlines that might create short-term volatility.
- Stay focused on proven, long-term financial goals.
Metals and Mining
Gold had a negative reaction to news of the Brexit deal this week. It was down slightly Friday after Britain and the EU struck a deal over the exit. That’s more than three years after Britons voted to exit the bloc. Once the threat of negative economic outcomes from a failed deal were lifted, investors eased up on all of the precious metals group as a safe haven. Despite gold’s reaction to the deal, the overall losses were limited once again due to ongoing weak economic data from the industrial leading countries including the US and China. China revealed that its third-quarter economic growth slowed to its weakest pace in close to three decades. The news followed reports that US retail sales fell for the first time in seven months in September. The US Federal Reserve will meet at the end of October in order to decide if further interest rate cuts will be made this year. Silver did not appear to have the same reaction to the Brexit deal and global economic worries. It was relatively steady on Friday but remains outside of the US$18 per ounce level that it reached in the previous month. The other precious metals, platinum and palladium were mixed, with platinum remaining flat on Friday below the US$900 per ounce level and palladium dipping slightly. Palladium was the most successful precious metal for the week, climbing over 3 percent. The World Platinum Investment Council (WPIC) released a report last month that states platinum demand is expected to climb by 9 percent this year. During the first half of 2019, a surge in exchange-traded fund (ETF) activity accounted for 855,000 ounces of investment demand.
Energy and Oil
The current trade war woes and economic concerns have kept a cap on oil prices this week, despite the bullish geopolitical news in the Middle East. Oil prices were down on the week as the global economy continues to struggle with the realities of the U.S.-China trade war and crude inventories continue to build. As a result of the current weak demand coupled with growing supply, and the increasing likelihood of a global glut in 2020, a majority of analysts are betting that OPEC will add deeper cuts when they meet in December. On the U.S. front, several U.S. shale drillers saw their credit outlooks cut by analysts in the past week. Low oil prices and struggles with profits have hurt investor sentiment in the sector. Natural gas spot prices rose at most locations this week. Henry Hub spot prices rose from $2.22 per million British thermal units (MMBtu) last week to $2.25/MMBtu this week. At the New York Mercantile Exchange (Nymex), the price of the November 2019 contract increased 7¢, from $2.234/MMBtu last week to $2.303/MMBtu this week. The price of the 12-month strip averaging November 2019 through October 2020 futures contracts climbed 1¢/MMBtu to $2.377/MMBtu.
Equity markets in Europe were mixed after the UK and the European Union (EU) struck a tentative deal, agreeing to new terms. Gains were held back by concerns about UK Prime Minster Boris Johnson’s ability to convince Parliament to approve the deal. Other news pressured stocks to trigger new worries about slowing global growth. The pan-European STOXX Europe 600 Index was flat, the German DAX was up 1.4%, and the UK’s FTSE 100 Index fell about 1%. The pound jumped to its highest level in five months and was 1.7% higher on the week after leaders of 27 EU countries endorsed the new agreement. At the same time, the German government lowered its growth forecast for 2020 to 1% from 1.5% and left its 2019 growth forecast unchanged.
China’s stocks ended on a weekly loss after its third-quarter economic growth forecasts came up short. Analysts expect its part of the toll of the U.S. trade battle and raising the recession risk for the global economy. For the week, the benchmark Shanghai Composite Index fell 1.2% and the large-cap CSI 300 Index, fell 1.1%. Both gauges recorded their biggest one-day drops on Friday, after China reported that its gross domestic product (GDP) rose 6.0% from July to September from a year earlier. Even with this slowing, year-to-date 6.2% expansion indicates the country can still hit its full-year growth target of 6.0% to 6.5%. It should be noted that the latest quarter’s GDP signifies China’s slowest growth pace since 1992. That was the first year that the Chinese began releasing quarterly growth data.
The Week Ahead
The earnings season is getting into full swing with roughly 20% of S&P 500 companies releasing earnings reports over the coming week. Some of the key economic data that will emerge with week includes existing home sales, new home sales, core capex orders, manufacturing PMI flash and on Friday, the important consumer sentiment numbers.
Key Topics to Watch
- Existing home sales
- Weekly jobless claims
- Durable goods orders
- Core capex orders
- Markit manufacturing PMI (flash)
- Markit services PMI (flash)
- New home sales
- Consumer sentiment index
Markets Index Wrap Up