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Market Commentary

Global markets rise in October, Fed cuts rates for a third time

November 2019


Despite its notable history of toil and trouble, this October was largely full of treats for investors. Not only did the global financial markets rise, the Fed cut interest rates for the third time this year. 

The US-China trade war has been at the center stage of market concerns for over a year now and one of the ongoing catalysts of volatility, both up and down. High level trade talks resumed in October and news of a partial deal, now known as Phase One, led to renewed US-China trade hopes and put a charge in the markets, though nothing has been signed yet. Further on the global front, the UK avoided a hard-Brexit by agreeing to a new Brexit deal at the last-minute but it still needs to be passed by Parliament and an extension was granted by the EU to January 31, 2020. Political concerns rose late in October with the House passing a formal resolution of the next stage of the impeachment inquiry. 

Mixed US economic data in October were balanced by better-than-expected Q3 corporate earnings; however, the economic softness was enough for the Fed to cut policy interest rates again by 0.25%, as widely expected. It was the third Fed cut this year totaling 0.75%. An adjustment to its statement wording, while giving flexibility in either direction, suggested that the Fed will be on “pause” for the remainder of the year.  

 

Market QuickTakes... 

  • While the Dow edged just higher, the S&P 500, Nasdaq, and small-cap Russell 2000 posted solid gains in October, with Nasdaq leading the charge jumping 3.7% 
  • Positive US-China trade news, tailwinds on September’s new round of QE by the ECB, and a last-minute Brexit deal lifted foreign stocks strongly as well, both developed and emerging markets 
  • The Fed cut policy interest rates for the third time this year and implemented a Treasury Bill purchase program that will extend through Q2 2020 
  • Intermediate- and long-term interest rates rose relative to short-term rates in October from early September lows as recession risks eased, un-inverting the US yield curve (10s-2s) to the delight of equity investors and many economists


November Update 

Fresh off a strong October, stocks posted record setting gains to start November as recession concerns eased and rising hopes of a “Phase One” US-China trade deal fueled gains. Ending Friday, November 8, the Dow Jones Industrials, S&P 500 and Nasdaq each posted new All-Time highs. The S&P 500 and Nasdaq pushed YTD gains to 23.4% and 27.7%, respectively. The rising tide lifted all boats, as small- and mid-caps gained nicely and foreign markets participated as well. Intermediate- and long-term interest rates have continued rise with the 10-year T-Note yielding hitting 1.94% on Friday, its highest yield since the end of July, while short-term rates have dipped further helping to steepen the yield curve.  


The Outlook 

With the Fed likely out of the picture for the rest of the year, barring any significant economic downturn in November and December, which appears unlikely, investors will remain focused on US-China trade developments, progress towards a smooth Brexit, slowing global growth and the mounting political narrative surrounding the impeachment inquiry and the 2020 election. In other words, the song remains the same.

November, December and January have historically been among the best months for the market, but there are no guarantees for future success as 2018 serves as a painful reminder. Nonetheless, the fear of recession that plagued the market in August has potentially and defiantly transformed into a fear of missing out (FOMO) given the market’s strong gains for the year. However, volatility remains in the forecast and we urge investors to emphasize diversification and remain resilient in their investment programs, while avoiding chasing returns, as the markets continue to weigh ongoing risks and opportunities.  

Thanksgiving is just around the corner and we wish you and your family a wonderful celebration of grace, reflection and thankful time together.  

 

~Your Nelson Securities Team

800-345-7593  

 

RMD ReminderDon’t delay, 2019 Required Minimum Distributions must be withdrawn by December 31. Make arrangements with your Nelson Advisor early to avoid costly penalties.