U.S. stocks increased last week by the thinnest of margins. The S&P 500 rose, but the result rounded to 0%. The MSCI ACWI slid a mere 0.1%. The bond market continued to slump as the Bloomberg BarCap Aggregate Bond Index dropped 0.4%.
Key Points for the Week
- The S&P 500 was positive last week but by a miniscule amount.
- Corporate earnings are supporting the market.
- Chinese economic growth slowed last quarter and missed expectations.
A steady diet of positive earnings announcements helped to slow the market decline. When markets decline at the beginning of the quarter, earnings results can provide frequent reminders of the underlying strength in corporate performance. While we remain concerned about valuations, inflation, trade, and investor complacency, it is important to remember the positive factors affecting the market. Economic growth remains strong, and corporations continue to produce solid results.
One of our top risks is China’s growing debt burden. China’s third quarter GDP report showed the country’s year-over-year GDP growth slowed to 6.5%, the lowest rate since the 2008 financial crisis. While slow for China, 6.5% is still incredible. The U.S. is expected to grow around 3.3% in the third quarter. For the U.S., 3.3% is rapid growth.
Still, the growth number missed expectations of 6.6%. This can be attributed to declining growth in industrial output over the last quarter. Export data were very strong and led investors to conclude the U.S.–China trade dispute is having little impact. Our view is the opposite. Concerns over future tariffs caused some transactions to be moved forward, pushing exports higher. Businesses also seem to be scaling back expansion plans because of uncertainty regarding trade, which lowers current growth.
Many Chinese officials restored some market confidence by claiming the recent market performance doesn’t reflect the overall economic health of China. The government is clearly concerned with how the market is performing. Look for fiscal policy to play a key role in counteracting the recent downward trend in China’s market.
A man in Connecticut cleaning out his wallet recently realized he owned a Powerball ticket worth $1 million. Apparently, he bought it on a whim after stopping for ice cream and then forgot about it. Some prudent investors may know the feeling. Being fully invested during the 10-year bull market could be equivalent to discovering a $1 million Powerball in your pocket. Except if you checked it later, it may be worth $10 million.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI ACWI INDEX
The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.