US stocks gained 0.2% this week bringing their gain for October to more than 8%. The S&P 500 closed at 2,079 which is only 2.5% below its all-time high of 2,131 reached in May.
Bloomberg on third quarter US corporate earnings: With 341 (of 500) companies reporting, earnings are on track to show a 2.7% YoY decline. Excluding the energy sector, earnings are up 4.1%. Over 70% of companies are beating estimates. (Not a great showing but apparently not a surprise for investors.)
International stocks had a strong month as well, but returns were reduced for US investors thanks to a stronger dollar. When priced in USD, both the Euro Stoxx 50 and Japan’s NIKKEI 225 gained 8.8%, while the Chinese Shanghai Composite jumped 11.5%.
US bonds sold off this week as prices fell and yields rose. Yields across the curve from three months to 10 years rose between 5 and 10 basis points. The 10 year Treasury closed Friday at 2.14% while the 2 year Treasury ended at 0.73%.
Congress passed (and the President will sign) a deal that suspends the debt limit until March 2017 and funds the government for two years (FYs 2016 and 2017). The deal provides for about $80 billion in increased spending during these years – $50 billion in the first year and $30 billion in the second year. ISI notes: “The outcome is risk-positive as it takes away the tail risk of a debt ceiling or shutdown crisis. The modest resulting fiscal stimulus will support growth next year by a couple of tenths and at the margin increases the likelihood of a Fed December rate hike.”
ISI: “House Ways and Means Chairman and former vice presidential candidate Paul Ryan (R-Wisconsin) was elected Speaker of the House. We think the election of Ryan is a strong market positive because of his demonstrated expertise on budget and tax matters; because of his desire to both sharpen the Republican policy and political message and to achieve demonstrable legislative results; and because Ryan is committed to the economic growth agenda…”
WSJ: “Federal Reserve officials Wednesday kept short-term interest rates unchanged near zero, but opened the door more explicitly than they had before to raising rates at a final 2015 meeting in December. Fed officials suggested they had become less concerned in recent weeks about turbulent financial markets and uncertain economic developments overseas. They also pointed specifically to the next meeting as a time when they would be assessing whether it was time to raise rates.”
The odds of a rate hike in December in the fed funds futures market climbed from 25% before the Fed meeting to almost 50% after the statement was released. Bonds sold off a touch.
After posting at 3.9% annualized increase in the second quarter, we learned on Thursday, that the economy slowed to a 1.5% growth rate in the third quarter. A slowdown in exports and inventories were the culprits leading to slower growth. Household spending, which accounts for 70% of the economy, was strong at over 3% growth. The US economy is just fine.
WSJ: ”China said it would formally end its notorious one-child policy, which was intended to curb a surging population but has been blamed for looming demographic problems for the world’s No. 2 economy.” Apparently a Chinese family will now be allowed to have two children.
In Japan, where population is declining, Prime Minister Shinzo Abe is advocating a range of measures to increase Japan’s birth rate and keep women and the elderly in the workforce for longer. In Europe, many countries are encouraging immigration to bolster their flagging native populations.
ABC News: Amazon is hiring 100,000 people for the holiday season, up 25% from last year.
Bloomberg: Fed Ex is hiring 55,000 people for the holiday season, up 10% from last year.
US employment data for October is out next Friday. ISI believes payroll rose 210,000 and the unemployment rate slipped to 5.0%. By the way, weekly unemployment claims are at their lowest level in four decades.
I’ll be giving a talk next Tuesday to the Harvard-Yale-Princeton club titled “The Investment Wisdom of John Maynard Keynes.” It’s a $24 lunch at noon at the Inlet Towers. If you are interested in going RSVP to Tim Pearson at email@example.com. The talk reviews the life of Keynes (perhaps the most famous economist ever) and talks about his investment approach. When he died in 1946 his personal portfolio was worth $25 million! It’s an interesting story.
? Don’t forget Halloween tomorrow night!
Jeff Pantages, CFA®
Chief Investment Officer
APCM News: Alaska Permanent Capital Management has been dedicated to supporting Alaskans for decades and is proud to have recently received special recognition from Alaska Pacific University as a Laureate Donor.