This week has given us positive moves in equity markets. The S&P 500 is up 1.77%. This strong move comes as we see a slight sliver of light in the tunnel that is the Sino-American trade negotiations. Talks seem to be moving in the right direction as we passed the October 15 deadline with no tariff increase. The Chinese have also indicated there may be increased purchases of U.S. farm products.

A contributing factor to this week’s positive returns is that yet another earnings season is upon us. Equity markets, as usual, are hoping for the gift of earnings and sales growth. Unfortunately, hope is not a strategy. The expectation for the third quarter is for earnings to contract by 5% as of Wednesday. So far, with 64 S&P 500 companies reporting, earnings growth is 2.83% better than expected. Sales growth expectations for the third quarter, as of yesterday, are close to 3%. The surprise here is 1.09%.

In macroeconomic news, retail sales came in lower than expected. Retail sales were down 0.30% in September. That is after growth of 0.60% in the previous month. E-commerce, which has led a lot of the retail growth this year was down 0.3%. Auto and building material sales contributed to the decline. Fortunately, a single number does not an economy make.

The Empire State Index number for September came in at 4. This is better than the expected 0.80. The index is a monthly survey of manufacturers in New York state conducted by the Federal Reserve Bank of New York. Readings over 0 are generally indicative of economic expansion.

Manufacturing production on the other hand, was down in September. The month saw a decrease in production by 0.48% from the previous month. The Manufacturing Production Index measures real output in manufacturing.

Consumer sentiment, as measured by the University of Michigan, came in at 96.0. This reading is better than the previous month’s number of 93.2 and the expected 92. Consumers continue to be the driving force in U.S. GDP growth.

We are seeing increased optimism among home builders. The NAHB Housing Market Index for October is at 71.0. This is better than the previous month’s 68. The index is a survey of home builders.

Contributed by | Kuuku Saah, CFA, Investment Analyst

Kuuku is an Investment Analyst at BTC Capital Management with nine years of investment management experience. Kuuku’s primary responsibilities include portfolio management and analysis. Kuuku attended Drake University and double-majored in finance and economics. He is a Chartered Financial Analyst.


Source: BTC Capital Management, Bloomberg LP, Ibbotson Associates, FactSet.
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