Despite disappointing economic data out of China on Friday that renewed some global growth concerns, U.S. equities were broadly propelled higher last week by a strong start to the third quarter corporate earnings season. For the week, the S&P 500 and Nasdaq Composite gained 0.5% and 0.4%, while the Dow slid -0.2%. All three indices are within 2% of their all-time highs. Foreign equities also ticked higher with the MSCI All Country World ex-U.S. index rising 1.2% on hopes of easing geopolitical tensions, including a tentative Brexit agreement.
Market participants will continue to sift through corporate earnings reports this week with nearly a quarter of the S&P 500 (over 110 companies) scheduled to release their quarterly results. Of the 15% of companies in the S&P 500 that have reported earnings to date, more than 80% have topped analysts’ earnings expectations, according to FactSet. However, this is a relatively low bar with analyst consensus expectations for an overall third quarter earnings growth rate of -4.8% over the prior year. Large banks led the pack last week and gave positive indications that the domestic consumer spending and credit outlook remains on strong footing.
Overseas, China reported its slowest pace of economic growth in over two decades with a third quarter GDP growth rate of 6.0%, down from 6.2% in the second quarter. The slowdown was mainly attributed to a deceleration in investment, but export growth also continues to be under pressure from the trade conflict and slowing global demand.
Meanwhile in the U.K., Prime Minister Boris Johnson is set to bring his Brexit deal back into Parliament this week for another critical vote after lawmakers voted on Saturday to withhold support for the deal until accompanying legislation to implement the separation with E.U. was in place and sufficiently analyzed. As a result of Saturday’s vote, Mr. Johnson was forced to request an extension of the Brexit deadline from the European Union until January 31, 2020 from the current October 31 deadline, but he will continue to press for a near-term agreement in Parliament.
- Retail Sales: September retail sales in the U.S. surprised to the downside last week falling -0.3% compared to August’s sales and missing the consensus expectations for 0.3% growth. It was the first decline in retail sales growth since February.
- Manufacturing: U.S. industrial production fell -0.4% in September driven by falling durable goods production. Auto production had a particularly sharp slowdown falling -4.2% compared to August.
US Economy – The Week Ahead
- Existing Home Sales – Consensus Estimate: 5,465K (-0.5% MoM), Prior Month: 5,490K (1.3% MoM)
- Initial Jobless Claims – Consensus Estimate: 215,000 (0.5% WoW), Prior Week: 214,000 (1.9% WoW)
- Durable Goods Orders Month-over-Month Growth (Preliminary) – Consensus Estimate: -0.5%, Prior Month: 0.16%
- New Home Sales – Consensus Estimate: 699K (-2.0% MoM), Prior Month: 713K (7.1% MoM)