Thrive Weekly Economic Update – November 4th, 2019

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Weekly Market Performance

  • U.S. stocks climbed to new record highs amidst a slew of positive actions and data, including the Fed cutting rates for the third time this year, another Goldilocks jobs report and a softening of the U.S. and China trade spat that has been in the news for the better part of a year and a half
  • NASDAQ led the way with a jump of 1.7% on the week, followed closely by the S&P 500’s 1.5% gain, which pushed both to end the week in record territory
  • The small cap Russell 2000 rose even more than the other U.S. indices, moving up 2.0% on the week, whereas the narrowly–focused mega–cap DJIA moved up 1.4%
  • The Federal Reserve cut interest rates for the third time this year and in very strong language telegraphed that another rate cut is unlikely soon (there is only one more Fed meeting in December)
  • The Fed cut the target range for the fed funds rate by 25 basis points to 1.50-1.75%
  • Eight of the 11 S&P 500 sectors were green when the week ended, led by Health Care, which jumped 3.0% and Information Technology and Industrials, both up more than 2.0%
  • On the downside, Real Estate lost 0.7% on the week and Energy was negative once again, declining 0.3%
  • The 2–year U.S. Treasury yield declined to 1.56% and the 10–year yield declined to 1.71%
  • The U.S. Dollar Index fell 0.6% to 97.24

Weekly Market Performance


The Fed Cuts Rates for the Third Time This Year

On the heels of the Fed announcing its intent to buy short–term Treasury debt at an initial pace of $60 billion a month, the Fed decided to cut rates for the third time in 2019, in an effort to boost a slowing economy.

In fairly strong language, the Fed telegraphed that it may be done trimming rates, at least in the short term (there is only one more Fed meeting in mid-December):

“We took this step to help keep the economy strong in the face of global developments and to provide some insurance against ongoing risks,” Fed Chair Jerome Powell said. “We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook.”

Fed–watchers interpret the Fed\’s language to mean that another rate cut in December isn\’t going to happen, unless the economy takes a turn for the worse.




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U.S. Manufacturing Off Its Recent Lows

The U.S. manufacturing sector again saw improvement in conditions last month, supported by new business and expansions in output. In fact, rates of production growth and new orders moved to a six–month high.

From the release dated November 1st:

“Tentative signs of renewed vigor are appearing in the US manufacturing sector, with the survey\’s production gauge having now risen for three successive months to suggest that the soft patch bottomed out in July. Growth of new orders hit a six–month high, fueled in part by a renewed increase in exports, prompting producers to take on more staff, with payroll numbers rising at the quickest pace since May” said Chris Williamson, Chief Business Economist at IHS Markit.

Corporate Earnings Showing Growth

By week\’s end, 71% of the companies in the S&P 500 had reported actual results for Q3 2019. And according to FactSet:

  • In terms of earnings, the percentage of companies reporting actual EPS above estimates (76%) is above the 5–year average.
  • In terms of sales, the percentage of companies (61%) reporting actual sales above estimates is above the 5–year average.
  • Looking ahead, analysts see a decline in earnings in the fourth quarter followed by 5% to 7% earnings growth for Q1 2020 and Q2 2020.
  • The forward 12-month P/E ratio is 17.2, which is above the 5–year average and above the 10–year average.

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