POSITIVE CHINA AND BREXIT DEVELOPMENTS AND ENCOURAGING U.S. ECONOMIC DATA FUEL U.S. AND GLOBAL MARKETS
- The U.S. stock markets saw more volatility throughout the week, but ended on a strong note due to positive news on the China–trade saga, Brexit and on the U.S. economy
- NASDAQ and the DJIA led the way with 0.9% gains, followed by the S&P 500 which moved up 0.6%
- International developed markets and markets in China and the UK moved up substantially following news that negotiations to resolve the China trade wars are progressing and that Brexit might finally be resolved
- At the end of the week, the Federal Reserve announced that it will begin regular purchases of Treasury bills at a pace of $60 billion per month on October 15th and continue through the second quarter of next year at least
- Most of the S&P 500 sectors ended positive, with 7 of the 11 gaining on the week, with Materials leading way with a jump of 1.9% and Utilities leading the losers with a loss of 1.4%
- Hopes for a trade deal with China boosted the export–sensitive technology, industrials, and materials sectors
- Utilities, on the other hand, lagged as rising interest bond yields made their higher dividends less attractive to investors
- Good news for equity investors was not so good news for bond investors as the yield on the benchmark 10–year Treasury leapt 21 basis points on the week
Weekly Market Performance
Live With Thrive
David, Bret, Karen, and Joe return for their first episode since the big Tax Summit Event on September 25th. They recap the event, and discuss the new material that was covered during it. They also highlight what separates Thrive from nearly all financial planners in the Delaware Valley: We put education FIRST!
Equity Markets Rise on China Developments to Kick Off Final Quarter
As has happened for most of the past year and a half, reports on the U.S.–China trade negotiations moved markets again, this week sending markets across the board higher for the week. U.S. equity markets were up decently, but markets in China moved up even more. And the week saw a lot of volatility, due to a lot of different “reports” of the negotiations.
Early in the week, stocks moved up when news that Chinese officials were willing to accept a partial trade deal, but then moved the other way when news suggested that the intellectual property sticking point was not going to be discussed.
Then the following day, “reports” that the U.S. would add 28 Chinese firms to a “blacklist” and ban them from buying from U.S. firms and another “report” that the President Trump was considering limiting investments in China by U.S. government pension funds also concerned investors. And all of this happened before the official start of trade talks on Thursday.
On Thursday, markets rallied on The New York Times report that the U.S. was preparing to make concessions toward Chinese telecommunications giant Huawei Technologies which led to hopes that the negotiations were closer between the two countries.
On Friday, President Trump tweeted “Good things are happening at China Trade Talk Meeting” sending the S&P 500 to its best daily gain in two months. Just before markets closed Trump announced that a “Phase One” deal had been reached and that the U.S. would suspend planned tariff increases on October 15th in return for agricultural concessions from China.
While U.S. stocks ended the week on a positive note, Chinese stocks surged following the news of progress. For the week, the benchmark Shanghai Composite Index gained 2.4%, and the large–cap CSI 300 Index, an index that tracks blue chips listed on the Shanghai and Shenzhen exchanges, vaulted 2.5%.
Brexit Progress Moves Stocks Overseas Too
Equity markets in Europe rallied on news of progress on U.S.–China trade talks, but there were positive developments on Brexit negotiations that rallied markets too.
The prime ministers of the UK and Ireland suggested that they could envision “a pathway to a possible deal” after another round of talks.
- The pan–European STOXX Europe 600 Index gained 2.7%
- The export–reliant German DAX was up 4.2%
- UK’s FTSE 100 Index gained more than 1% and
- The pound jumped almost 3% against the U.S. dollar
The Federal Reserve Was Active Too
Late in the week, the Fed announced that starting this Tuesday, it will begin purchasing Treasury bills at a pace of $60 billion per month and it expects this program to last at least into the second quarter of next year.
The Fed’s T–Bill purchasing program is designed to steepen the yield curve by pressuring Treasury bill yields.
Positive Economic Data
The positive news driving markets seemed to be clustered toward the end of the week as Thursday and Friday saw positive economic data hit the markets too:
- On Thursday, initial jobless claims fell back to the lowest level in a month
- Import prices were up 0.2% in September
- Export prices were down 0.2% in September
- On Friday, the preliminary University of Michigan Consumer Sentiment Index for October clocked in at 96.0 up from 93.2 for September
- Consumers’ real income expectations rose to their highest level in two decades