Market Performance Summary

Source: www.YCharts.com

Notable Market Headlines

Multiple economic reports suggest the U.S. economy is weakening including disappointments in both retail sales and industrial production. At least, for now, this may be giving the stock market a boost with the expectation that this slowdown will be the ammunition the Federal Reserve needs to continue lowering interest rates. Somewhat complicating the story though are earnings reports from multiple companies for the third quarter suggesting both the economy and consumer remain relatively strong.

At the close of the week, U.S. stocks were higher but the gains were not evenly distributed with U.S. large stocks, as measured by the S&P 500, higher by +0.6% but the tech-heavy NASDAQ lagged gaining +0.4% and the Dow Industrials were actually lower by -0.2%. Much of this can be explained by what looks like investors trying to figure out the eventual outcome of the trade wars and which companies will be the winners and losers. Small U.S. stocks performed much better gaining +1.6% for the week but are still lagging behind for the year up +15.1% as compared to the gain for large stocks of +20.9%.

Among the best performing sectors for the week was healthcare jumping +2.1% with the 6 best performing stocks in the S&P 500 being in this sector. Several of these companies reported earnings that were well received by investors. In spite of the week’s gains, you can see in the accompanying graph that the sector has performed relatively poorly compared to the S&P 500 in 2019.

Source: www.YahooFinance.com

European markets were strong performers with Germany and Spain leading the way with gains of +2.9% and +2.4% respectively. Overall, international developed markets were higher by +1.1% with stocks in Japan and Australia lagging behind. Emerging markets posted gains as well up +0.6%. Both developed and emerging markets continue to trail U.S. markets year-to-date with gains of +15.2% and +8.3% respectively.

Two of the three alternative asset classes were higher for the week with real estate stocks performing the best up +1.1%. Year-to-date this has been the best performing group with a gain of +25.5% arguably helped by lower interest rates in 2019. Gold also rose by +0.3% while commodities slipped -0.6% and a decline in the price of oil.

Bonds were little changes this week, up +0.1%, with the yield on the benchmark 10-Year Treasury closing at 1.755%. Investors appear to be patiently waiting for the Federal Reserve’s decision on interest rates next week.

Stock Highlights

UnitedHealth Group (UNH), the largest private health insurance provider with $237 billion in annual revenue, reported quarterly results that topped Wall Street expectations and helped fuel many stocks in the sector higher. Both sales and earnings came in above the same period last year and management raised its forecast for the full year. This stock jumped +10.5% this week, adding more than $20 billion in value, but remains lower year-to-date by -1.5%.

Netflix (NFLX), the video streaming giant, reported earnings for the most recent quarter the initially helped propel the stock sharply higher. Sales and earnings were both higher with earnings above Wall Street expectations but revenue falling slightly short. The focus was on the number of new subscribers, in particular in international markets, with the company adding 6.26 million. This was ahead of expectations but the number of U.S. new subscribers fell short. As the accompanying graph shows, the initial reaction by investors was very positive but the stock later declined closing the week lower by -2.7%.

Source: www.YCharts.com

JPMorgan Chase (JPM), one of the country’s biggest and most diversified financial companies with more than $1.5 trillion in deposits, came in with strong numbers for the quarter. Revenues hit a record level of $30.1 billion up 8% compared to last year and well ahead of Wall Street estimates. Management said the consumer remains strong helped by low unemployment and a strong balance sheet which all helped drive move home and auto loans as well as credit cards. Bank of America, just behind JPMorgan in terms of total deposits, also reported a strong quarter. For the week JPMorgan’s stock gained +3.8% and Bank of America was higher by +5.0%. Both stocks are up more than +23% for the year.

Energy stocks were among the worst performers for the week. There was little to no company specific news moving these stocks so it could be investor concern about the continued weakening global economy and potential continued impacts from the ongoing trade war.

Source: www.YCharts.com

Economic Indicator - Reported

Retails sales came in weaker than economists expected for September falling -0.3% versus and estimate of +0.3% increase. This is the first decline in 7 months signaling we could see a slowdown in consumer spending. Auto sales, being impacted mostly by end-of-model year discounting, and gasoline, due to lower prices, were to blame for much of the decline but department stores, internet retailers, and home centers also reported lower numbers. Offsetting some of this disappointment for September was a revision higher to the August report by +0.2%.

Housing starts, the construction of new homes, fell by -9% in the most recent month to an annual rate of 1.26 million units. All regions in the country saw lower numbers with the Northeast and Midwest suffering the most. Although this report came in well below economists’ forecast, a rise in permits and continued low mortgage rates suggests the slowdown may be short-lived.

Industrial Production fell for the first time in 5 months, down -0.4%, impacted by the strike at General Motors. Even when factoring out autos production was still lower by -0.2% with the declines being broad-based.

Economic Indicators – Upcoming

The following economic data are expected in the coming week: