The 19th midterm election since 1946 is over

Now investors wonder how the equity markets will respond. History offers a clue as to the direction of the S&P 500 by year-end, as well as the first four months of 2019 and 12 months from now.

Indeed, from election day until December 31 of each midterm election year since 1946, the S&P 500 rose an average 3.3%, and gained in price 67% of the time. In the six months following the election, the 500 was higher by 13.8% and rose in price 94% of the time.

Finally, 365 days after the election, the market was up 100% of the time and posted an average price increase of 14.5%. Also, in the 12 months following midterm elections since 1990, which is as far back as S&P Dow Jones Indices has sector-level data, both the market and most of its sectors garnered enviable price increases and frequencies of advance. Encouraging, yes, but not a guarantee.

Plus, if history is called on again, it will remind investors that the resulting political make-up (Republican president and split congress) resulted in the lowest average calendar-year price change and frequency of advance for the equity market of all six scenarios, as the S&P 500 gained only 3.5% and rose in price just 63% of the time.

Therefore, even though gridlock may be good, it ain’t great, and investors would be wise to temper their enthusiasm for the year ahead.

Market insights 11/8/2018

U.S. equities were mixed after the Fed left interest rates steady and made only trivial changes to its policy statement.

Treasury yields also diverged following the report, and as jobless claims dipped. Meanwhile, the U.S. dollar was higher and gold and crude oil prices were lower.

The Markets…

The Dow Jones Industrial Average rose 11 points to 26,191

The S&P 500 Index fell 7 points (0.3%) to 2,807

The Nasdaq Composite lost 39 points (0.5%) to 7,531

In moderate volume, 823 million shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq

WTI crude oil fell $1.00 to $60.67 per barrel and wholesale gasoline was $0.1 lower at $1.64 per gallon

The Bloomberg gold spot price moved $4.56 lower to $1,221.93 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was up 0.7% at 96.71

Fed holds steady as expected, jobless claims dip

The Federal Open Market Committee (FOMC) concluded its two-day monetary policy meeting. As expected, the Fed left its target range for the Fed funds rate unchanged at 2.00%-2.25%.

In its released statement, the Committee relayed that since it last met in September, “economic activity has been rising at a strong rate,” and that job gains “have been strong”, acknowledging that the unemployment rate has declined, but also noting that “growth of business fixed investment has moderated from its rapid pace earlier in the year,” while not providing data or details for such. Regarding future rate increases, the Committee reiterated its path to continue gradually increase rates. The vote was unanimous.

Weekly initial jobless claims declined by 1,000 to 214,000, matching the Bloomberg expectation, as the prior week was upwardly-revised by 1,000 to 215,000. The four-week moving average dipped by 250 to 213,750, while continuing claims fell by 8,000 to 1,623,000, south of estimates of 1,634,000.

Treasuries finished mixed following the Fed statement, as the yield on the 2-year note rose 1 basis point (bp) to 2.96%, the yield on the 10-year note ticked 1 bp lower to 3.23%, and the 30-year bond rate dipped 2 basis points to 3.43%.

Rounding out the week’s economic calendar will be the Producer Price Index (PPI), with forecasts showing an increase of 0.2% m/m for both the headline and core rate during October, as well as the preliminary University of Michigan Consumer Sentiment Index, expected to tick lower during November to a level of 98.0. Wholesale inventories are also on tap, projected to post a 0.3% m/m rise for September following the 1.0% advance the month prior.

Europe mixed ahead of Fed statement, Asia rises following U.S. election market rally

European equities were mixed following yesterday’s U.S. election and prior to today’s Fed statement. The European Commission commented that growth in the Eurozone will stall in the coming years, citing a growing list of risks and forecasting a wider Italian budget deficit, which drew rebuttals from Italian officials. U.K. Brexit tensions continued, with no notable progress, as the U.K. cabinet reviewed a possible Brexit deal text, and the British pound and euro were lower. Negotiations on the Irish backstop—a guarantee to keep trade flowing freely across the Irish border—are ongoing, although officials downplayed the possibility of a quick resolution on this thorny issue. Bond yields in the region were lower.

Stocks in Asia were mostly higher, with a stronger increase in Japan, following solid gains posted in U.S., on the heels of results from the U.S. elections yesterday.

Chinese equities reversed to the downside, paring early morning gains, while those traded in Hong Kong rose slightly following lower-than-expected trade surplus numbers, with import and export data topping expectations. Chinese markets were closely scrutinized following the U.S. elections, though it is unclear if the outcome will have significant impact on U.S., China trade tensions. This also foreshadows today’s Fed statement as global equities look for indications on the pace of monetary policy normalization.

Stocks in Japan were solidly higher, with the yen gaining some ground on the U.S. dollar, while South Korean and Australian securities moved to the upside.

Market Insights 11/7/2018

U.S. equities finished with solid gains, as the mid-term elections, which offered few surprises with the Democrats taking control of the House and the Republicans expanding its Senate majority, provided the market some clarity as to the balance of power in Washington.

Treasuries were mostly higher and the U.S. dollar traded lower amid a second-tier economic calendar, and as the Fed began its two-day monetary policy meeting.

Crude oil prices fell in the face of another larger-than-expected rise in oil inventories, and gold lost ground.

The Markets…

The Dow Jones Industrial Average jumped 545 points (2.1%) to 26,180

The S&P 500 Index advanced 58 points (2.1%) to 2,814

The Nasdaq Composite soared 195 points (2.6%) to 7,571

In moderate volume, 885 million shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq

WTI crude oil fell $0.54 to $61.67 per barrel and wholesale gasoline was $0.4 lower at $1.65 per gallon

The Bloomberg gold spot price ticked $1.24 lower to $1,225.95 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.3% at 96.00

Mid-term results in focus, Fed begins monetary policy meeting

The MBA Mortgage Application Index declined 4.0%, following the prior week’s 2.5% decrease. The decline came as a 2.5% drop in the Refinance Index was met with a 5.0% fall in the Purchase Index. The average 30-year mortgage rate rose 4 basis points at 5.15%.

Consumer credit, released in the final hour of trading, increased $10.9 billion during September, below the $15.0 billion forecast of economists polled by Bloomberg, while August’s figure was adjusted higher to an increase of $22.9 billion from the originally reported $20.1 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, rose $11.2 billion, a 4.7% increase year-over-year, while revolving debt, which includes credit cards, fell by $300 million, a y/y decline of 0.4%.

Treasuries were mixed, as the yield on the 2-year note was up 1 bp at 2.94%, while the yield on the 10-year note declined 3 bps to 3.20% and the 30-year bond rate decreased 4 bps to 3.40%. The U.S. dollar lost ground, with the markets digesting the results from the mid-term elections, which showed the Democrats gained control of the House, though the Republicans increased their control of the Senate, likely setting up 2019 for more gridlock.

Finally, the Fed began its two-day monetary policy meeting today, that will conclude tomorrow afternoon with economists expecting no change to its policy stance, and with the lack of updated economic projections and press conference from Chairman Jerome Powell, tomorrow’s statement could garner the most attention.

Europe higher in the wake of U.S. election results, Asia mixed

European equities finished broadly higher, even as the euro and British pound rose versus the U.S. dollar, which saw some pressure following the results of the U.S. mid-term elections. The markets appeared to react positively, likely due to clarity regarding the balance of power in Washington, as the election showed the Democrats took control of the House, while the Republicans increased their control of the Senate, which was mostly in line with expectations.

The retail sector gained ground amid a host of mostly positive earnings results from the group and the Eurozone September retail sales report that showed although sales were flat for the month, the prior month’s decline was revised to a slight gain. Also, German industrial production unexpectedly rose in September, likely adding some positive sentiment regarding a potential bounce back in output for the region in Q4. Bond yields finished mostly higher, except for rates in Italy as its fiscal battle continues.

Stocks in Asia turned mixed as the results from the U.S. mid-term elections came in, suggesting a divided Congress, while the U.S. dollar fell in reaction. Japanese equities reversed to the downside as the yen showed some strength late in the day amid the pressure on the greenback, while the nation reported an unexpected decline in real wage growth for September.

Mainland Chinese stocks declined modestly, but those traded in Hong Kong out a slight gain. Australian securities advanced, with financials moving higher to more than offset some sluggishness out of the materials sector, while shares in South Korea traded lower and markets in India finished to the upside.

Random Observations

With the conclusion of this year’s midterm elections, the cloud of uncertainty has been lifted, allowing stocks to resume their recovery from the October sell off.

History reminds investors that the period after midterms have been favorable to equities. Since 1946, the S&P 500 advanced in price 67%, 94% and 100% of the time in the remaining two months of the year, as well as the six and 12 months after election day, respectively.

Now the focus returns to the fundamentals. S&P 500 Q3 EPS are coming in much stronger than expected, with consensus estimate now showing a near-28% jump versus the 21% end-of-quarter forecast.

Much of the credit for this outperformance can go to the reduced tax rate. According to S&P DJ Indices, lower tax rates have propelled earnings growth, permitting this year’s surge in year-over-year earnings gains.

An initial review of the income statements shows a significant decline in the actual tax rate paid by S&P 500 issues from nearly 28% in Q1 2016 to 19.6% for Q2 2018.

With the exception of Q4 2008, when GAAP income was negative (the only negative quarter in index history), Q1 2018 and Q2 2018 recorded the lowest tax rates at least since 1993, with the 1993-2017 average quarterly tax rate being 32.42%.

Market Insights 11/6/2018

U.S. stocks finished higher, as the markets awaited mid-term election results and ahead of Thursday’s Fed statement.

Treasury yields increased and the U.S. dollar was flat. Gold and crude oil prices were lower following yesterday’s reinstated sanctions against Iran.

The Markets…

The Dow Jones Industrial Average increased 173 points (0.7%) to 25,635

The S&P 500 Index rose 17 points (0.6%) to 2,755

The Nasdaq Composite advanced 47 points (0.6%) to 7,376

In moderate volume, 815 million shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq

WTI crude oil fell $0.83 to $62.89 per barrel and wholesale gasoline was $0.02 lower at $1.70 per gallon

The Bloomberg gold spot price decreased $4.95 to $1,226.54 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat at 96.29

Job openings declined but remained near record highs, election in focus

The Labor Department’s Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, fell to 7.01 million jobs available to be filled in September from August’s upwardly-adjusted fresh record high of 7.30 million, and compared to forecasts calling for a 7.09 million figure. The hiring rate ticked lower to 3.8% from August’s 4.0% pace, and the separation rate declined to 3.8%, south of August’s 3.9% level.

Treasuries were lower, as the yields on the 2-year note and 10-year note rose 2 basis points (bps) to 2.93% and 3.22%, respectively. However, the yield 30-year bond increased 1 bp to 3.44%. Oil remained under pressure after the U.S. issued waivers from Iranian sanctions yesterday to some of Iran’s biggest customers and global supply concerns seemed to be easing.

The markets continue to grapple with the Fed’s pace of monetary policy normalization, with the Central Bank’s meeting tomorrow and Thursday’s statement looming, as well as concerns that global economic growth may be decelerating. The economic docket will also feature consumer credit numbers and MBA Mortgage Application data. However, the immediate focus appears to be centered on today’s results of the mid-term elections.

Europe lower, Asia mostly highly ahead of U.S. elections

European equities traded mostly lower, as the euro and British pound gained ground on the U.S. dollar, while the global markets focused on today’s mid-term election results out of the U.S. The political uncertainty joined lingering ambiguity surrounding Italy’s budget battle, a lack of a breakthrough regarding a U.K. Brexit deal and last week’s surprise announcement that German Chancellor Angel Merkel will not seek reelection.

Some relatively upbeat economic data in the region appeared to be getting put on the back burner, though German factory orders unexpectedly rose and Markit’s Eurozone Composite PMI Index—a gauge of business activity in both the services and manufacturing sectors—was revised to a higher pace of growth than initially projected for last month. U.K., German, French and Italian shares declined, as Spanish and Swiss equities ticked lower. Bond yields in the region were mostly higher.

Stocks in Asia finished mostly higher following yesterday’s slide, with the markets eyeing today’s results from the U.S. mid-term elections. Japan’s equities rebounded, with the yen losing some ground and despite an unexpected drop in the nation’s household spending for September.

Mainland Chinese equities dipped and Hong Kong shares rose, with recent disappointing economic data being countered by continued verbal intervention from officials.

Australian stocks advanced, with the Reserve Bank of Australia leaving its monetary policy stance unchanged as expected. South Korean and Indian shares ticked higher.

Market Insights 11/5/2018

Stocks finished mixed ahead of tomorrow’s mid-term election results. Treasury yields were mostly lower and the U.S. dollar was down, prior to Thursday’s Fed statement.

Crude oil reversed to the downside as Iranian sanctions were reinstated and gold finished lower.

The Markets…

The Dow Jones Industrial Average rose 191 points (0.8%) to 25,462

The S&P 500 Index increased 15 points (0.6%) to 2,738

The Nasdaq Composite dropped 28 points (0.4%) to 7,328

In heavy volume, 0.9 billion shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq

WTI crude oil fell $0.35 to $62.79 per barrel and wholesale gasoline was $0.03 lower at $1.68 per gallon

The Bloomberg gold spot price decreased $1.96 to $1,230.93 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 96.31

Services sector reports continue to show solid growth

The October Institute for Supply Management (ISM) non-Manufacturing Index dipped to 60.3 from September’s 61.6 level, and versus the Bloomberg forecast of a drop to 59.0. A reading above 50 denotes expansion. New orders and business activity expansion both remained levels north of 60, and employment growth rose to 59.7. Prices ticked higher to 57.6. Non-manufacturing activity accounts for a large majority of U.S. economic output and the ISM said overall, the respondents were positive about current business conditions and the economy, but some commented that tariffs and transport capacity shortages are continuing to impact business.

The final Markit U.S. Services PMI Index was revised slightly higher than expected to 54.8 for October, compared to expectations of an adjustment to 54.6, and was higher than September’s 53.5 level. A reading above 50 denotes expansion. The release is independent and differs from ISM’s report, as it has less historic value and Markit weights its index components differently.

Treasuries were mostly higher, as the yield on the 2-year note was flat, the 10-year note rate increased 1 basis point (bp) to 3.20%, and the 30-year bond rate increased 2 bps to 3.43%.

Tomorrow night’s mid-term election results will garner attention for clues on the future balance of power in Washington. However, the headlining event will likely come in the form of Thursday’s conclusion of the November Fed meeting.

Europe mixed, Asia mostly lower as macro events in focus

European equities were mixed, as reports continued to suggest progress is being made on a U.K. Brexit deal and the U.S. and China are expected to discuss trade later this month in Argentina. Bank stress tests results were announced as scrutinized Italian banks seemed to ease past the test’s adverse scenario requirements. U.K., German, and Spanish stocks were higher, while French equities were little changed, but Swiss and Italian shares declined.

The euro and the British pound gained ground versus the U.S. dollar. Bond yields in the region were mixed. Eurozone investor confidence declined more than expected for November and U.K. services sector growth slowed more than anticipated for October, as reported by Markit.

Stocks in Asia finished lower to begin the week, with the markets continuing to grapple with mixed headlines regarding progress in trade talks between China and the U.S. Monetary policy decisions are due out of the U.S. and Australia later this week, along with mid-term elections from the former tomorrow, which likely fostered some caution.

A larger-than-expected slowdown in expansion out of China’s key services sector for last month, reported by Caixin, appeared to exacerbate concerns about decelerating global growth, while the U.S. re-implemented sanctions on Iran.

Japanese, Mainland Chinese and Hong Kong shares fell, with the yen choppy, amid a mixed response to a speech delivered by Chinese President Xi. Australian, South Korean, and Indian shares all moved lower.

6 new IRS tax limits for retirement plans in 2019

The Internal Revenue Service recently released some of its annual cost-of-living adjustments that will affect the 2019 tax year, such as contribution limits to qualified retirement plans.

The following are some of the important changes (or non-changes) to keep in mind.

401(k) Contributions

Elective deferrals for 401(k) participants will be $19,000, increased from $18,500. The same limit also applies to defined contribution plans such as 403(b)s, most 457 plans and the federal Thrift Savings Plan.

IRA Contributions

The limit on annual contributions to an IRA is increased to $6,000 for 2019 from $5,500. And the additional catch-up contribution limit for participants age 50 and older remains at $1,000, for a total of $7,000.

Roth IRA Income Limits

The IRS increased income limits on who can contribute to a Roth IRA. The income phase-out range for single filers is modified adjusted gross income between $122,000 and $137,000 in 2019. (That’s up from $120,000 to $135,000 in 2018.) Married couples filing jointly have a phase-out range with MAGI between $193,000 and $203,000, an increase of $4,000 on either end. Within a phase-out range, contributions are limited, eventually reaching zero.

Traditional IRA Deductions

The income limit for deducting contributions to traditional IRAs will increase in 2019. Single taxpayers covered by a workplace retirement plan have a phase-out range between $64,000 and $74,000, up from $63,000 to $73,000. The phase-out for married couples filing jointly will be $103,000 to $123,000, if the spouse making the contribution is covered by a workplace plan. That’s an increase from between $101,000 and $121,000.

Defined Benefit Plan

The limit on the annual benefit received under a traditional pension plan will increase to $280,000, from $275,000.

Simple Plans

The contribution limits regarding SIMPLE retirement accounts increased to $13,000 from $12,500.

Market Insights 11.2.2018

U.S. stocks fell, to end a three-day rally, in the wake of conflicting words from White House officials and President Trump that a trade plan for China was in the works and tech sector weakness following Dow member Apple’s disappointing guidance.

Another stronger-than-expected labor report reflected a tight labor market ahead of voters weighing in at next week’s midterm elections.

Treasury yields were notably higher and the U.S. dollar dipped for a second day. Crude oil was lower and gold prices were higher.

The Markets…

The Dow Jones Industrial Average fell 111 points (0.4%) to 25,269

The S&P 500 Index decreased 18 points (0.6%) to 2,723

The Nasdaq Composite dropped 77 points (1.0%) to 7,357

In heavy volume, 1.0 billion shares were traded on the NYSE and 2.9 billion shares changed hands on the Nasdaq

WTI crude oil fell $0.83 to $62.89 per barrel and wholesale gasoline was $0.02 lower at $1.70 per gallon

The Bloomberg gold spot price decreased $0.41 to $1,233.02 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 96.47

October labor report shows job growth topped forecasts, trade deficit widens

Non-farm payrolls rose by 250,000 jobs month-over-month in October, compared to the Bloomberg forecast of a 200,000 increase, but the rise of 134,000 seen in September was revised to a gain of 118,000 jobs. The net revisions to job gains for September and August offset each other. Excluding government hiring and firing, private sector payrolls increased by 246,000, versus the anticipated gain of 195,000, after rising by an unrevised 121,000 in September.

The unemployment rate remained at 3.7%, matching estimates, while average hourly earnings were up 0.2% month-over-month, in line with projections and below September’s unrevised 0.3% gain. Y/Y, wage gains were 3.1% higher, matching estimates, and versus September’s 2.8% rise. Finally, average weekly hours were 34.5, up slightly from September’s revised lower 34.4 rate, as expected. The bounce in pay for American workers was the largest since 2009, while unemployment remained at a 48-year low.

Treasuries were lower, as the yields on the 2-year note, 10-year note and 30-year bond increased 8 basis points (bps) to 2.91%, 3.21% and 3.45%, respectively.

On the backstretch of earnings season about 61% of S&P 500 companies have topped revenue forecasts and approximately 83% have bested profit projections per Bloomberg. The continuing earnings focus has been matched with Brexit negotiations, the Italian budget battle, and mixed trade headlines to hinder market sentiment.

The trade balance showed that the deficit widened more than expected to $54.0 billion in September, compared to forecasts of $53.6 billion. August’s deficit was revised upward to $53.3 billion. Exports were up 1.5% m/m at $212.6 billion, while imports also gained 1.5% m/m to $266.6 billion.

Europe moved higher, Asia rallied on trade optimism

European equities saw widespread gains to end the week, with the markets digesting the stronger-than-expected U.S. employment report, while the global markets received a boost from conflicting trade reports. The markets shrugged off a disappointing Eurozone manufacturing report from Markit, which showed growth slowed more than preliminarily reported for October.

The euro ticked lower versus the U.S. dollar, while the British pound modestly gave back yesterday’s rally. U.K. equities were down, German, French, Italian, and Spanish shares advanced, while Swiss stocks moved lower. Bond yields in the region were mixed.

Stocks in Asia rallied broadly on the heels of the third-straight gain in the U.S. Cooled trade concerns have helped overshadow the recent concerns regarding slowing global growth on the heels of some softer-than-expected Chinese and U.S. manufacturing data.

Japanese stocks rose, with the yen giving back early gains late in the session, while mainland Chinese and Hong Kong equities advanced.

South Korean markets rallied, India’s equities gained ground, and Australian stocks ticked higher.

Stocks rise but volatility remains

U.S. stocks rebounded for the week, trimming October’s tumble that brought a brief drop into correction territory amid increasing choppiness. Another full week of earnings nurtured mixed responses, as trade and global political reservations remained at the forefront of investors’ minds.

Consumer Confidence hit an 18-year high and non-farm productivity numbers slightly beat expectations but fell from the previous quarter. The ISM Manufacturing Index came in softer than expected, reinforcing global growth deceleration concerns. Treasury yields rose, with the 10-year note moving in on early October’s multi-year high and the 30-year bond yield climbing back to a 2014 high.

The U.S. dollar dipped lower, with the British pound rising notably higher following a more hawkish Bank of England stance and optimism of a Brexit deal drawing closer. Crude oil price fell again, with oil inventories extending a weekly inventory build streak, joining the aforementioned global growth concerns and as Iranian sanctions loom.

Next week will bring a fully-loaded docket of data that could bring some volatility to the market again. Earnings season will remain stout and the economic calendar will deliver an abundance of key reports, including job openings, the University of Michigan Consumer Sentiment Index, unit labor costs, the Producer Price Index and the ISM Non-Manufacturing Index.

The mid-term elections will garner attention for clues on the future balance of power in Washington. However, the headlining event will likely come in the form of Thursday’s conclusion of the November Fed meeting. Although there will be no press conference or updated economic projections from the Fed, scrutiny will remain regarding whether it will remain on the current path to policy normalization.

Lastly, history shows that stocks tend to face a seasonal tailwind heading into the end of the year, but there will likely be more volatility. However, at least overly optimistic investor sentiment has eased, U.S. economic growth remains solid, and the midterm elections will soon be over, all of which could trigger at least a relief rally off the recent lows. But gains both here and globally are likely limited by myriad late-cycle pressures.

Market Insights 11/1/2018

U.S. markets strung together a three-day rally to partially rebound from October losses, as President Donald Trump tweeted upbeat trade progress comments that boosted sentiment and the Nasdaq closed out of correction territory.

Treasury yields were slightly lower and the U.S. dollar was down. Crude oil prices were lower and gold gained ground.

The Markets…

The Dow Jones Industrial Average rose 264 points (1.1%) to 25,380

The S&P 500 Index climbed 28 points (1.1%) to 2,740

The Nasdaq Composite rallied 128 points (1.8%) to 7,434

In moderate volume, 1.0 billion shares were traded on the NYSE and 2.6 billion shares changed hands on the Nasdaq

WTI crude oil fell $1.79 to $63.52 per barrel and wholesale gasoline was $0.03 lower at $1.72 per gallon

The Bloomberg gold spot price decreased $18.89 to $1,233.65 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.9% lower at 96.25

Manufacturing activity continues to show expansion, productivity tops forecasts

The Institute for Supply Management (ISM) Manufacturing Index for October declined to 57.7 from the unrevised 59.8 in September, versus the Bloomberg forecast calling for a dip to 59.0, with a reading above 50 denoting expansion. New orders and production both declined, but remained solidly in expansion territory, supplier deliveries rose further above 60, inventories declined to 50.7, order backlogs nudged higher to 55.8, and prices increased to 71.6. Employment fell to 56.8 and new export orders fell to 52.2.

Weekly initial jobless claims declined by 2,000 to 214,000, above estimates of a decrease to 212,000 from the prior week’s upwardly-revised 216,000 figure. The four-week moving average rose by 1,750 to 213,750, while continuing claims fell by 7,000 to 1,631,000, south of estimates of 1,640,000.

The final October Markit U.S. Manufacturing PMI Index was revised downward to 55.7 from the preliminary reading of 55.9, slightly below forecasts of 55.8. The index was up versus the 55.6 level posted in September, with a reading above 50 indicating growth in output. The release is independent and differs from ISM’s manufacturing report, as it has less historic value and Markit weights its index components differently.

Treasuries were higher, as the yields on the 2-year note fell 2 basis points (bps) to 2.85%, 10-year note and 30-year bond fell 1 bp to 3.14% and 3.38%, respectively.

Tomorrow’s economic docket will feature the October non-farm payroll report, which is expected to show 200,000 jobs were added, as compared to the prior reading of 143,000 jobs. The unemployment rate is expected to be unchanged at 3.7%. Factory orders are also on tap, with economists projecting a 0.5% m/m increase during September following the 2.3% m/m increase registered in August, and the final read on durable goods orders will round out the docket.

Europe finished mixed, Asia starts month higher

European equities finished mixed, coming off a decisive October pullback, with the markets digesting some diverging earnings reports, while the euro and British pound were solidly higher versus the U.S. dollar. The pound rallied on reports of a potential Brexit deal breakthrough regarding the financial sector, as the Bank of England fostered a slightly more hawkish takeaway from its expected unchanged monetary policy decision. U.K. and Italian shares traded lower, German equities were flat, Italian and Spanish stocks gained ground, and Swiss shares ticked lower. Bond yields in the region were mixed.

The recent stock market behavior and our belief in heightened risk of a peak in the global economic cycle in the next 6-18 months makes it a good time to consider what has happened to stocks in a typical recession and bear market. He points out that in general, stocks tend to peak before the recession, bottom a year after the recession starts and take about 3.5 years to recover the losses.

Stocks in Asia finished solidly higher to cap off a dismal month for the markets, following yesterday’s recovery rally in the U.S., though skittishness and volatility appeared to linger amid a host of potential global risks, notably trade and Fed policy uncertainty.

The Bank of Japan as expected kept its monetary policy stance unchanged but said inflation will remain below its 2.0% target until at least early 2021. Mainland Chinese and Hong Kong stocks moved to the upside despite reports showing the nation’s manufacturing and key services sector growth both slowed more than expected in October.

Japanese, Australian, Indian, and South Korean shares also advanced higher.

Random Thoughts

Elevated concerns over PEs (politics and earnings) have pressured share prices.

Traditionally the S&P 500 has experienced price weakness in the second and third quarters of midterm election years, due to the uncertainty surrounding the upcoming election.

However, this year’s sell-off has been concentrated in October. Also, recent company comments revealed that fundamental fears are finally coming to fruition, now that Wall Street can no longer deny that global trade disputes are pressuring multinationals’ forward guidance.

The outstanding question is whether CAT is the canary calling for an impending widespread reduction in 2019 EPS growth estimates or if Boeing’s bounce is a better barometer.

It is well known on Wall Street that prices lead fundamentals. The selloff since Sept. 20 pushed U.S. indices down from 9.4% for the S&P 500 to nearly 15% for the S&P SmallCap 600, causing investors to begin wondering if they need to reevaluate EPS growth projections.

By October 26, even though Q3 estimates had been adjusted upward to show a year-over-year gain of 25%, versus the 21% end-of-quarter estimate, the S&P 500 and nine of its 11 sectors saw reductions in full-year 2019 EPS growth forecasts, according to S&P Capital IQ consensus estimates.

Not surprisingly, investors also wonder if EPS peaks have historically coincided with equity price sell-offs. The unfortunate answer is yes. However, selloffs have come in the form of corrections as well as bear markets.

This time around, while we project a deeper decline is always possible, we don’t anticipate a new bear market. Indeed, we think the recent unpleasantness represents the readjustment in the anticipated angle of ascent in share prices over the coming year, due to increasingly challenging year-on-year GDP and EPS comparisons.