October 30th – Weekly Update

  • U.S. equities experienced a strong week as speculation for a new Fed chair continued and the European Central Bank (ECB) kept its rates unchanged. Oil prices climbed and gold dipped for the period.
  • With 55% of S&P 500 companies reporting third-quarter results, 76% have beaten earnings expectations while 67% have beaten sales expectations. According to FactSet, the third-quarter blended earnings growth rate stood at 4.7%, up from 1.7% last week. Twitter, Aetna and GrubHub impressed this week; Chipolte, Dr. Pepper Snapple and Expedia were among the disappointments.
  • Tax reform negotiations continue to be a centerpiece of the fundamental narrative during the week. The latest reports indicate that the House will release draft legislation at some over the coming days. Senate Finance Committee Chairman Orrin Hatch said his panel needs to produce a plan in the next two to three weeks.
  • The Fed chair race continues to grab headlines. Politico reported that Janet Yellen is out of contention, along with Kevin Warsh and Gary Cohn (though this had been largely understood for a while). Jerome Powell and John Taylor are the finalists. A Fox Business report claimed that President Trump could nominate both of them to lead the Fed, with one getting the chair role and the other getting vice chair.
  • The decision is expected to come before Trump’s upcoming trip to Asia. The market seems to have grown more comfortable with the leadership change, and some recent commentary has centered around the notion that a change won’t likely move the needle much on policy.
  • As widely expected, the ECB kept rates unchanged and reduced its monthly quantitative easing (QE) target to €30B vs. €60B. The ECB will start the reduced QE pace from January to September 2018 (well-flagged) and pledged that it will increase the size/and or duration of its QE program, if needed.
  • New home sales for September came in stronger than expected, rising 18.9% month-to-month to a 667K annualized pace (compared to the 555K consensus estimate). That was the biggest monthly gain since January 1992. Sales were up 17% on a year-to-year basis, to the highest level since October 2007.

CPWM Weekly Market Monitor (2017.10.30)