The equity markets surged in October, fueled by a combination of Fed rate cuts, strong corporate earnings, and renewed optimism for a breakthrough in US-China trade talks.
The major indexes had the following returns:
NASDAQ – 3.71%
Russell 2000 – 2.63%
S&P 500 – 2.17%
DJIA – 0.59%
The Federal Reserve cut rates by a quarter-point to a range of 1.5% to 1.75%. The Fed’s cut was widely expected. While the rate cut helped to drive market growth through October, the Fed did suggest that it may hold rates steady for the foreseeable future. In its report, the Fed removed language that said it would “act as appropriate to sustain the expansion.” Instead, the Fed said it would continue to monitor economic conditions. Many analysts believe this change in language suggests that the Fed will not make more cuts in the near term.
Renewed optimism in US-China trade talks also boosted the financial markets in October. President Trump suggested that progress was being made and that the first phase of a formal trade deal could be signed by mid-November. Investors welcomed this news as the ongoing trade war has been a drag on worldwide economies. The International Monetary Fund (IMF) reported that fallout from the trade war has slowed global economic growth to 3% in 2019, which is the lowest worldwide growth rate in 10 years.
Strong Corporate Earnings
While there have been rumblings of a recession on the horizon, those fears weren’t reflected in third-quarter corporate earnings. Reports were generally strong across the board. In fact, FactSet, which analyzes S&P 500 earnings reports, found that 76% of companies beat their earnings-per-share (EPS) expectations. They also found that 55% of S&P 500 companies beat their quarterly revenue expectations.
The markets’ strong performance through October is a good sign for the last two months of the year. There have been seven times dating back to 1950 in which the S&P 500 was up more than 20% through October. In each of those instances, the market added to its gains through the rest of the year. In fact, the average additional return in those years is 6.22%.
The end of the year is a great time to meet with your clients, review their strategies, and make adjustments for the upcoming year. CreativeOne’s sales team is here to help you develop informed, savvy strategies for your clients.
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