While it is often the most volatile month of the year, there was nothing spooky about this October. The US stock market crept up slightly thanks to an easing of tensions on the US/China trade front, an accommodative monetary policy (lower interest rates), diminishing hard-Brexit risks and an optimistic start to the Q3 earnings season. At home in Canada, markets were mostly unchanged – with the recent election results suggesting the status quo.
While the November APEC meeting in Chile was cancelled due to civic unrest in that country – President Trump and Prime Minister Xi of China still plan to meet soon to sign ‘phase one’ of a new trade deal between their two nations. Trump has said that the deal represents 60% of an overall long-term agreement – which would certainly be welcome news for equity markets worldwide. In meetings this month, I have been suggesting to clients that a deal with China is more and more likely as the next presidential election draws near.
Also, of importance – yesterday’s move by Federal Reserve Chairman Jerome Powell to lower interest rates by another 0.25%, could provide a further tailwind for stock prices in the months ahead. The Bank of Canada continued to hold rates steady, as Governor Stephen Poloz has been concerned about inflation, consumer debt levels and escalating home prices.
The third quarter earnings reporting season has been better than expected, increasing the odds of a cyclical rebound in economic activity (and pushing back recession fears). While only 38% of companies in the S&P 500 had reported as of this week – almost 80% have beaten expectations. The outperformance has been quite broad across industry sectors – with only energy and real estate the major laggards.
Wishing you all an enjoyable November!
-The Creed Team