Monday, November 5, 2018

Week In Review | Nov 5 2018

Hilliard Lyons’ Investment Strategy & Research team is dedicated to supporting you and your Wealth Advisor. We provide investment guidance and help you separate meaningful news from idle noise via timely market commentary.

‘Shocktober’ Ends on a High Note

  • Stocks were up last week, bolstered by three straight days of gains over 1%, as a volatile October came to an end. International stocks rebounded strongly, with emerging markets turning in their best week since February ‘18. Earnings were in focus, briefly obfuscating many of the headwinds assigned to recent market weakness.
  • The Hilliard Lyons View: Equities performed well last week, with broad strength across the board. In the midst of the recent market turbulence, Q3 earnings have (quietly) been excellent. With three-fourths of the S&P 500 reporting, positive EPS and sales surprises are ~78% and ~61%, respectively. As of now, S&P 500 earnings growth is 26.6%, which would be one of the strongest quarters since the crisis. Despite these results, mixed forward guidance has somewhat tempered market reaction.

S&P 500 earnings growth is 26.6%, which would be one of the strongest quarters since the crisis.

Jobs News Constructive

  • Employment data out Friday was exceptionally strong. Nonfarm payrolls surged to 250K, beating consensus handily, while y/o/y average hourly earnings topped 3% for the first time since 2009. Unemployment held firm at 3.7% and the employment-to-population ratio hit a cycle high at ~61%. On a related note, consumer confidence struck an 18-yr high.
  • The Hilliard Lyons View: Despite the prevalence of market volatility this Oct., the underlying economic data has remained largely positive. In addition to a Dec. hike, this will likely renew the Fed’s confidence in continuing to normalize rates into 2019. A strong economy is the bedrock on which US companies operate, and we view several positive notes for the US consumer as constructive heading toward year-end.

Yields Jump

  • Yields popped last week as money flowed back to equities. The 2/10 spread widened slightly to 31 bps, and has been hovering between 15 and 35 bps since June. A flattened, but not inverted, yield curve can be positive for equities.
  • The Hilliard Lyons View: Risk was back on this week, as bond yields rose while stocks outperformed. On the whole, bonds have done a solid job hedging equity risk during a volatile October, averaging a positive return on down days for stocks.

A Look Ahead

  • The Hilliard Lyons View: Mid-term elections take place Tuesday, which should help shape the financial and economic narrative for the remainder of the year. Earnings season is beginning to wrap up, though a few major names have yet to report; on the docket this week: Walt Disney (DIS), Qualcomm (QCOM), Toyota (TM), & Eli Lilly (ELY), among others. In a lighter week for economic news, the Fed has their November meeting, though rates are expected to remain unchanged.

Key Definitions

  • S&P 500 – index composed of ~500 large-cap US equities listed on the NYSE or NASDAQ.
  • Russell 2000 Index – index composed of ~2000 small-cap US companies.
  • MSCI EAFE – index composed of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East. This index does not include US or Canadian companies.
  • MSCI EM - index composed of large and mid-cap securities across 24 emerging markets.
  • Bclys US Agg – (Bloomberg Barclays US Aggregate Total Return Bond Index, Unhedged) total return bond index composed of taxable, dollar-denominated debt.
  • Oil--WTI – represents West Texas Intermediate Crude Oil, a grade of light crude oil used as the underlying commodity in many indices and futures contracts.
  • Oil--Brent – represents Brent Crude Oil, a grade of light crude from the North Sea used as a global benchmark price.
  • IG Spread – (Investment Grade Spread, Bloomberg Barclays USD Liquid IG Corp Average OAS) represents the yield difference between an index of investment-grade rated bonds and a spot Treasury bond curve.
  • HY Spread – (High Yield Spread, Bloomberg Barclays US Corporate HY Average OAS) represents the yield difference between an index of below investment-grade rated bonds and a spot Treasury bond curve.

Important Disclosures

Each client’s investment needs, risk tolerance, and goals are different. This newsletter is not meant to be advice for any specific investor. Nothing in it should be construed as an offer to sell, or a solicitation of an offer to buy, any securities. This should not be used as the sole basis for an investment decision. Any opinions or estimates are subject to change without notice. For information about how any of this information applies to your personal financial situation, please contact your Wealth Advisor.

Past performance is not a guarantee of future results.

Although the information provided to you in this newsletter was obtained or compiled from sources that we believe are reliable, J.J.B. Hilliard, W.L. Lyons, LLC cannot, and does not, guarantee that the information or data is accurate, timely, valid, or complete.

All investing involves risk, including the possible loss of principal. You should carefully consider investment objectives, risks, charges, and expenses of any investment before investing. Diversi-fication and asset allocation do not guarantee a profit or guarantee against a loss.

Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. The bond market is also volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect can be more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks.