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Weekly Market Review | Oct. 20

22 October 2019

Clint McGarvin, CFA® | Portfolio Manager

Week Ending October 20, 2019


Domestic equity performance posted solid returns last week, in line with the underlying positive economic and earnings data. U.S. large-caps were up about 0.6% while small-caps put up a strong week, rising about 1.6%. The solid equity performance was despite September’s retail sales reported last week, which fell 0.3% from August. Consumers pulled back on spending in nearly every category within the report; the bright spots were clothing and accessories and restaurants. The year-over-year change in consumer spending is up 3.4%, highlighting consumer strength in the fourth quarter of 2018 and the first seven months this year. It is worth noting that the one month of weak consumer spending should not elicit high levels of concern, but when combined with personal consumption expenditures for August, it suggests we should scrutinize forthcoming data regarding the consumer.[i]

We received several manufacturing reports last week, with each indicating conditions in the sector remain weak, but the underlying trends are positive. Two regional reports, The Philly Fed Index, which gives information on the manufacturing sector in the Philadelphia region, and the Empire State Index, which gives data on the manufacturing sector in the New York region, showed that operating conditions remain subdued in those regions. The Philly Fed index fell 6 points, indicating that the overall activity weakened last month. However, more firms were reporting improved activity than those reporting lower, which suggests the weakness at least in the Philadelphia region is beginning to stabilize. Also, inflation pressures continued to decline in the region.[ii] The Empire State Index indicates that activity increased slightly last month as the index increased two points to four as more firms reported improved conditions. Both indices reported an improvement in new orders, which had been declining for several quarters.[iii] Industrial production across the country declined 0.4% in September from August, bringing the year-over-year change down to -0.1%. Within the report, the weakness in September was in those manufacturing industries that supply the consumer, whereas the business and production-oriented industries experienced stabilization,[iv] which, when combined with the Philly Fed and Empire State indices, suggests the manufacturing sector in the U.S. is beginning to stabilize.

Corporate earnings for the third quarter started in earnest last week with the large banks reporting. Citigroup, JP Morgan, Bank of America, Wells Fargo, US Bank, among others, reported third-quarter earnings with largely positive results. Loans grew in the quarter, so most banks experienced increased revenues and earnings. The growth in loans is a positive since it illustrates the economy is likely to grow over the next few quarters.

Other reports last week:

The housing sector continues to struggle as building permits, and housing starts declined in September from August.


International equity markets, like the U.S., were positive on the week with developed markets rising about 1.2% and emerging up about 1.3%. The negative news in emerging markets was China’s third-quarter GDP, which was lower than expected, rising 6.0% compared to expectations for growth of 6.1%. The 6% growth rate is the lowest in 27 years. The slower growth sent Chinese equity markets down about 1.3% Friday, and other emerging market equities followed suit.[v] The big news in Europe was the UK reached an agreement with the EU for a formal withdrawal of the UK from the European Union. However, that deal must pass the UK parliament, and as of this writing, it is unlikely to pass. Failure to pass the agreement would mean UK Prime Minister Boris Johnson would need to request an extension from the EU for additional time to negotiate an agreement between the UK and the EU that could pass parliament. The agreement was seen as a positive by investors as European equities rose following the announcement, only to give back the gains as it became increasingly unlikely to pass parliament.

Fixed Income

Long-term Treasuries struggled last week, falling about 0.5% while high-quality bonds were up about 0.1%. The fairly large decline in long-term Treasuries overall was in the face of Treasury rates that were largely unchanged in the week, and the yield curve is now moved out of inversion as the yield on the 10-year Treasury exceeds the yield on the 3-month Treasury with the 10-year at a yield of 1.76%, and the 3-month is at 1.66%. The spread between the 3-month and the 10-year has been inverted since early May, and the move out of inversion has perhaps reduced the threat of a recession since an inverted yield curve has in the past affected the behavior of recession.[vi]


The U.S. consumer has lost some strength over the last few months with weaker overall consumer spending and a decline in retail sales. But, the manufacturing sector, while still in a recession, appears to be stabilizing as we head toward the end of the year, raising expectations that we could see a rebound next year and help avoid a recession. The U.S. economy still faces headwinds from a slowing global economy, highlighted by third-quarter GDP numbers from China and continued stress caused by the trade war. But as previous data has shown, we might be seeing the early stages of stabilization in Europe, Japan, and other regions other than China.

Economic News This Week:

This week is a fairly light week on economic news, which is a good thing since there are approximately 600 companies reporting earnings. We will get additional data regarding the health of the housing sector with existing home sales on Tuesday. Thursday, we get data on business spending with durable goods and core CapEx orders. Also, the Markit manufacturing and services Purchasing Managers’ Index(PMI) for October will be released. Finally, on Friday, Consumer Sentiment will be released.

Past performance is no guarantee of future returns.  Performance discussed represents total returns that include income, realized and unrealized gains and losses. Nothing presented herein is or is intended to constitute investment advice or recommendations to buy or sell any types of securities and no investment decision should be made based solely on information provided herein. There is a risk of loss from an investment in securities, including the risk of loss of principal. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for an investor’s financial situation or risk tolerance. Diversification and asset allocation do not ensure a profit or protect against a loss. All performance results should be considered in light of the market and economic conditions that prevailed at the time those results were generated. Before investing, consider investment objectives, risks, fees and expenses.
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[i] U.S. Census Bureau (2019) Advance Monthly Sales For Retail And Food Services, September 2019. Retrieved from
[ii] Federal Reserve Bank of Philidelphia (2019) October 2019 Manufacturing Business Outlook Survey. Retrieved from
[iii] New York Fed (2019), Empire State Manufacturing Survey. Retrieved from
[iv] Federal Reserve (2019) Industrial Production And Capacity Utilization. Retrieved from
[v] CNBC (2019) Asia Pacific markets mostly tumble as China’s growth weakens more than expected. Retrieved from
[vi] U.S. Department of the Treasury (2019), Daily Treasury Yield Curve Rates. Retrieved from

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