U.S. – Mixed Signals | Harris Fraser
Research Insights
19 November, 2019
U.S. – Mixed Signals

The Fed announced a rate cut of 0.25% in October as expected, combining this with the positive news on the ongoing trade war, markets calmed and US equities went up in October. S&P 500, Dow Jones and NASDAQ indices gained 2.04%, 0.48%, and 3.66% respectively.

Fed chair Powell’s hawkish remarks after the FOMC meeting, plus dropping the “Act as appropriate to sustain the expansion” clause from the Fed statement, lowers the expectation of another rate cut in December. Deriving from the Bloomberg interest rate futures, there is less than 20% chance of another rate cut before the end of 2019. While we might not get another rate cut soon, the Fed balance sheet expansion should continue to provide a healthy support to the markets towards the end of the year. The earnings season gave the market another pleasant surprise. Over 80% of reported S&P 500 constituents posted positive earnings surprises. The strong showing with a limited downward revision on the Q4 outlook allows investors to be more optimistic on US equities.

On the trade war front, a couple of positive news have been circulating, as the US President Trump repeatedly claimed that there has been “faster than expected” progress over the first stage of trade deals, the general atmosphere and sentiment was positive over the trade deal, with the US emphasizing that both sides will sign the first stage of the trade deal.

That said, from a fundamental perspective, we continue to see mixed signals. ISM manufacturing PMI figures continue to stay in the contraction territory, while the Q3 GDP recorded a YoY increase of 1.9% which exceeded market expectations. The US market remains the robust equity market among major markets, but investors should keep an eye on the various leading indicators in the market and continue to stay cautious.

 

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