This year continues to reward stock and bond investors. After starting the month with a decline, the overall U.S. stock market closed with a gain of 2.15% as measured by the Russell 3000 Index, a broad benchmark that includes approximately 3000 of the largest US stocks. Other broad categories of stocks, such as domestic small-cap stocks and developed-market international equities also performed well in October.
Part of the October rise in global stock markets relates to news of a partial trade deal between the U.S. and China. Dubbed “phase one” of a multi-part deal, the agreement is expected to be signed by President Trump in mid-November. The deal is expected to pause tariff escalations but will not remove or lower tariffs that are already in place. Another key component of the deal is to increase the amount China purchases of U.S. farm products such as soybeans and pork. The deal reportedly contains some agreements on currency manipulation, intellectual property theft, and a dispute mechanism. Many of these items, however, have already been announced or lack a clear way to force compliance. While this deal represents a step toward resolving the trade conflict, the limited scope and effect of this agreement suggests the two sides remain far apart on major issues.
A number of U.S. corporations released their quarterly financial results in October. Of the companies included in the S&P 500 index, over 340 have reported results and about 75% of them beat Wall Street’s profit forecasts, according to FactSet. Additionally, stocks that reported strong results have seen their share prices rise, such as Microsoft (21% year-over-year [YoY] increase in Earnings Per Share [EPS]) and JPMorgan Chase (+15% YoY in EPS). Not all companies delivered such stellar results. Companies such as Google-parent Alphabet (-23% YoY in EPS), Amazon (-26% YoY in EPS), and Boeing (-50% YoY in EPS) are among those.
The Federal Reserve
As was widely expected, the Federal Reserve voted last Wednesday to lower policy interest rates. Comments from Federal Reserve chair Jerome Powell suggest that the Federal Reserve is ready to hold rates where they are now. With or without an additional rate cut, economic data remains more favorable than not.