Weekly Market Commentary November 6, 2017

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October produced another positive month for many major stock market indices, and the first few days of November pushed some to new highs. The S&P 500 rose 0.3%, the MSCI ACWI rose 0.6%, and the Bloomberg BarCap Aggregate Bond Index climbed 0.4%. The S&P 500 is now up more than 15% this year, and the MSCI ACWI has soared more than 18% since January. 

Strong jobs numbers, the announcement of Jerome Powell as the next Fed chair, and above-average third quarter earnings held no surprises for investors. The GOP’s proposed tax plan includes lower tax rates across the board and a major cut to the corporate tax rate, which Republicans believe will fuel economic growth and strengthen American competitiveness. Investors generally responded positively to the news but certain sectors such as homebuilders declined.

Key points for the week

  • 261,000 jobs were created in October.
  • Jerome Powell was nominated as the next Federal Reserve chair.
  • Third quarter earnings show more companies beating earnings than average.
  • The proposed GOP tax plan includes big changes for corporate taxes.

What are we reading?

Below are some areas of the market we paid particularly close attention to this week. For further information, we encourage our readers to follow the links.

US created 261,000 jobs in October

The U.S. created 261,000 new jobs and posted a 4.1% unemployment rate in October, according to the jobs report released Friday. The number was below Wall Street’s estimate of 310,000. Although the high expectations weren’t met, the outlook on the economy is still positive and adjustments to previous estimates showed gains.

Trump Announces Jerome Powell as New Fed Chairman

President Donald Trump nominated Jerome Powell on Thursday as the next Fed chair. Powell is expected to track a similar path to former chair Janet Yellen in slowly raising interest rates and liquidating the Fed’s large balance sheet. The biggest potential difference is Powell may loosen regulations on banks and other financial institutions. Powell is expected to be confirmed.

Q3 2017 Earnings Season: By the Numbers

Third quarter earnings season has improved significantly over previous years. Seventy-six percent of companies are beating their earnings estimates, well above the one- and five-year averages of 71% and 69% respectively. Not only are more companies beating expectations, they are beating them by a comfortable margin, 4.7% on average. That is higher than the five-year average of 4.2% but lower than the one-year average of 5.1%. Investors had little reaction as the average price increase was just 0.1% for companies with better-than-expected earnings.


Fun story of the week

Sweet Surrender: Detroit-area man arrested with a dozen doughnuts for police

A man surrendered to police in Detroit with a sweet gesture: a dozen doughnuts. Michael Zaydel, 21, was wanted for parole violations and promised to turn himself in if his mugshot was shared on Facebook 1,000 times. A week later Zaydel walked into the police department with a dozen doughnuts as an apology for inconveniencing the officers. It didn’t help him. He was sentenced to 39 days in jail. Sgt. Duane Gregg replied “no comment” when asked if the officers ate the doughnuts.


 

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