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The Markets This Week

November 5, 2019 | Weekly Commentary

by Connor Darrell CFA, Assistant Vice President – Head of Investments
Equity markets climbed higher last week, bolstered by healthier than expected corporate earnings and a strong October jobs report which also contained upward revisions to prior data. In addition to the stronger than expected job growth, Friday’s employment summary also revealed a healthy increase in hourly earnings of 3%, which is handily higher than the current rate of inflation and an excellent development for the U.S. consumer.

The Federal Reserve implemented a widely anticipated quarter point rate cut on Wednesday and bond yields trickled lower as a result, which led to positive returns for bond investors. In his comments following the Fed announcement, Chairman Jerome Powell signaled to markets that the economic fundamentals would need to deteriorate significantly before the Fed would move to cut rates further, and we may now be entering the first period of steady policy rates for quite some time.

First Look at Q3 GDP Yields Positive Signs
According to advance estimates of Q3 US GDP figures released last week, real GDP grew at a rate of 1.9% during the quarter, which was faster than the consensus forecast of 1.6%. Given the Q3 data looks a bit lower than what was observed last quarter, the data provided further confirmation that the U.S. economy is slowing down but is not stalling in a way that many have begun to fear. Consumption growth was once again the primary driver of growth in GDP, with business investment and net exports offsetting some of the contributions from consumption for the second straight quarter, which illuminates some of the impacts of the U.S./China trade dispute. As the U.S. and China continue to inch closer to a “Phase One” trade deal, sentiment surrounding business decisions may have the opportunity to recover, but the length of the economic expansion will be largely driven by the consumer, which continues to benefit from wage growth and a historically healthy labor market.