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By Pete Biebel, Senior Vice President

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I welcome the month of November with open arms.  Sure, the days are going to continue to get shorter and the temps are going to continue to get colder, but at least we won’t have to hear any more Octoberfest-based ad schemes.  All last month, car dealers had Octoberfest sales; radio stations had Rock-toberfests; Japanese restaurants had Wok-toberfests.  One craft brewer had a Bock-toberfest.  Physicians could have had Doc-toberfests.  I’m surprised pawn shops didn’t advertise Hock-toberfest.  I was going to call this article “Stock-toberfest,” but nobody would have read it after seeing that title.

October was, nevertheless, a good month for the stock market.  Considering that the month of October has witnessed some of the worst drubbings in stock market history, last month was a relatively spectacular month for stocks.  The Dow Jones Industrial Average (DJIA) gained a mere ½% for the month; its performance was diminished by the impact of trade war concerns and disappointing earnings on several of its 30 component stocks.  The 2% gain in the S&P 500 Index (SPX) for the month was much more representative of the overall market’s performance.  The NASDAQ Composite Index (COMP), with a lot of help from Technology and Healthcare stocks, tacked on nearly twice as much.

For the week, SPX added 1.47% and COMP 1.74% with nearly all of those gains coming on the openings on Monday and Friday.  SPX gapped up to a new high on Monday’s opening on a combination of earnings news, stronger overseas markets and Presidential tweets.  The index poked up to a slightly higher level early Tuesday before fading.  On Wednesday, the day of the Fed policy announcement, SPX traded modestly in the red until remarks from Chairman Powell at his press conference confirmed the dovishness of the Fed’s policy.  Markets rallied late in the session and SPX just barely tagged a new high near the 3050 level before fading in the final hour.  October ended with a blah session on Thursday.

The new month began on Friday with an all-day, one-way rally; COMP and SPX closed at their highs of the day, week, year and ever.  The stronger employment numbers on Friday morning got a lot of credit for the market’s strength that day, but news of progress in trade talks with China also made a large contribution to the optimistic mood.

The Shock-toberfest award for the most surprising performance last month goes to the Russell 2000 Index of small-cap stocks (RUT).  While the big-boy averages were marching to new highs through the summer months, RUT was stumbling and staggering.  RUT began October in a rut near 8-month lows.  Over the previous couple months, I had theorized that the overall market was unlikely to make much upward progress if RUT continued to lag.  The small-cap index was still a little hesitant coming out of the gate as October began, but it charged ahead nearly 8% over the past three weeks.  The recent gains have left RUT just short of its summer highs, and still well below its late-2018 high, but seeing that small-caps seem to have found their stride should make the path forward for the overall market easier.

There was no Buck-toberfest for the U.S. Dollar.  Again, last week, the declining value of the Dollar had a big impact on the relative strength of the various sectors.  The Wall Street Journal U.S. Dollar Index peaked at the end of September and trended steeply lower last month.  That index has now dropped about 2 ½% in a month.  Much of last week’s loss came Wednesday afternoon following Chairman Powell’s dovish comments.  The Dollar weakness during October was a tail-wind for international markets.  Indices in Brazil, China and Germany among others easily out-gained U.S. markets over the past five weeks.

The weaker Dollar should also have been a tail-wind for commodity prices, but both Crude Oil and Gold were flat for the month.  Crude prices are under pressure from concerns of increasing supply and decreasing demand.  Gold has been flat for the past several months as it seems to still be consolidating its 15+% summer rally.

As the month of November begins, the market seems to be firing on all cylinders.  Earnings have been better than expected, the Fed is dovish, overseas markets are stronger, and there may even be some progress in the trade talks.  The first day of the month launched COMP and SPX to record highs, so there are wide open spaces above.  Follow-through gains should come easily; “should” being the key word.

The one potential wrench in the works that the market has seemingly disregarded so far is the pending impeachment process.  The market has more or less ignored the plot developments and seems to be viewing the process as more of a Vaudevillian side-show.  Perhaps it’s just that there’s a high confidence that, regardless of the on-stage antics, they know how the show is going to end.

SPX ended last week just below 3067, a little more than 1% above its July high.  Even if last week’s rally does not enjoy follow-through gains this week, I expect the index will have a band of support in the 3000 – 3025 area.  So, there shouldn’t be much to be concerned about unless and until SPX takes out that 3000 level.

Both the earnings report calendar and the list of economic reports are a little thinner this week.  Traders will be watching the news to get the skinny on possible progress in the trade talks.  And, the plot thickens on the impeachment saga as transcripts of depositions could be released this week and the timing for public hearings could be finalized.

Date Report Previous Consensus
Monday 11/4/2019 Motor Vehicle Sales 17.2mm 17.0mm
Factory Orders, M/M -0.1% -0.5%
Tuesday 11/5/2019 International Trade, Trade Deficit $54.9B $52.5B
PMI Services Index 50.9  51.0
ISM Non-Manufacturing Index 52.6  53.5
JOLTS Job Openings 7.051mm
Wednesday 11/6/2019 Productivity and Costs, Non-Farm Productivity, Q/Q, SAAR +2.3% +1.1%
Unit Labor Costs, Q/Q, SAAR +2.6% +2.2%
Thursday 11/7/2019 Jobless Claims 218K  218K
Friday 11/8/2019 Consumer Sentiment 95.5  96.0


Links to previously published commentaries can be found at News/Blog/Market.

November 4, 2019 |