November 5 – November 9 Week in Review
The markets were back in rally mode last week although they ended on a low note after the latest policy statement from the Federal Reserve dampened a mostly upbeat reaction to Tuesday’s midterm elections. For the week the S&P 500 rose 2.13%, the Dow Jones Industrial Average added 2.84% and the Nasdaq Composite rose 0.68%. The Russell 2000 was the laggard, gaining just 0.10% for the week.
The midterm elections produced a split Congress with the Democrats taking control of the House and the Republicans retaining control of the Senate. The prevailing assumption in the market was that a newly divided Congress would likely preserve market friendly policies. In addition, investors were encouraged by the fact that the stock market has historically done well in years with a Republican president and split Congress.
The Fed released its policy statement on Thursday, leaving the fed funds rate unchanged as expected. The central bank noted that it expects further rate hikes that are consistent with sustained economic growth, strong labor market conditions, and inflation near its 2% target over the medium term. They failed to mention October's sell-off and U.S.-China trade developments in their policy statement, indicating the Fed’s intention to stay the course on interest rate increases.
In the stock market, the health care, real estate, and utility sectors led the way last week on the upside and the communication services sector was the only group to finish in negative territory. Health care has now surpassed the information technology and consumer discretionary groups for the top spot in the yearly sector standings with a year to date gain of 12.4%; for comparison, info tech is up 10.7%, and consumer discretionary is up 10.9%.
In earnings, some notable companies that had upbeat reports last week included Berkshire Hathaway, CVS, Eli Lilly, Humana, and Walt Disney. On the other hand, Skyworks Solution, an important Apple supplier, led chip stocks lower on Friday after it issued below consensus Q1 earnings and revenue guidance.
On a related note, Japan's Nikkei Asian Review reported that Apple decided to cancel a production increase in its newest low-end iPhone XR. However, the Nikkei also said that demand for the older generation iPhone 8 and iPhone 8 Plus has been higher than expected. Overall the report helped stoke fears that the company is reaching peak iPhone sales.
In politics, Attorney General Jeff Sessions resigned his post effective immediately per President Trump's request. Pot stocks initially surged in response to his resignation, as his adamant anti-marijuana stance has been seen as a roadblock to advancing the national discussion for legalization. However, pot stocks pulled back as replacement names currently being floated are also against marijuana legalization and acting Attorney General Matthew Whitaker has a mixed record on the issue.
Looking at other markets, U.S. Treasuries had a volatile week, and closed near the previous week's levels. For the week the 2-yr yield decreased two basis points to 2.91% and the 10-yr yield added two basis points to 3.21%.
Also of note, WTI crude lost 4.8% last week, entering bear market territory and extending its precipitous decline from last month's four-year high. U.S. President Donald Trump granted temporary waivers on Monday to eight countries who import oil from Iran after the U.S.'s energy sanctions on the OPEC member were officially reinstated.
November 12 – November 16 Economic Calendar