Along with the holiday anticipation November can bring, it is also historically a bullish time for equities. The S&P 500 Index is on pace to log another gain in October, marking 7 consecutive monthly gains on a price basis and 12 in a row on a total return basis (including dividends). But the incredible strength does have some potential warnings, as the S&P 500 has now gone nearly a full year since the last 3% correction, the longest such streak in history. During the month, multiple central banks are meeting, earnings season will be winding down, and tax reform is entering a critical stretch.
It’s time to take a look at Japan. The Nikkei’s 15-day win streak, its longest on record, has our attention. When thinking about Japan, many who started following markets closely in the 1980s or later know nothing else besides year after year of recession, deflation, and a poorly performing stock market. It’s been a long, slow process but we believe that investing conditions are changing in Japan for the better, making the country’s markets worth a look. This week we discuss five reasons to take a serious look at Japan.
The latest edition of the Federal Reserve’s (Fed) Beige Book, released Wednesday, October 18, 2017, continued to deliver a positive view of the U.S. economy. The Beige Book is a qualitative assessment of the domestic economy and each of the 12 Fed districts individually. The report is prepared eight times per year, ahead of each Federal Open Market Committee (FOMC) meeting — the next of which is set to take place from October 31 to November 1, 2017. We believe that the Beige Book is best interpreted by measuring how key words change over time. The qualitative inputs for the October 2017 Beige Book were collected in the weeks prior to October 6, 2017.
The recently released minutes from the Federal Reserve’s (Fed) September policy meeting, along with the Consumer Price Index (CPI) and Producer Price Index (PPI) data, have kept the markets focused on inflation. Inflation is half of the Fed’s “dual mandate” to maximize sustainable employment and keep inflation low and stable. These two mandates often conflict and usually require a balancing act. Getting to maximum employment usually implies that the Fed should be more accommodative; keeping a lid on inflation implies that it should be more restrictive.
This week marks the 30th anniversary of the 1987 stock market crash in what has come to be known as Black Monday. The Dow plunged more than 22% on that day — the equivalent of a more than 5,000-point drop today — while markets around the world suffered severe declines as well. Here we look back at the crash, draw some comparisons to today’s market environment, and offer some comfort to those who may fear a repeat.
Third quarter earnings season gets underway this week (October 9–13) and it should be another good one. The S&P 500 Index has exceeded earnings expectations 33 straight quarters and we see no reason why the third quarter won’t make it 34. However, as seen in Figure 1, earnings growth should fall short of the stellar results and double-digit pace of the past two quarters.
The U.S. dollar has lagged other currencies so far this year, as persistently low inflation suggested that the Federal Reserve (Fed) would not be as aggressive as global investors originally feared. However, recent Fed announcements—including an official start to long-awaited balance sheet normalization, as well as a refusal to back away from a potential rate hike in December—have caused market participants to reexamine the dovish Fed thesis, which has led to a stronger dollar over the past month. So, where does the dollar go from here? We believe that the combination of fundamental factors, such as disparities in major central bank policies and technical indicators, could lead to dollar strength in the near term.