Market News: 11/11/2019Submitted by Executive Wealth Management on November 12th, 2019
Despite gloomy reports on global growth percolating through the financial media, the markets have decided to keep on the sunny side of share prices. The S&P 500 advanced for its fifth straight week, as the businesses that make up the large-cap stock index finished up their quarterly reporting on earnings and revenue.
According to data provided by FactSet, investors have been unusually generous to companies that beat analysts’ expectations and comparatively gentle to those that disappointed forecasters. This reporting season, a positive earnings surprise improved a company’s stock price by 2.30% during an interval that consists of the two days before the release of its quarterly financial data to the two days after the release. This was the biggest boost for good news in 5 years (since the third quarter of 2014). The average reaction to good news over the last 5 years has been a 1.00% gain. Underperformers have received less punishment too. Companies that had negative earnings surprises saw their stock prices slip –1.8% on average over the same 4-day window. This is in comparison to an average –2.6% decline for disappointments over the last five years.
These data points coincide with a recent market retreat from what are considered “safe haven” assets. Gold prices have pulled back over the last couple of months. The demand for fixed income investments has also declined. According to Barron’s, the supply of global bonds that generate yields below zero has shrunk by almost one-third since August of this year. Bond yields increase when prices decrease, and prices decrease when demand decreases.
The source of the market’s positive, risk-on stance is unclear. Possible progress in ending the trade tariff tiff between the U.S. and China is the most popular reason cited. A less volatile originator of optimism could be the persistent strength in the domestic labor market, as indicated by the latest federal jobs report. Whatever the source of the positivity, it will have to be substantial to maintain the favorable sentiment for an extended period.