Weekly RecapFor the week ending November 1, 2019

Ryan NaumanMarket StrategistInforma Financial IntelligenceRyan.Nauman@Informais.com

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Sources: Zephyr StyleADVISOR, MacroBond, PSN Enterprise, Bloomberg. 1 week data as of 11/1/19, unless otherwise stated, time periods over 1 week as of 9/30/19. Equity Style Performance represented by: Large Value – Russell 1000 Value, Large Blend – Russell 1000, Large Growth – Russell 1000 Growth, Mid Value – Russell MidCap Value, Mid Blend – Russell MidCap, Mid Growth – Russell MidCap Growth, Small Value – Russell 2000 Value, Small Blend – Russell 2000, Small Growth – Russell 2000 Growth. Fund flow data (EPFR Global) 10/24/19 – 10/30/19, S&P 500 (Large Cap Blend flows), Russell 3000 (all U.S. equity flows), Russell 1000 (all Large Cap flows), Russell Mid Cap (all Mid Cap flows), Russell 2000 (all Small Cap flows), MSCI EAFE (Western Europe DM, Asia Pacific DM flows) MSCI EM (All Emerging Market flows), MSCI World (All Developed Markets flows)

Global Asset Class Performance

Index 1 Week 3-Mos YTD 1 Year 3 Year Flows (mil)S&P 500 1.49% 1.70% 20.55% 4.25% 13.39% ($1,281)

Russell 3000 1.52% 1.16% 20.09% 2.92% 12.83% $1,031

Russell 1000 1.49% 1.42% 20.53% 3.87% 13.19% $1,422

Russell MidCap 1.18% 0.48% 21.93% 3.19% 10.69% ($139)

Russell 2000 1.99% -2.40% 14.18% -8.89% 8.23% $183

MSCI EAFE 1.19% -1.00% 13.35% -0.82% 7.01% $2,136

MSCI EM 1.30% -4.11% 6.23% -1.63% 6.37% $1,475

MSCI World 1.35% 0.66% 18.15% 2.42% 10.82% $4,613

1 Mos Value Blend GrowthLarge 3.57% 1.73% 0.01%

Mid 4.06% 1.97% -1.14%

Small 5.13% 2.08% -0.82%

YTD Value Blend Growth

Large 17.81% 20.53% 23.30%

Mid 19.47% 21.93% 25.23%

Small 12.82% 14.18% 15.34%

Factor Index 3 Mos YTD 1 YR Risk-Adj %

MSCI USA Small Cap -1.17% 17.22% -2.80%

MSCI USA Value 1.86% 17.07% 4.75%

MSCI USA Minimum Volatility 4.28% 24.15% 20.08%

MSCI USA Momentum 0.88% 20.97% 1.97%

MSCI USA Quality 2.52% 24.79% 7.57%

MSCI USA Dividend Tilt 3.24% 19.54% 7.40%

Index 1 Week 3-Mos YTD 1 Year 3 Year YieldBloomberg Barclays US Aggregate 0.47% 2.27% 8.52% 10.30% 2.92% 2.27

Bloomberg Barclays US High Yield -0.13% 1.33% 11.41% 6.36% 6.07% 6.34Bloomberg Barclays Municipals 10 Yr 0.21% 1.42% 6.86% 9.09% 3.16% 1.69

Major Equity Asset Class Performance Equity Style Performance Equity Factor Performance

11/1/19 10/25/19 9/30/19 12/31/18 11/1/18 11/1/162-yr U.S. Treasuries 1.56 1.63 1.63 2.48 2.84 0.8310-yr U.S. Treasuries 1.73 1.80 1.68 2.69 3.14 1.8330-yr U.S. Treasuries 2.21 2.29 2.12 3.02 3.38 2.5810-yr German -0.41 -0.39 -0.57 0.24 0.42 0.1510-yr Japan -0.19 -0.17 -0.23 0.00 0.12 -0.0610-yr U.K. 0.58 0.60 0.41 1.27 1.45 1.27

Major Equity Asset Class Performance

Rates

Chart of the Week: YTD Equity Sector Performance Thru 9/30/2019 Zephyr StyleADVISOR Zephyr Associates

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YTD

S&P 500 Information Technology (Sector)S&P 500 Real Estate (Sector)S&P 500 Utilities (Sector)S&P 500 Consumer Staples (Sector)S&P 500 Industrials (Sector)S&P 500 Consumer Discretionary (Sector)S&P 500 Communication Services (Sector)S&P 500 Financials (Sector)S&P 500 Materials (Sector)S&P 500 Energy (Sector)S&P 500 Health Care (Sector)S&P 500

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ThemeEconomic Data

The Chicago Fed National Activity index fell to -0.45 in September from 0.15 in August.

The S&P CoreLogic Case-Shiller 20-city price index fell a seasonally adjusted 0.2% in August, which marks the first decline since August 2018. Additionally, the index reported a 2% gain over the past year. Meanwhile, pending home sales increased 1.5% in September and rose 3.9% over the past 12 months.

The Conference Board’s consumer confidence index fell to 125.9 in October from a revised 126.3 in September.

Consumer spending increased 0.2% in September and 2.9% in the third quarter, while incomes increased 0.3% during the month.

The PCE price index was unchanged in September while the 12-month rate fell to 1.3% from 1.4%. Furthermore, the core PCE measure fell to 1.7% from 1.8%.

According to ADP, the private sector added 125,000 jobs in October from a revised 93,000 in September.

GDP for Q3, which received a boost from a 2.9% increase in consumer spending, grew at a 1.9% annual pace, which is down from 2.0% in Q2.

The U.S. created 128,000 new jobs in October, meanwhile, the number of new jobs added in September was revised to 180,000 from 136,000, while the number of jobs added in August was revised to 219,000 from 168,000. The unemployment rate rose to 3.6% from 3.5%. Finally, wages increased 0.2% in October while over the past 12 months wages increased 3%.

The Markit manufacturing PMI fell slightly to 51.3 in October from 51.5 in September. Meanwhile, the ISM manufacturing index rose to 48.3% in October from 47.8% in September.

Earnings Below are some of the headline beats, misses, and mixed results from the week. Beat earnings and revenue estimatesWalgreens Boots Alliance Inc., Spotify Technologies, Beyond Meat, Merck & Co., Pfizer, Kellogg Co., Mastercard Inc., General Motors Co., Amgen Inc., Advanced Micro Devices, Mattel, Altria Group, Bristol-Myers Squibb, Starbucks, Facebook, Apple Inc., Exxon Mobil Corp. Mixed resultsAT&T, T-Mobile, Alphabet, Shopify Inc., Kraft Heinz Co., General Electric, Yum! Brands, Colgate-Palmolive. Missed earnings and revenue estimatesMolson Coors Brewing Co., Chevron Corp.

Federal Reserve

The Federal Reserve (Fed) cut its benchmark rate by a quarter point for the third time this year to a range of 1.5% to 1.75%. Equities fell slightly after the Fed hinted that a pause in rate cuts may take place in December by removing the language “act as appropriate to sustain the expansion” from its statement. However, equities rose during and after the press conference, as Chairman Powell signaled they would pause rate cuts but are not thinking about hiking until inflation moved significantly higher.

Key Themes – S&P 500 Index Closes at New Record on Trade Optimism, Fed Rate Cut, and a Strong Jobs Report

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Earnings Season

As of Friday, November 1, 71% of the S&P 500 companies have reported third quarter earnings. 76% of the reporting companies beat earnings estimates, which is above the 5-year average, while 61% posted better-than-expected sales, which is above the 5-year average. Overall, earnings are 3.8% higher than estimates, which is below the five-year average. Currently, earnings growth is on pace to come in at -2.7%, which would mark the third straight quarter of negative earnings growth if it continues to remain negative. Additionally, revenue growth stands at 3.1%, which would mark the lowest growth rate since Q3 2016 (2.7%), if this rate stands for the entire quarter.

Expectations for the fourth quarter 2019 earnings growth rate continues to fall. On June 30, the earnings growth rate for the fourth quarter was estimated at 5.6%. However, on September 30, the estimated earnings growth rate for the fourth quarter came in at 2.4%, furthermore, the expected fourth quarter earnings growth rate stands at -0.4% today.

Finally, companies who have beat earnings estimates during the current cycle have experienced an average price increase of 2.0% during the two days before the earnings release through two days after the release, which is above the 5-year average increase of 1.0%. Conversely, companies who have missed earnings estimates during the current cycle have experienced an average price decrease of -2.1% during the two days before the earnings release through two days after the release, which is smaller than the 5-year average decrease of -2.6%. (Earnings Data Source: FactSet)

End to Mid-cycle Adjustment?

As widely expected, the Federal Reserve (Fed) cut its benchmark rate by a quarter point for the third time this year to a range of 1.5% to 1.75%. Equities fell slightly after the Fed hinted that a pause in rate cuts may take place in December by removing the language “act as appropriate to sustain the expansion” from its statement. The Fed announcement did not immediately spook markets, as the muted market reaction was in large part due to the high expectations for a rate cut.

However, equities rose during and after Chairman Powell’s follow-up press conference. Chairman Powell threaded the needle perfectly by signaling the Fed would pause rate cuts but are not thinking about hiking until inflation moves significantly higher by stating, “it would take a “material reassessment of our outlook” to force a change in interest rates. Furthermore, Powell said the “current stance on policy likely to remain appropriate” if data continues to unfold according to Fed’s expectations. In terms of the U.S. economy, Powell characterized the U.S. economy as strong, led by solid consumer spending and a strong labor market, but threatened by global weakness, trade war, and Brexit. Additionally, Powell doesn’t see business investment risk having a major impact on job growth, incomes, or consumer spending.

Despite the slight hint that the Fed may pause its “mid-cycle adjustments” in December, I feel the Fed hasn’t boxed itself in and will remain data dependent while keeping all their options available. The Fed is in a tough spot moving forward and will continue to feel pressure from investors and the White House to cut rates. Despite the pressure to cut rates, the U.S. economy remains on solid footing with a strong labor market and consumer, meanwhile, risks, particularly outside the U.S. and trade uncertainty remain. At the end of the day, the three rate cuts haven’t been about the U.S. economy, it has been more about slowing global growth and trade uncertainty. I believe, based on recent economic data, that the Fed will keep rates unchanged in December.

Absent any escalation of the trade war, I feel that easy money will continue to fuel markets for the remainder of 2019 and extend the economic expansion.

Perspective from 6,237 feet

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All Eyes On……..

Day Event/Earnings

Monday, November 4

U.S. Factory Orders (September)

Pacific Gas & Electric Company, Under Armour, Inc., Sprint Corporation, Marriott International, Uber Technologies, Inc., Sysco Corporation,

Tuesday, November 5

U.S. Trade Deficit (September), Markit Services PMI (October), ISM Non-manufacturing Index (October), Job Openings (September)

Toyota Motor Corporation, Pitney Bowes Inc., Allergan Plc.

Wednesday, November 6

U.S. Productivity (Q3)

Square, Inc., Roku, Inc., CVS Health Corporations, Marathon Oil Corporation, Office Depot, Inc., The Wendy’s Company

Thursday, November 7

U.S. Consumer Credit (September)

The Walt Disney Company, Activision Blizzard, Inc., Teva Pharmaceutical Industries, LTD., Dropbox, Inc., Zillow Group, Inc.

Friday, November 8

U.S. Consumer Sentiment Index (November), Wholesale Inventories (September)

Duke Energy Corporation, Honda Motor Co, Ltd.

The third quarter earnings cycle continues to roll along during the week ahead. Meanwhile, the services sector will be examined with the release of the Markit services PMI reading and ISM non-manufacturing index. With the manufacturing sector showing some promise that it may have bottomed, it will be important for the services sector to remain on solid footing to support the economy while the manufacturing sector recovers.

About Ryan Nauman

As Market Strategist, Ryan Nauman’s primary focus is providing value added market and investment insight along with educating buy-side participants on investment analytics and portfolio management concepts.

Ryan provides analysis and research on market trends across asset classes, sectors, and regions to help empower better decisions for creating asset allocation strategies. His insight is disseminated through white papers, articles, training, and interviews with a target audience of financial advisors, portfolio managers, and investment analysts.

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