The Impact of Oil and Elections

Last week, markets experienced a four-day winning streak before dropping on Friday, November 9th. Despite those losses, domestic indexes posted gains for the week.[1] The S&P 500 increased 2.13%; the Dow added 2.84%; and the NASDAQ was up 0.68%.[2] International stocks in the MSCI EAFE had slight growth, ending the week up 0.20%.[3]

From interest rates to corporate profits, investors had a number of topics to consider.[4] In this update, we want to focus on two key details that drove markets: oil prices and midterm election results. 

1. Oil Prices Declined
Oil prices continued to fall last week, posting the most consecutive daily declines in at least three decades.[5] In fact, West Texas Intermediate (WTI) futures, a key oil benchmark, are officially in bear market territory. WTI has fallen more than 20% below its highest point over the past year.[6]  

What does this drop mean for markets?
Some investors believe the price declines are another sign that the global economy is slowing down. Historically, people have used oil prices as one way to decipher economic health because they can correlate with global growth. When crude oil prices drop, greater economic challenges are often ahead.[7] 

This recent decline may have a less concerning explanation. The United States sanctioned Iran last week while allowing eight nations to continue buying oil from the country for now.[8] All of these waivers resulted in onr million more barrels of Iranian oil being on the market than expected, the opposite of the anticipated tightening supply.[9]  

Bottom line: The oil price decline may be more of a symptom of disrupted supply and demand than an indication of the global economy's health.[10]  

2. Midterm Elections Brought Few Surprises
The long-awaited midterm elections occurred last week, and the results matched expectations for a split Congress.[11] These results contributed to the midweek market rally we experienced.[12]  

How could the results affect markets?
Post-midterm market results are generally strong. Over the past 18 midterm elections, stocks have always had positive returns from their lows in October to the year's end. Some investors even believe that October's struggles were a sign of the markets pricing in the election results about a month early.[13]   

Taking a historical, long-term view, the current arrangement of a Republican president and a split Congress has resulted in 12% annual returns since 1936. The chart below shows how markets have performed through each potential party-control scenario.[14]  

nov18_graph.png

Although stocks have often done well when Washington experiences gridlock, the current scenario also makes a government shutdown or increased investigations into President Trump more likely. With either of these actions, market volatility could follow.[15]  

Bottom line: The election results could help bolster market performance. The split Congress also brings potential for political uncertainty that increases volatility for investors.[16]  

In many ways, this week's market behavior underscores the complex, interconnected relationships between geopolitics and the markets. If you have any questions or would like to dive deeper into how these situations affect your financial life, we're here to talk.

ECONOMIC CALENDAR

  • Monday: U.S. Holiday: Veterans Day observed 

  • Wednesday: CPI

  • Thursday: Retail Sales, Import and Export Prices, Business Inventories, Jobless Claims

  • Friday: Industrial Production


Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies. 

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia, and Southeast Asia. 

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Platinum Advisor Strategies, LLC, and not necessarily those of the named Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

[1] www.marketwatch.com/story/dow-looks-set-to-sink-by-triple-digits-after-fed-update-as-oil-extends-fall-2018-11-09?dist=markets
[2] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX®ion=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI®ion=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
[3] www.msci.com/end-of-day-data-search
[4] www.cnbc.com/2018/11/09/stock-market-us-futures-lower-after-fed-decision.html
[5] www.reuters.com/article/us-usa-stocks/oil-slide-china-worries-send-wall-street-tumbling-idUSKCN1NE1GQ
[6] www.cnbc.com/2018/11/09/stock-market-us-futures-lower-after-fed-decision.html
www.investopedia.com/terms/w/wti.asp
[7] www.marketwatch.com/story/stock-market-investors-wrestle-with-a-glut-of-bearish-signs-as-oil-prices-plunge-2018-11-10
[8] www.reuters.com/article/us-usa-stocks/oil-slide-china-worries-send-wall-street-tumbling-idUSKCN1NE1GQ
[9] www.marketwatch.com/story/stock-market-investors-wrestle-with-a-glut-of-bearish-signs-as-oil-prices-plunge-2018-11-10
[10] www.marketwatch.com/story/stock-market-investors-wrestle-with-a-glut-of-bearish-signs-as-oil-prices-plunge-2018-11-10
[11] www.bloomberg.com/news/articles/2018-11-07/this-time-stocks-got-it-right-now-about-that-october-rout
[12] www.cnbc.com/2018/11/09/stock-market-us-futures-lower-after-fed-decision.html
[13] www.bloomberg.com/news/articles/2018-11-07/this-time-stocks-got-it-right-now-about-that-october-rout
[14] www.cnbc.com/2018/11/05/market-history-shows-investors-should-hope-for-gridlock-on-election-day.html
[15] www.cnbc.com/2018/11/05/market-history-shows-investors-should-hope-for-gridlock-on-election-day.html
[16] www.cnbc.com/2018/11/05/market-history-shows-investors-should-hope-for-gridlock-on-election-day.html

Markets Bounce Back

Markets posted strong gains last week after struggling for much of October. The S&P 500 had its best weekly performance since May, and the NASDAQ had its first positive week since September.[1] Despite domestic markets dropping on Friday, November 2nd, the S&P 500 added 2.42%; the Dow increased 2.36%; and the NASDAQ gained 2.65%.[2] International stocks in the MSCI EAFE were also up 3.34%.[3]

What drove market performance last week?
We received a fair amount of data and reports, with the following details holding particular weight for investors:

  • U.S. - China trade updates were inconsistent.
    Stocks fluctuated widely on Friday, in large part because of contradictory updates on a potential trade deal between the U.S. and China. President Trump said the two countries are a lot closer to an agreement. Larry Kudlow, Trump's economic advisor, shared a different perspective, indicating the U.S. is not working out a trade deal with China. These conflicting reports contributed to volatility in the markets as investors tried to determine exactly where we stand. [4]  

  • U.S. corporate earnings were strong but imperfect.
    So far, the 3rd quarter earnings season has been a strong one. Of the 74% of S&P 500 companies that have released their data, 78% have beaten their earnings-per-share estimates, and earnings have grown 24.9% year-over-year.[5] However, concerns for at least one major tech company's projections affected investor behavior.[6] In addition, analysts predict that in 2019, earnings growth will not match the double-digit results we've experienced this year. [7] 

  • Labor market growth beat expectations.
    The economy added 250,000 jobs in October, a stronger increase than expected. Wages also rose, posting 3.1% growth over the prior year, the fastest annual growth since 2009.[8] Investors interpreted these results to mean that the Federal Reserve would continue raising interest rates at its projected pace.[9]


Where should you go from here?  

If you felt at all whipsawed by last week's price fluctuations, especially after October's declines, you weren't alone. Even if you know that market volatility is normal, it can feel intense in the moment. Right now, many investors are also jumping in and out of popular, crowded stocks, causing market levels to shift more quickly than many people are used to. To navigate these accelerated changes, you need to remove emotion from investing decisions and stick to your long-term vision even more.[10] 

Rather than trying to predict what stocks will do in the immediate future, we are here to help you plan for the financial life and legacy you desire. Please let us know if you have any questions about where you are and how to pursue your future.  

ECONOMIC CALENDAR

  • Monday: ISM Non-Manufacturing Index

  • Tuesday: JOLTS

  • Thursday: Jobless Claims

  • Friday: PPI-FD, Consumer Sentiment 


Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies. 

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia, and Southeast Asia. 

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.


The Federal Reserve System (also known as the Federal Reserve and, informally, as the Fed) is the central banking system of the United States. The Federal Reserve System is composed of 12 regional Reserve banks which supervise state member banks. The Federal Reserve System controls the Federal Funds Rate (aka Fed Funds Rate), an important benchmark in financial markets used to influence the supply of money in the U.S. economy.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Platinum Advisor Strategies, LLC, and not necessarily those of the named Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

[1] www.bloomberg.com/news/articles/2018-11-01/asia-stocks-to-extend-rally-after-trump-xi-call-markets-wrap?srnd=markets-vp
[2] www.marketwatch.com/story/dow-aims-for-4th-gain-in-a-row-ahead-of-jobs-report-apples-stock-sinks-on-outlook-2018-11-02?dist=markets
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX®ion=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI®ion=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
www.cnbc.com/2018/11/02/stock-market-triple-digit-gains-for-dow-nonfarm-payrolls.html
[3] www.msci.com/end-of-day-data-search 
[4] www.cnbc.com/2018/11/02/stock-market-triple-digit-gains-for-dow-nonfarm-payrolls.html
[5]www.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_110218.pdf
[6] www.cnbc.com/2018/11/02/stock-market-triple-digit-gains-for-dow-nonfarm-payrolls.htm
[7]www.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_110218.pdf
[8] www.ftportfolios.com/Commentary/EconomicResearch/2018/11/2/nonfarm-payrolls-rose-250,000-in-october
[9] www.bloomberg.com/news/articles/2018-11-01/asia-stocks-to-extend-rally-after-trump-xi-call-markets-wrap?srnd=markets-vp
[10] www.bloomberg.com/news/articles/2018-11-02/bulls-sit-still-as-u-s-stock-reversals-land-with-record-force?srnd=markets-vp