Welcome to November. Summer? Over. Halloween? Gone. Another Fall Classic settled. Having seen the Kansas City Royals best the New York Mets in five. Had you bet, preseason, that the Royals would even face the Mets, you'd have done better than Amazon with your capital. Love the long shots.
October proved yet again a graveyard for bear markets. As the month began, bulls were fearfully stampeding from the path of confident bears. Only to see the market regain its footing. Turn higher. And head back into positive territory on the year. Ending with best monthly gain in four years. Most importantly, the S&P 500 closed the month above its 12-month moving average. An all-clear bellwether on many previous occasions.
What was the catalyst for the surge?
The possibility of more cheap money stimulus, of course. Worsening economic data raised expectations that the Fed would have to delay rate hikes into 2016. Which sent equities higher following a weak payroll report at October's inception. Buying continued as the data suggested the economy is hitting a soft patch. Accordingly, no rate hike. Continuing ZIRP. Back to the ol' bad news is good motif.
Along those lines, Thursday's Q3 GDP report came in at a meager 1.5 percent. Nearly seven-and-a-half years into an alleged recovery. Yet, we hear very little about it. The 24/7 blathering punditocracy has nary mentioned the limp little statistic since its release. Suggesting, perhaps, that we've crossed the Rubicon. One that formerly saw the nation take leaders to task for a lack of performance. Today? Aaahhh, let's see what's on Netflix.
Q3 earnings season continues. Of the 340 S&P 500 companies having reported, 76 percent have beat earnings expectations. The leader at the turn? Technology. With half of the S&P 500 tech companies having reported, the earnings have jumped 9.2 percent year over year on 5.3 percent higher revenues. Microsoft. Amazon. Google (Alphabet, really?). All have surprised.
If the economic data flow turns positive, stocks could suffer as investors realize the Fed's ongoing ZIRP experiment is approaching denouement. Conversely, if this Friday's October jobs report is weak? Then Fed officials will likely recognize the improbability of a 2015 hike. Sending markets higher.
Confused? Understandably. Who'd have guesses that by November 2015, Russia would be the Middle East power broker? Oil would he below $50 a barrel? GDP growth would be at 1.5 percent six years post Credit Crisis? Iranian troops would be battling U.S. funded rebels in Syria... a month after the U.S. agreed to end Iran's economic sanctions? A month after the U.S. welcomed the Ayatollah's back into the community of nations.
Truly, black is the new orange.
Congress reached a tentative deal on a two-year budget plan that suspends the debt limit through March 2017 and boosts spending by $80 billion through September 2017. Pending House approval. Placing it on the lap of the new Speaker of the House, Paul Ryan.
Speaking of politics, Americans have wearied on the recidivist political contention between the nation's two-party duopoly. Of course, the electorate can still rely upon a politically neutral press to cover D.C.'s flying circus, right?
Uh, no.
Last week's CNBC-moderated GOP debate has become the most recent exposition of the media's brutal political bias. The debate itself? A goat rodeo.
CNBC, owned by NBCUniversal, used three moderators. Each united in obvious distaste for the candidates before them. The nominees were denigrated by questions that should never have been posed. Culminating with John Harwood's embarrassing entrapment within a lie while interrogating Senator Rubio. Harwood, CNBC's Washington correspondent and a writer for The New York Times, then doubled down on his fabrication, so intent was he upon foisting his false narrative upon a national audience.
Political contention predates modern man. Neanderthal would falsify cave drawings to bolster his status within the clan. And ideological bias exists throughout the media. But when the press so visibly reveals its agenda -- under the guise of a presidential nomination debate? One's faith in the system dissipates in correlation to the bias displayed.
Like Game of Throne's Cersei Lannister, Harwood should be forced to walk naked through the streets. Followed by an honest media ombudsman. Bell in hand. Ringing repeatedly to intonations of "Shame... Shame... Shame..."
Less shameful was China's decision to end a 36-year limit on reproduction (one-baby). Last year saw the working-age population shrink while the senior demographic has grown rapidly. The first such trend in over two decades.
China is strategically positioning to grow its future population of consumers in an attempt to shift from an investment-based to a consumer-based economy. President Xi Jinping states that he wants to build a "moderately prosperous society" on an economy powered by services, consumers and innovation. Of course, when 1.4 billion people rely upon a centrally managed hybrid capitalist/communist economy, its leaders better ensure that enough constituents are picking up the tab. Otherwise, angry diners may light the kitchen on fire.
Inside the Beltway, Representative Paul Ryan has assumed John Boehner's position as Speaker of the House. Ryan managed to persuade the GOP's disparate factions to coalesce around him. A Gordian Knot his predecessor could not solve. Touted as the future of the party, Ryan is an Irishman from Wisconsin. He represents experience, moderation and wonkishness. And at 45 years old, he is a puppy in political years. Marketwise, Ryan's ascendancy is bullish. As his election ensures an ongoing stalemate with the White House. Which voters hate. But markets love. As it reduces the uncertainty that accompanies the volleying back and forth of our duopolistic policy ideas.
In the Middle East, the U.S. will send 50 special operations forces troops to Syria to combat ISIS. This follows a changed U.S. policy in which the administration accepts that Bashar al-Assad will remain in power. At least long enough to provide for a transition of power. Though, the Syrians, Russians and Iranians likely have different ideas.
Finally, the best for last.
The Investment Company Institute reports that investors have fled mutual funds in droves. Posting net outflows of -$15 billion in September, -$17 billion in August and -$28 billion in July. The six month aggregate outflow? Nearly $100 billion. The largest in 30 years.
Such capitulation represents good news. For if shares continue to rise, departed capital will eventually return. Mutual fund investors have a history of exiting at the bottom only to reenter at the top. Takes 'em a while to realize the mistake. Swallow their pride. And return to the fold. But they do. Which serves to prolong bullish periods.
So the next time a colleague mentions the coming financial apocalypse during idle banter 'round the water cooler? Nod your head. And smile on the inside. Reveling in the knowledge that the game's headed for overtime.
The Good
Paul Ryan's ascendancy to the House Speaker position makes a government shutdown less likely... Jobless claims hit the lowest four-week moving average since 1973... China GDP beat forecasts... Housing data was strong... The earnings beat rate sits at 77%...
The Bad
Corporate earnings commentary suggests continuing economic weakness... Housing permits declined... Bearish sentiment, a contrary indicator, is declining... Earnings are poised for a second consecutive quarterly decline...
Weekly Results
Major markets finished mixed last week. The DJIA gained 0.10%, the S&P 500 added 0.20%, and the Nasdaq climbed 0.43%. Small cap stocks lost 0.36%. And the 10-year Treasury bond yield rose 6 basis points to 2.73%. Gold lost $22.40 per ounce, or -1.67%.
