‘Tis the Season for Solid Stock Market Earnings

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The U.S. stock market, which is trading at all-time highs, tends to rise when there is no overhead resistance and economic indicators point to strength. The trajectory of markets has its foundation in the country’s democratic political system and its market-based, capitalist economic system. Using a simple theory, the stock market (efficiently) allocates the nation’s capital to generate solid investment returns. Come November, theory typically turns into reality – since 1980 the 11th calendar month has been the best for equity performance with an average gain of 1.66%. 

We generally don’t focus on which months are best, but November has a solid track record with stocks rising 72% of the time. The best Novembers on record were 1980 (+10.2%), 2001 (+7.5%), 1996 (+7.3%), 1985 (+6.5%) and 1998 (+5.9%). The worst Novembers were: 2000 (-8%), 2008 (-7.5%) and 1987 (-5.9%).  A typical November starts at a fast pace as some companies are still reporting earnings, non-farm payrolls are reported and Initial Public Offerings (IPOs) are launched before the holiday season. Come Thanksgiving, volume fades as Wall Street winds down for turkey day.  From our perspective, this November comes at a time when bullish market fundamentals appear intact: the economy is growing, corporate profits are expanding and interest rates remain low around the globe. 

Opening the month of November, Friday’s non-farm payrolls report showed that the U.S. economy generated 128,000 jobs in October, while the September number was revised upward. The unemployment rate ticked higher to 3.6%, while year-over-year wage growth rose to 3.0%. The trailing six-month average payrolls number is now 156,000, down from the 2018 average of 211,000, potentially reflecting trade war-related uncertainty and slower growth in the latter stages of the current protracted economic cycle.

Through last Friday, Refinitiv reported that 356 S&P 500 companies have announced 3Q earnings.  Moreover, 76% of those were above consensus. This week, the Healthcare sector has the potential to keep earnings out of negative territory for the full quarter.  Wednesday’s GDP report showed the U.S. economy grew 1.9% in the third quarter, ahead of the consensus of 1.7%, led by strength in consumer spending and residential investment.  Manufacturing also moved higher, if only slightly, from a month earlier but this indicator is still showing contraction.

For the third time this year, the Federal Reserve lowered interest rates by 25 basis points, in line with expectations. Though cuts, totaling 75 basis points, were made, it will take time to work their way into the economy.  For now, we expect the Fed to remain on the sidelines unless the economic picture weakens considerably.  At this juncture we believe recession risk remains low and equities should continue higher through year-end.

In this week’s economic calendar, Monday brings factory orders for September and motor vehicle sales for October. On Tuesday, the ISM non-manufacturing index for October will be released. Friday brings preliminary consumer sentiment for November.

Talk to an OmniStar Advisor today about your financial plan, and how historical trends can help you make more informed decisions.