Market Currents

• Historically the most volatile month for market performance, October remained true to its form by falling 9.8% from its peak, only to rebound in a sharp V-shaped recovery, before closing out the month at an all-time high.

• Several factors gave rise to the increased volatility: global growth scare, sudden surge in the Dollar, plunging oil prices, and Ebola contagion fears.

• The recovery in the markets coincided with the release of Q3 corporate earnings, which, taken as a whole, have been encouraging. Margins remain strong, and earnings and revenue growth are firm.  More importantly, management commentary and outlook going forward are decent, pacifying investors’ fears of the potential risks from tepid overseas growth and the impact of a strong Dollar.

• S. continues to be the bright spot amid the struggles overseas. Q3 GDP came in at 3.5%, proving that strength seen in Q2 is not a fluke.  The unemployment picture continues to improve, with even wages showing some hints of ticking higher.  Consumer confidence is high, and credit is expanding, lending support to the all-important consumer spending.  Auto sales remain strong, although the housing recovery continues to be a marked absentee.

• Thanks to abundance in supply arising from the success in domestic shale production, sputtering global demand, and a strong USD, crude oil has plunged to a three year low. Saudi Arabia responded by stating their desire to maintain production and cut prices in an effort to regain market share and squeeze out domestic producers.  While this will have obvious impacts on oil companies, with national gas prices now averaging below $3.00/gallon, consumers will stand to benefit from this “tax cut.”  (A portion of these consumer savings will likely be spent on rising health care premiums and deductibles.)

• The BoJ caught the market by surprise by announcing an expansion to their QE, as well as increasing the allocation to both Japanese and international equities market within their pension fund, just 48 hours after the Fed winds down our own QE.

• The environment is ripe for a round of capital investment, which would likely be a positive for earnings and stock prices. S. corporate balance sheets hold a record $1.7 trillion in cash.  Capital equipment is getting old, while growth is picking up, and banks showing an eagerness to lend.  Indeed, recent data suggest that businesses are beginning to put cash to work by investing in structures and business equipment.