Markets: Stocks soar despite economy’s headwinds
“Here we are again, folks—the stock market is back at record highs,” said Brian Sozzi in Yahoo.com. Never mind the wild tweets from President Trump about his trade war with China, or the decelerating global economy, or the slowing corporate earnings, or the recession warnings. “Mr. Market says who gives a damn?” Year-to-date, the S&P 500 is up 21 percent and last week set a new record high, 3,046.77, after the Federal Reserve announced a third interest-rate cut. This October rally “has stumped many seasoned pros on Wall Street,” who are still “in awe as to how bad earnings reports from Caterpillar and FedEx could be overlooked along with a U.S. manufacturing recession.” Perhaps FOMO—or fear of missing out—is bringing back investors off the sidelines, “and now the bulls look primed to sit back and watch.”
The market is truly roaring mainly thanks to five stocks, said Robert Burgess in Bloomberg.com. Apple, Microsoft, Visa, Mastercard, and Oracle “account for half of the S&P 500 tech sector, which has surged 30.2 percent this year.” Take that sector out, and the S&P is up 14 percent—still strong, “but nothing special when compared with the returns in the rest of the world.” True, said Peter Wells in the Financial Times, tech has been the S&P 500’s strongest sector. But the most recent jump goes well beyond that. It’s “driven by so-called value stocks, solid companies available at historically low valuations.” They have been on the rise since hitting a low point relative to tech and other growth stocks near the end of the summer.
“Investors are breathing sighs of relief,” said Gunjan Banerji in The Wall Street Journal. Many companies have projected lower earnings. “All of us came into the earnings season with very low expectations,” one stock strategist says. But about 75 percent of the companies in the S&P 500 that have reported earnings have beaten expectations. The earnings season “has highlighted the strength of the U.S. economy” compared with others around the world. “Bearish investor sentiment and stock prices are both unusually high these days,” but, surprisingly, that’s usually a recipe for more gains, said Daren Fonda in Barron’s. Despite the records set in recent days, research shows that nearly one-third of consumers expect stocks to decline over the next year—more than the percentage who are bullish. Going back to 1987, in the eight previous instances when investors have viewed new market highs with such skepticism, “the S&P has seen gains over the next year every single time.” The median one-year return: 14.3 percent. ■