The Dow Jones Industrial Average, S&P 500 Index and Nasdaq all reached record highs this week, following a patient Federal Reserve, accelerating U.S. jobs gains and strong 3rd quarter corporate earnings, giving markets lots of reasons to rally.
The Fed announced on Wednesday that it would begin tapering its bond purchases that it introduced last year due to the Covid-19 pandemic. Fed Chair, Jerome Powell said officials will nevertheless remain patient on raising interest rates unless inflation forces their hand. The Fed announced that it will scale back its monthly buying by $15 billion starting in November, part of a process that could be completed by mid-2022.
More than 80% of S&P 500 listed companies that reported 3rd quarter results beat earnings expectations, as companies again showed their ability to maintain profit margins and beat expectations. The healthcare and information technology sectors surprised the most, with around 90% of reporting companies beating earnings estimates.
U.S. economic data released during the week was also generally positive. Employment data showed that 531,000 jobs were added in October, ahead of estimates. The unemployment rate fell to 4.6%.
The ECB delivered a similar message to the Fed, with ECB President Christine Lagarde pushing back against raising interest rates in 2022, citing the bank’s expectations that inflation would remain “subdued” over the medium term and that that financing conditions must remain favourable.
European unemployment dropped to 7.4% in September, following August’s statistics of a 7.5% unemployment rate. Meanwhile manufacturing PMI was largely unchanged from the previous month, registering a 58.30 reading (above 50 signals an expansion).
Pfizer announced that its new orally administered medicine called Paxlovid, reduced the risk of hospitalisation or death by 89%, in a clinical trial that tested the drug in adults with the disease who were also in high-risk health groups. Like Merck's new pill that was approved in the U.K. on Thursday, Pfizer said its drug showed good results when administered within five days of the first COVID-19 symptoms.
Chinese regulators issued draft guidelines that enter mega, or super-sized, internet-based firms into a category of their own that will be more tightly monitored, also requiring them to shoulder more responsibility to ensure fair play in the market. Operators of super platforms, which are those that have more than 500 million active users and a market value of over CNY1 trillion (USD156.1 billion), must abide by the principles of fairness and non-discrimination, according to a draft set of guidelines released by the Chinese State Administration for Market Regulation for public comment.
Economic data out of China continues to disappoint in recent months. New-home sales by area at the nation’s top 100 developers fell 32% in October from a year earlier, according to a report by property research firm China Real Estate Information Corp. At the same time, China’s manufacturing purchasing managers’ index (PMI) declined to 49.2 from 49.6 in October (below 50 signals a contraction). This was lower than the 49.7 median estimate in a Bloomberg survey of economists.
The Bank of England surprisingly kept interest rates on hold this week, against the market’s expectation.
It was another strong week for global equities with major indices posting decent weekly gains. In the U.S., the Dow Jones (+1.17%), S&P 500 (+2.00%) and the Nasdaq (+3.05%) all ended the week stronger. Similarly, in Europe, the Euro Stoxx 50 (+2.65%) and FTSE 100 (+0.92%) posted positive returns, along with Japan’s Nikkei 225 Index (+2.49%). China’s Shanghai Composite Index was an outlier, down -1.57% for the week.
Market Moves of the Week
The ANC’s share of the South African vote fell below 50% for the first time since apartheid ended more than a quarter century ago. The party secured 46% of the ballots cast in the Nov. 1 municipal election, down from 54% in the previous local-government poll in 2016. The DA secured 21.8% of the vote, down from 27%, while the EFF got 10.4%, compared with 8.2% 5 years ago.
South Africa’s trade surplus fell to R22.2bn in September, following a trade surplus of R42.3bn in the prior month.
According to a research report from PwC, power outages in South Africa is expected to result in the shedding of at least 350 000 jobs, despite projections of 3.9% economic growth for 2021.
The JSE All Share Index ended the week up +0.53%, led higher by the industrial (+2.42%) and financial (+1.69%) sectors, whilst resource shares (-2.58%) came under pressure. By Friday close, the rand was trading at R15.04 to the U.S. Dollar, strengthening by 1.42% for the week.
Chart of the Week
The S&P 500 Index set another record high this week, following a strong 3rd quarter company earnings season. A key to Corporate America’s earnings performance continues to be expansion in profit margins, with the third quarter seeing yet another record.