What to Watch for this Week
After a heavy week of news, the SP 500 was up and down and up. With a very narrow range of around 22 points, it closed on a high note at 2,587.84. It has been up for the last five weeks. Volatility remains low and will continue to remain low. The VIX, often referred to as the so-called “fear gauge” is hovering around historical lows because the realized volatility of returns on the S&P 500 is extraordinarily depressed. Currently, realized volatility is running below 5% an almost unheard of level. One might think volatility should be higher given the high policy uncertainty in the US (e.g. tax plan, health care reform) and international tensions (e.g. North Korea, Saudi Arabia, etc.), but investors remain extraordinary calm. Those who have been trading volatility-related instruments looking for a spike or simply a reversion to the mean has been suffering meaningful losses as nothing seems to rattle investors. What will upset the apple cart is anyone’s guess.
With earnings and interest rates rising at a slow and measured pace, the conventional view is that equity prices should continue to move higher. A contrarian would argue that when the investment environment looks this perfect and investors this complacent, reality should strike taking share prices lower. Only when the market rolls over and starts its inevitable decline, will we be able to point a top. Where that top is, is the $64,000 question. Until then, we roll on.
So what stocks are moving the markets. Facebook, Apple, Amazon, Alphabet, and Microsoft are typically on everyone’s list. ETF.com writer Lara Crigger does a good job breaking down the prominent ETF’s to show how prevalent these stocks are, and how they can indeed move the market. Broadcom Offers to buy Qualcomm for $103 is another indication of investor exuberance. This deal will require shareholder and regulatory approval. Furthermore, we think Qualcomm management will probably push back as it is there jobs that are at risk. So there is a bit more work to do before one can say this is a done deal.
Last week the GOP tax plan was released with little to no market reaction. Most of my conversations this week center on how the new tax plan would affect people if implemented in its current form. Remember the tax plan proposal is just that a proposal and there is plenty proposed changes for various constituencies to like or dislike. We are now getting into the holiday season, and that means little gets done in Congress, including the tax bill. Treasury Secretary Steven Mnuchin has been pushing the tax plan from the first days of the Trump administration, and still, nothing is done. He also indicates that the market has baked in the tax cut and if that does not go through this year the market will react. We will see.
Global Spotlight
- Venezuela’s Financial Woes Continue. On Nov. 2, Venezuelan President Nicolas Maduro announced his intention to start restructuring the country’s debt with foreign bondholders
- No Easy Solution in Catalonia. It was another intense week in Catalonia, as a Spanish judge ordered the arrest without bail of several former members of the Catalan government.
- Nearing the Finish Line of the Race to the Iraqi Border. Last week, Syrian government forces claimed the liberation of the city of Deir el-Zour from the Islamic State, completing a key milestone as Damascus aims to reach the Iraqi-Syrian border before U.S.-backed forces do.
- Trump Tours the Pacific. At a time when U.S. regional allies feel relatively neglected, U.S. President Donald Trump is embarking on a whirlwind 12-day tour of the Asia-Pacific.
- Putin Focuses on Regional Stability. On Oct. 31, Russian President Vladimir Putin ordered an overhaul of the sizable debts of regional governments, many of whom are tottering toward bankruptcy.
- The Avengers Sequel. After more than five months of silence, the Niger Delta Avengers announced on Nov. 3 that they had ended their moratorium on targeting oil and gas infrastructure.
Trump Travel Plan
- Nov. 5-7: U.S. President Donald Trump travels to Japan for the first leg of a 12-day, five-country regional tour. He will meet with Prime Minister Shinzo Abe and Emperor Akihito.
- Nov. 6-8: Thailand and Pakistan will hold a ninth round of free trade talks.
- Nov. 6-11: Vietnam hosts the Asia-Pacific Economic Cooperation summit.
- Nov. 7-8: Trump will visit South Korea to meet with President Moon Jae In.
- Nov. 8-9: Canadian Prime Minister Justin Trudeau will pay an official visit to Vietnam before attending the APEC summit.
- Nov. 8-10: South Korean President Moon Jae In will visit Indonesia.
- Nov. 8-10: Trump will visit China to meet with President Xi Jinping.
- Nov. 10-12: Trump, Xi and Russian President Vladimir Putin will attend the APEC summit in Vietnam. Putin is scheduled to meet with Xi and Abe; a meeting with Trump is possible. Regional Comprehensive Economic Partnership negotiators will also likely meet on the APEC sidelines.
- Nov. 12-14: Trump will travel to the Philippines to meet with President Rodrigo Duterte and attend the Association of Southeast Asian Nations regional forum and East Asia Summit.
Economic Calendar
Here is a list of the U.S. economic events for the upcoming week.
We have a very light calendar this week. We are in the late innings of the earnings season. FactSet reports that earnings beat rate was 4.8% with revenue beat of 1.2%.
Last Weeks Numbers
Review Last weeks numbers here.
