US Equity Market Returns Q3 LTM
S&P 500 (Largecap) 7.6% 17.2%
Russell 2000 (Smallcap) 3.5% 14.8%
Nasdaq 100 (Tech) 8.6% 28.9%
- US hits 4.2% economic growth
- US consumer confidence highest level since 2000
- US job openings hit a fresh record
- FED gradually tightens monetary policy
- US equity markets outperform
US economy grew at a rate of +4.2% in the second quarter, the fastest since late 2014, with third quarter growth forecast of +3.5-4%. Business activity in the service sector expanded at a faster pace in September with the headline PMI improving to 61.6 from 58.5, the highest level since April 2006. This reading also surpassed the economist expectations of 58.0. The National Federation of Independent Business (NFIB) survey showed that small businesses were the most optimistic they’ve been since the survey began in 1974. This exceptionally strong above trend growth has caused the US dollar and interest rates to rise strongly, however data is expected to moderate to trend growth in 2019.
US consumer confidence hit its highest level since 2000, while initial jobless claims fell to the lowest level since 1969. Wage growth rose to the highest level since 2009, supporting retail sales growth of over 4.7% year-on-year. Consumer spending, which accounts for more than two thirds of US economic activity, is being driven by a robust labour market, with the unemployment rate near a 49-year low of 3.7%. Consumption has also been supported by the Trump administration’s $1.5 trillion tax cut as well as higher savings. US job openings hit a fresh record high adding to signs of rapidly tightening in the labour market. The number of job openings reached a high of 7.1m eclipsing consensus for 6.9m. This reading extends a remarkable run, which has taken the growth of job openings from just 3.3% at the end of last year to 18.0% in Q3.
US Federal Reserve (FED) gradually tightens monetary policy as unemployment falls and wages rise. The FED raised rates by 0.25%, the 8th rate hike in this interest rate cycle that started in December 2015. The increase from 2% to 2.25% reflected an upbeat assessment of the US economy, despite concerns over the escalating trade tensions with China. US inflation remains at target of 2.0%. The Fed tracks a different inflation measure, the personal consumption expenditures (PCE) price index rose 2.0% over the 12 months, holding at the Fed's 2.0% target for the fourth straight month. US inflation is arguably the world's most important economic variable, as it will dictate the direction of FEDs interest rate policy, which has ramifications globally. Importantly, Federal Reserve Chairman Jerome Powell hailed a “remarkably positive outlook” for the US economy that he feels is on the verge of a “historically rare” era of ultra-low unemployment and tame inflation for the foreseeable future.
US equity markets outperformed other major regions in the third quarter following a slew of positive economic and company news. September rounded off the strongest quarter for the US equity market since 2013. Corporate America delivered c.8% revenue growth and c.25% earnings growth in the second quarter matching the previous quarter and best quarter since Q3 2010. The third quarter earnings seasons is expected to deliver c.19% EPS growth, and early signs are positive with 89% of companies reporting thus far beating expectations. Over the quarter, Healthcare stocks were the strongest performers as healthcare companies surpassed expectations for second-quarter profit and revenue growth. Energy stocks also performed well on the back of strong oil prices. Meanwhile, financials were among the worst performers over the month as the treasury yield curve continued to flatten. Notably, Amazon joined Apple to become the second company to reach a $1 trillion market capitalisation.
"I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful." - Warren Buffett