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Friday’s Rally Closes Out a Tumultuous Week, “Loco” Fed Gets the Blame, Buffet’s Advice Rings True a Decade Later and the US Ties Bulgaria…This Week’s 7 Things to Know About the Markets & the Economy

  1. Market Data: Stocks staged a broad recovery on Friday as strong trade data from China buoyed markets, with investor focus turning to third-quarter earnings at the end of a tumultuous week. This selloff seems to have many fathers. Among the catalysts: Continuing trade war between the U.S. and China, falling margins and reduced profits for U.S. corporations, and the end of central bank accommodative policies. JPMorgan Chase & Co. kicked off the third-quarter reporting season with earnings broadly in line with analysts’ estimates. Next week, the market will attempt to build on Friday’s recovery as we focus on corporate earnings reports.
  2. Sage Advice Anniversary:  It was 10 years ago (10/16/08) that Warren Buffet wrote his “Buy America, I Am” op-ed article in the New York Times. Buffett encouraged investors to “be fearful when others are greedy and be greedy when others are fearful.” Buffett’s letter was released less than 5 months before the stock market bottomed on 3/09/09, ending a 57% decline of the S&P 500. The index closed at 946 on 10/16/08 and has since more than tripled to close at 2886 on Friday 10/05/18. (Source: New York Times).
  3. Yields Rise “Too Fast”: The U.S. Treasury selloff continued this week, with the yield on the 10-year benchmark touching 3.45 percent, the highest since May 2011. Rates on 30 year mortgages topped the 5% mark as well. “I don’t like it,” “Too stringent, far too fast”, “Loco” President Donald Trump has said, referring to the pace of Federal Reserve rate hikes, adding “I like low interest rates” The president backed up his position by saying that absent resurgent inflation, there’s no need to move too fast. For economists, and Fed Chair Powell, CPI is the fly in the ointment. While Powell is confident that there will be no rapid price increases as expectations remain anchored, some former colleagues at the central bank have raised questions about the wisdom of being guided by the inflation outlook.
  4. Earnings Season Has Begun: Despite all negative headlines, companies in the S&P 500 are expected to report third-quarter earnings up almost 20% over the past year. Those positive fundamentals support an outlook for rising stock prices over time, according to FactSet
  5. Chart of the Week: A good reminder for a volatile week: Though the market typically averages a 13.8% decline each year, the stock market posts a positive return 76% of the time. A “correction” is considered a 10% decline. So far the S&P 500 and the Dow Jones Industrial Average have declined 7.8% from their recent highs. Here’s what the declines have been for some other major world markets: Japan -8.2%, Australia -8.1%, Canada -7.6%, China -30%, Germany -15.4%, India-13.6%.
  6. IMF Warning: The International Monetary Fund cut its forecast for global growth to 3.7 percent for this year and next, down from 3.9 percent previously. It blamed escalating trade tensions and stresses in emerging markets for the reduction. 
  7. Costly Care: Healthcare efficiency numbers were out this week. Among nations with average life expectancies of at least 70 years, per capita GDP of at least $5,000, and populations above 5 million, the USA is tied for 54th place with Azerbaijan and ahead of only Bulgaria in healthcare efficiency. Top spot goes to Hong Kong, followed by Singapore, Spain and Italy. While the Swiss (ranked 12th) spend $300/per capita more on healthcare than the US, they live 4.2 years longer! Elliot Eisenberg, PhD.

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