There are eight trading days left until we close the books on Q3 2018, and it’s been a stellar quarter by any measure. Stock market performance has shrugged off fears of Trade Wars, including some initial tariff volleys with China, the EU and Canada.
Gross domestic product (GDP) is well on track to hit the high 3s for Q3, with still a shot at posting a 4 handle for the second consecutive quarter. Although we won’t get the first look at Q3 GDP until the last week of October, the Atlanta FED GDPNow forecast for Q3 is currently at +4.4%.
Major stock market averages have gains ranging from +4% to +8% QTD.
The Dow Jones Industrial Average (INDEXDJX: .DJI), +8% is leading the pack on the strength of Mega Cap Multinationals that are very sensitive to both the U.S. dollar and pending trade negotiations around the globe. Note that the strength of the U.S. dollar has cooled off the last 6 weeks, and there has been notable progress on the Trade Front.
On Tuesday, the DJIA posted its highest close, 26,247 since late January, just after posting an all time high of 26,616.
The S&P 500 (INDEXCBOE: .INX) at 2904, is +6.8% QTD and is impressively holding its breakout to new highs from late August.
Exactly 3 weeks ago the S&P 500 posted its first close ever above 2900, and this would be a great marker to hold going into Q4. Were not there yet, but with oil stabilizing in the low to mid 70s and the financials finally starting to show some signs of life, the prospects are good.
The NASDAQ Composite (INDEXNASDAQ: .IXIC) has gains of +5.9%, but that’s come with plenty of volatility, primarily from the FANG related names.
The NASDAQ closed Tuesday at 7956, 2% below its highs from only 3 weeks ago. Volatility is a given for the NASDAQ where a hand full of the biggest names have gains YTD of over 50% and the semiconductor space has been on a hair trigger most of the last 6 weeks over trade uncertainties and pricing concerns.
Keep a close watch on the 50 day moving average at 7883.
Strong fundamentals have provided a solid foundation for the stock market gains this quarter. This includes results from the Macro Economy, as well as impressive Corporate Earnings.
Despite the fact that the FED is on track to hike the Fed Funds rate to 2.25% next week, and the US 10 year Treasury Yield is back above the 3% threshold the last 2 days, investors are viewing this as a sign of confidence from both the Federal Reserve and Fixed Income Markets that the pace of economic growth will more than match the rise in rates and any accompanying inflation pressures.
Very simply, with GDP growth tracking at +4%, wage and income gains tracking at +3% — the best in a decade — and corporate profits growing at a double digit rate, the markets and the economy can handle base interest rates moving back up to the 3% level over the next 6 to 8 months.