October of this year was one of the nastiest months ever for the market. Dating back to 1901 there hasn’t been a time, other than last month, in which that many asset classes were down in a single month, according to Deutsche Bank. In last weeks’ vlog, #324 Bearish Thanksgiving, Bullish Christmas?, we said we needed a few things in order to create a positive market going forward and those were for the Fed to not be aggressive, a strong GDP number, and positive trade talks. We got all three of those and we are hoping this will be the beginning of our tailwinds leading into December.
The third quarter finished extremely strong. We shared last week that earnings were up 20% in October, but the market was down 10% so we knew something wasn’t adding up. We had great fundamentals such as extremely low unemployment, low inflation, gas prices were lower, and strong holiday sales. However, the market was still down 10%. The market continued to be down into the month of November but ended up positive thanks to the last couple of days. There were two big headwinds that were holding the market down and one was the fear that the Fed would be too aggressive and the second was that we would go into a trade war and possibly into a recession after that. It’s important not to focus on the short term but to focus more on the long term and this situation is a good reminder of that.
Over the weekend Canada announced a huge cut in oil and Qatar announced that they are pulling out of OPEC. Falling 22%, the price on crude oil had the largest drop, in the month of November, that it’s had in 10 years. Short term, the prices at the pump help the consumer, especially right at the holidays, but really helps in the long term with inflation numbers and takes some uncertainty of the Fed out of the equation. It might stop the Fed from getting fired up and raising rates and calm down some fear with consumers. The U.S. is now the largest producer of oil which gives us more control in that area. OPEC is meeting Thursday and will probably the most consequential meeting they have had in 4 years. They are having to deal with the U.S. more now than ever because we are producing at a whole new dynamic than before.
Impacts of G20
Following the G20 Summit, people are wondering what the immediate impacts will be. The agricultural, energy, and industrial industries could be impacted the most. Specifically, agricultural in that soy bean prices have surged on the back of a trade truce. The January futures contract on soybeans has rose just south of 2%, at 1.7%. China has committed to making immediate purchases, so we will be watching close to see if they hold up to their promises.
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