And the beat goes on

And so it is November, despite a lacklustre end to the month, stocks around the globe finish close to their all-time highs. As a result of Powell’s press comments, traders have lengthened the odds on another rate cut by the Federal Reserve in December, but at present still have the probability of a cut as a slight favourite. Hopefully, by then, the Democrats and Republicans will have reached an agreement to reopen the Federal Government, and those hard-working employees will be able to pay their mortgages once again. The talk of bubbles goes on, and while that’s the case, it tends to reduce the odds of a burst. We have attached a chart produced courtesy of FactSet showing the relative performance of tech and more stable defensive companies. The relative performance is as stretched as it was in the dotcom boom, adding to the sense of an ever-stretched tech sector. Another notable factor this year is the resurgence of M&A activity, particularly in the US, with over $1.25 trillion of deals announced.

The IMF released its latest Financial Stability report in October, and reassuringly, it is not overly bullish. We have in the past reminded readers that in mid-2006, just ahead of the financial crisis, they were quoted in a similar report, “the near-term outlook is as good as it gets”. They were right about that, I suppose, in one way, as things just got worse from then on. On this occasion, they refer to the financial stability risks remaining elevated, sovereign bond market pressures and the rising influence of non-bank financial institutions. Hopefully, reassuringly cautious.

As we look to the week ahead, currently, there is limited economic data available for the US economy due to the ongoing shutdown. We will still get confirmation of last week’s Global Flash PMIs for November. We will also obtain some payroll data and the results of the Michigan Consumer Confidence survey. Over half of the S&P 500 have now reported earnings, with the vast majority of companies continuing to beat on revenues or earnings. Still, we get a few more names this week, including Palantir, AMD, Berkshire Hathaway, McDonald’s, Qualcomm, ConocoPhillips, along with a couple of household UK names, including BP and National Grid.

The Bank of England meets this week, and the general view, despite the weak economic outlook, is that inflation will remain the primary focus for committee members, and as such, interest rates are expected to remain unchanged. Our Chancellor remains under pressure for various reasons, but I imagine with only a few weeks to go before the budget, Starmer will want to keep her in place, and the same is probably true for the markets. The devil you know, I guess.