Economic data has improved over the past few months, but global manufacturing and trade levels remain weak.

 Corporate earnings results have been solid for the third quarter. We remain concerned that expectations for next year are too high.

 Value styles have been outperforming growth since the summer, a trend that could continue for a while.

Stock markets rose yet again last week, boosted by decent corporate earnings results and optimism over the near-term phase one U.S./China trade deal. The S&P 500 Index climbed 1.2% Energy, technology and industrials led the way, while health care, communications services and REITs lagged. Overall investor sentiment has improved over the last couple of months, but investors remain focused on some key downside risks.

Weekly Top Themes

1. Key equity risks have faded over the past few weeks, but the economic outlook remains uncertain. Economic data has improved since the summer, Brexit shows promise and trade tensions have eased as both the U.S. and China appear eager to negotiate. Contracting global manufacturing and weak global trade levels are key negatives.

2. Manufacturing data shows some positives, but more progress is needed. The U.S. Purchasing Managers’ Index climbed to a surprisingly strong 51.5 in October. This was the second month of expansion and the strongest reading since April.

3. The Fed is likely to cut rates again this week, but we think forward guidance will suggest a higher bar for future cuts.

4. Third quarter earnings results are ahead of expectations. With about half of S&P 500 companies reporting results, earnings are beating expectations by almost 5%, with 73% of companies reporting positive surprises. This remains in line with the average of 5.5% and 71% over the past three years. At this point, earnings per share are on track to come in at around +1% for the quarter.

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