To What Should We Attribute An All-Time Market High: Consumers, Trade Talks or Monetary Policy?

The S&P 500 made it five straight weeks of gains, in a rally that has taken it higher by almost 5 percent, to an all-time high of 3,093. The strength of the rally, and the nature of its leadership, has been impressive, and the return disparity between the leaders and the laggards is stark. In the past five weeks, financial stocks have returned 8.7 percent, while utilities have dropped 4.7 percent. Consumer staples and real estate have also declined, while industrials, technology, and materials have surged higher. This sharp cyclical rotation has been mirrored within the bond market. On October 4 the yield on the ten-year Treasury note was 1.53 percent. It closed last week at 1.94 percent, its highest level in more than three months. Credit spreads have narrowed as well. 

Stocks Played With A Record High Last Week. Can Markets Go Higher This Week?

The S&P 500 briefly surged into record territory on Friday, reaching an intraday high of 3,027 around midday, before closing at 3,022, just below the record high close of 3,025 from last July. Some tentative progress on the U.S.-China trade front contributed to the better tone, as the broad outline of the so-called phase one agreement takes shape. The intention is to have this first part of a potentially larger, more comprehensive deal ready to be signed ceremoniously by Trump and Xi in Santiago, Chile at the Asia-Pacific Economic Cooperation (APEC) Summit in November. Meanwhile, the European Union has agreed to give the United Kingdom another Brexit extension, this time to January 31, to give the prime minister additional time to overcome objections in Parliament to the deal on offer, and prevent a crash-out on Thursday, October 31, the current deadline.

Stocks Search for Direction Amid Mixed Economic News

The search for direction in U.S. stocks remains elusive. For more than three months, the S&P 500 has drifted, unable to see enough progress on trade to mount a rally, but finding enough support from easing monetary policy and the strong consumer to prevent a serious downturn. The index closed last week at 2,986, up 0.5 percent, only slightly more than one percent below its all-time high. But as far back as July 3, it was trading at 2,996. Since then, it has traded in a range between 3,225, its all-time high, and a low of 2,840 on August 5, hardly dramatic stuff.