The same macro trends have continued into November. Rather than inventing new trends which aren’t occurring, we’ll provide more coverage on what’s affecting markets. There’s growing uncertainty over global growth, the Fed’s rate hikes, tariffs, the housing market, and the fiscal stimulus losing its impact. We’ve seen oil prices plunge nearly 20%, partially because of global demand woes. We see the Fed discussing how tariffs can hurt growth, but still planning to hike rates in December. The Fed can’t control trade policy, but it can react to the current environment just like how it became hawkish after the fiscal stimulus.

The 0.8% quarter over quarter business investment growth in Q3 implies the boost from the stimulus is abating. Even with all these negatives, the consumer is still confident because of the strong labor market and low inflation. Declining prices at the gas station can easily offset the volatility in the stock market allowing consumer spending growth to maintain its strength. 

Uncertainty Increases

We mentioned some of the concerns investors have. This is bearing out in the Q4 and Q1 S&P 500 earnings estimates which are starting to fall. Q4 and Q1 growth estimates have fallen from 15.37% and 8.79% on October 1st to 12.88% and 7.74% on November 6th. The chart below quantitatively expresses the macro drivers of U.S. equities.

Source: chart

Growth is driving stocks higher, but uncertainty is driving them lower. Uncertainty is by far the highest in the last 2.5 years. The uncertainty effect can be thought of as the market pricing inthe possibility of negative catalysts. For example, if the market feels there is currently a 30% chance the trade war with China continues throughout 2019 andthat will hurt stocks by 20%, it immediately sells off by 6%. A few negativecatalysts like this can drive sharp corrections. Sentiment can be volatile, but the catalysts of uncertainty need to be solved for stocks to reach a new record high.