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Capital market impact

Capital market impact

Slow, steady march higher despite uncertainty

Wall Street analysts have been taken off guard by the strength of equity markets this year. Following the weak performance in the fourth quarter of last year, most analysts in January cut expectations for the S&P 500 this year to roughly 2,900. With the S&P 500 currently near 3,150, analysts have been forced to upwardly revise 2019 expectations. The outlook for 2020 remains quite modest, with the average forecast only 3% higher than today. 

Capital market impact

S&P 500 Index hits six-week winning streak

A factor in the recent market strength is the growing belief that a trade deal with China is imminent, despite the continued mixed signals from both countries. This weekend was supposed to be the APEC conference where “phase one” was signed but was cancelled because of security concerns in Chile. There were reports of a “constructive,” high-level phone call over the weekend, driving Asian shares higher. 

Capital market impact

Investor sentiment shift drives markets higher

Investor optimism is also evident in the movement of the yield curve in recent weeks. Last week saw a dramatic steepening of the yield curve resulting in a normal-shaped (un-inverted) curve. The 10-year yield jumped 0.42% since August, showing the largest three-month jump in three years. The spread between the 10-year and 2-year was negative as recently as September is now approaching the widest level in a year.