The recent surge in US stock market volatility has rattled nerves and inspired some analysts to announce that a new bear market has arrived. The warning has resonated a bit deeper in some circles with the sight of the S&P 500 falling below its 200-day moving average earlier this month. The bearish view can’t be ruled out entirely, of course, but the latest stumble in stock prices looks like a temporary bout of anxiety rather than a start of an extended decline. Why? A key factor for this outlook is the economic trend, which continues to provide a bullish tailwind. Not surprisingly, an econometric test for bear-market signals in US stocks continues to show minimal signs of danger.
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The US economy is on track to expand at a substantially slower pace in the third quarter vs. Q2, according to The Capital Spectator’s median econometric nowcast. Today’s revised GDP estimate for this year’s July-through-September period anticipates an increase of 2.6% (real seasonally adjusted rate). That’s well below the 4.6% increase in the previous quarter, according to the Q2 report published by the Bureau of Economic Analysis (BEA) in late-September.
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● Bank stress test relief lifts European assets | Reuters
European stocks, low-rated government bonds and the single currency all rose on Monday as financial markets gave a tentative thumbs-up to euro zone bank health checks.
● German Business Confidence Falters Again in October | Wall St Journal
The closely watched lead indicator from the Ifo Institute fell to 103.2 after 104.7 in the previous month. This marked the sixth straight decline in the lead indicator.
● Rousseff reelected president of Brazil | RT
Brazil’s leftist president Dilma Rousseff has been re-elected for another term with over 51 percent of the vote in a tight presidential run-off on Sunday.
● As Ebola Spreads, Asia Senses Vulnerability | NY Times
Governments and doctors around Asia are now much more worried that the region’s densely populated cities and towns could be vulnerable if infected people start flying here from Africa.
● Goldman slashes 2015 oil price forecast | Reuters
Goldman Sachs has slashed its 2015 oil price forecasts, making it the most bearish among major financial institutions, following a near 25 percent fall in crude prices over the past five months.

● Berkshire Beyond Buffett: The Enduring Value of Values
By Lawrence A. Cunningham
Q&A with author via ValueWalk
Q: What inspired you to write this book and what are some of its key implications?
A: For one, it celebrates Berkshire Hathaway’s 50th anniversary under Warren Buffett’s leadership. And, for the past 20 years, people have been asking for 20 years what happens to Berkshire Hathaway if Warren Buffett gets hit by the proverbial bus; the question now has added urgency since the billionaire businessman is 84. The popular answer became paradoxical: Buffett tried to build an enduring institution at Berkshire and yet even great admirers doubt that the company can survive without him. My book demonstrates how Berkshire’s corporate culture is designed to make the company outlast any one person, making the culture part of its succession plan.
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Healthcare is hot, energy is not. That’s the message in the trailing one-year total return data for ETFs that track the major sectors for the US equity market (see list below for tickers and links).
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● Treasuries Advance as NY Ebola Case Boosts Safest Assets | Bloomberg
Treasuries rose the most in a week after a doctor in New York City tested positive for Ebola, spurring demand for the haven assets amid concern any outbreak of the virus can weigh on the global economy.
● German consumer morale lifts going into November | Reuters
German consumer morale picked up heading into November after slight declines in the previous two months, suggesting consumers feel confident about their own incomes and are willing to spend even though Germany’s economy is slowing.
● UK GDP rises by 0.7% in third quarter | BBC
UK economic growth slowed in the three months to September, with the economy expanding by just 0.7%, the Office for National Statistics said.
● China Leading Economic Index Jumps 0.9% In September | RTT
A leading index for China’s economy climbed 0.9 percent in September, the latest survey from the Conference Board revealed on Friday – following the 0.7 percent gain in August and the 1.3 percent jump in July.
● Europe’s eco/policial future will be determined in coming days | Reuters
Europe is at a make or break moment. Two very different events on Sunday, occurring at opposite ends of Europe, will largely determine the entire continent’s direction for years ahead: the parliamentary election in Ukraine and the bank “stress tests” and Asset Quality Review conducted by the European Central Bank.

Three economic updates today provide more evidence that moderate growth endures for the US. The numbers du jour—weekly jobless claims, the Chicago Fed National Activity Index, and Markit’s US purchasing managers index (PMI) for manufacturing—paint an upbeat profile of the macro trend. The main takeaway: the deflationary threat festering in Europe has yet to take a bite out of the US economy’s forward momentum.
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● US Inflation Remains Tame | Wall St Journal
Consumer-price index ticks up 0.1%, likely giving Fed leeway on rate hikes
● Euro-Area Manufacturing Grows as Risk of Recession Eases | Bloomberg
A Purchasing Managers’ Index showed manufacturing in the region unexpectedly grew this month, while Spain’s economy showed signs of a further recovery, with third-quarter unemployment dropping to the lowest level since 2011. In Germany, factories rebounded from a slump in September.
● Oil slump leaves Russia weaker than decaying Soviet Union | Telegraph
Russia had the chance at the end of the Cold War to build a modern, diversified economy, with the enthusiastic help of the West. That chance has been squandered
● Bond funds stock up on Treasuries in prep for market shock | Reuters
U.S. corporate bond funds this year are adding Treasuries to their holdings at more than twice the rate of corporate debt amid concern that the struggling European economy and potential changes in Federal Reserve policy will drag down profits at U.S. corporations.
● Ebola, GDP & Markets | Cumberland Advisors
It is becoming clear that overcoming the challenges in the fight against Ebola is related to the size of an economy. The very poor countries face the greatest difficulty.

The three-month average of the Chicago Fed National Activity Index (CFNAI) is expected to decelerate a bit to +0.03 in tomorrow’s update for September, according to The Capital Spectator’s median econometric point forecast for several econometric estimates. The projection is marginally below August’s +0.07 reading, which reflected above-average economic growth relative to the historical trend. Only values below -0.70 indicate an “increasing likelihood” that a recession has started, according to guidelines from the Chicago Fed. Based on today’s estimate for September, CFNAI’s three-month average is expected to remain at a level that’s historically associated with growth at a marginally above-trend pace.
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Welcome to the big snapback… so far. The prices of risky assets have made a huge U-turn in recent days. Battered and bruised has given way to robust and rising. It may turn out to be a fleeting resurgence, but the rebound looks impressive at the moment. US real estate investment trusts (REITs) in particular have delivered a rousing revival. But while most of the global markets have perked up, there’s been a notable exception: commodities, which in broad terms aren’t participating in the party.
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