Month: November 2015

The Markets (as of market close November 27, 2015)

The major benchmark indexes listed here remained relatively stable for the holiday-shortened week. Mixed economic data, the Thanksgiving holiday, plus heavy consumer shopping may have slowed trading. The Dow lost about 25 points, while the S&P 500 gained almost 23 points. The Nasdaq and Russell 2000 posted gains week-on-week, while the Global Dow dropped a little over 18 points.

The price of gold (COMEX) continued to fall, selling at $1,056.10 by late Friday afternoon compared to $1,077.30 a week earlier. Crude oil (WTI) prices remained virtually the same, selling at $41.77 per barrel by week’s end. The national average retail regular gasoline price decreased to $2.094 per gallon on November 23, 2015, $0.084 below the previous week’s price of $2.178 per gallon, and $0.727 below a year ago.

Market/Index	2014 Close	Prior Week	As of 11/27	Weekly Change	YTD Change
DJIA	17823.07	17823.81	17798.49	-0.14%	-0.14%
Nasdaq	4736.05	5104.92	5127.52	0.44%	8.27%
S&P 500	2058.90	2089.17	2090.11	0.04%	1.52%
Russell 2000	1204.70	1175.15	1202.38	2.32%	-0.19%
Global Dow	2501.66	2418.66	2400.37	-0.76%	-4.05%
Fed. Funds	0.25%	0.25%	0.25%	0%	0%
10-year Treasuries	2.17%	2.26%	2.22%	-4 bps	5 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

• The “second” estimate of the gross domestic product showed the U.S. economy advanced 2.1% in the third quarter of 2015, up from an initial estimate of 1.5%. The second quarter GDP increased 3.9%. According to the Bureau of Economic Analysis, the revised gain in the third quarter is reflective of increases in personal consumption expenditures, nonresidential fixed investment, state and local government spending, residential fixed investment, and exports. Imports, which are a subtraction in the calculation of GDP, increased.
• On the heels of the GDP report came another important inflation indicator relied upon by the Fed–the core personal consumption expenditures (PCE) reading. And the latest figures from the Bureau of Economic Analysis show very little upward inflationary movement, as the PCE increased $15.2 billion, or 0.1%, in October. This follows a 0.1% PCE increase in September. Overall, personal income increased $68.1 billion, or 0.4%, while disposable personal income also increased 0.4% at $56.8 billion. Despite increases in disposable income, consumers aren’t spending commensurate with the added income, keeping inflationary trends stagnant. Unless November’s numbers reflect otherwise, October’s results do not readily support an interest rate hike in December.
• New orders for durable goods placed with U.S. manufacturers are an indication of how busy factories will be in the coming months. According to the latest advance report from the Census Bureau, new orders for manufactured durable goods in October increased $6.9 billion, or 3.0%, to $239.0 billion. This increase follows a 0.8% revised September decrease.
• However, manufacturing growth in November is slowing, according to the Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™). At 52.6, the index is still above 50, indicating monthly growth, but at a much slower pace, as the index for October was 54.1. Survey respondents indicated that growth in new orders is the slowest it’s been in over two years, citing cyclical slowdown in demand patterns and ongoing weakness in export sales.
• Home prices for September were up, according to the latest S&P/Case-Shiller Home Price Indices. The National Home Price Index, covering the entire nation, recorded a year-over-year gain with a 4.9% annual increase in September compared to a 4.6% increase in August. Before seasonal adjustment, the National Index posted a gain of 0.2% in September over August.
• The inventory of existing homes for sale is down, resulting in a drop in the sale of single-family homes, townhomes, condominiums, and co-ops for October, according to the latest figures from the National Association of Realtors®. Total existing home sales fell 3.4% to a seasonally adjusted annual rate of 5.36 million in October from 5.55 million in September. Total housing inventory at the end of October decreased 2.3% to 2.14 million existing homes available for sale, and is now 4.5% lower than a year ago (2.24 million).
• According to the Census Bureau, sales of new single-family homes in October were at a seasonally adjusted annual rate of 495,000–10.7% above the revised September rate of 447,000, and 4.9% above October 2014. The median sales price of new houses sold in October was $281,500; the average sales price was $366,000 with an estimated 226,000 new homes for sale at the end of October (a supply of about 5.5 months).
• The Conference Board Consumer Confidence Index®, which had decreased moderately in October, declined further in November. The index now stands at 90.4, down from 99.1 in October. The decline was attributable to consumers’ less favorable view of the job market and business conditions.
• Another indicator of consumer sentiment in the economy, the University of Michigan’s Surveys of Consumers Index of Consumer Sentiment, came in at 91.3 for November, somewhat ahead of October’s 90.0 reading. Consumer sentiment waned toward the latter part of November however, possibly reflective of the Paris attacks and further terrorist threats.
• In the week ended November 21, there were 260,000 initial claims for unemployment insurance, a decrease of 12,000 from the prior week’s revised level. The advance seasonally adjusted insured unemployment rate was unchanged at 1.6% for the week ended November 14, while the advance number for continuing unemployment insurance claims was 2,207,000, an increase of 34,000 from the previous week’s revised level.

Eye on the Week Ahead

This week brings reports from the manufacturing and non-manufacturing sectors. November’s employment data is highlighted at the end of the week, as is the latest report on international trade.

The Markets (as of market close November 20, 2015)

Despite the terrorist attacks in Paris and Mali, stocks climbed higher by the close of last week. Investors may have been influenced by favorable earnings reports from some large companies and the feeling that the impending Fed interest rate hike may be a sign the government believes the economy is on a definite upswing. The S&P 500 and the Dow saw significant gains, rising 3.27% and 3.35%, respectively. Nasdaq continues to be a consistent performer, closing last week up almost 8% year-to-date.

The price of gold (COMEX) decreased, selling at $1,077.30 by late Friday afternoon compared to $1,083.20 a week earlier. Crude oil (WTI) prices gained, selling at $41.46 per barrel by week’s end. The national average retail regular gasoline price decreased to $2.178 per gallon on November 16, 2015, $0.057 below the previous week’s price of $2.235 per gallon, and $0.716 below a year ago.

Market/Index	2014 Close	Prior Week	As of 11/20	Weekly Change	YTD Change
DJIA	17823.07	17245.24	17823.81	3.35%	0.00%
Nasdaq	4736.05	4927.88	5104.92	3.59%	7.79%
S&P 500	2058.90	2023.04	2089.17	3.27%	1.47%
Russell 2000	1204.70	1146.55	1175.15	2.49%	-2.45%
Global Dow	2501.66	2358.29	2418.66	2.56%	-3.32%
Fed. Funds	0.25%	0.25%	0.25%	0%	0%
10-year Treasuries	2.17%	2.26%	2.26%	0 bps	9 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

• The Consumer Price Index (CPI) experienced a modest monthly gain in October, increasing 0.2%. This follows two consecutive months of decline. According to the Bureau of Labor Statistics report, the index has increased 0.2% over the last 12 months. The core CPI, less the volatile food and energy segment, sits at 1.9%–right at the Fed’s general 2% inflation target. Stronger inflationary trends could be a sign of economic strength sufficient enough to absorb an interest rate hike.
• The Federal Reserve puts out a monthly index of industrial production covering manufacturing, mining, and electric and gas utilities. The latest figures show that industrial production fell once again, declining 0.2% in October. Indexes for utilities (-2.5%) and mining (-1.5%) decreased, while the index for manufacturing actually moved up 0.4% for the month. Also on the plus side, at 107.2% of its 2012 average, total industrial production in October was 0.3% above its year-earlier level.
• The Housing Market Index, which is based on a survey of National Association of Home Builders members, seeks to rate the single-family housing market. The preliminary report for November shows the index dipped to 62 compared to October’s revised reading of 65. A reading over 50 denotes general builder confidence. While enthusiasm in the market for single-family home sales may have softened a bit, November’s preliminary reading reveals continuing optimism in the market.
• Housing starts–marked by the actual start of new residential construction–fell 11% in October compared to September’s revised figures. According to the latest Census Bureau report, there were about 1,060,000 housing starts in October–131,000 fewer than the prior month’s total. Builders cut back on construction of apartments and condominiums to the tune of 25.1%, while starts of single-family residences fell 2.4%. On the other hand, builders showed confidence in future residential sales, as applications for building permits rose 4.1%.
• In the week ended November 14, there were 271,000 initial claims for unemployment insurance, a decrease of 5,000 from the prior week. The advance seasonally adjusted insured unemployment rate was unchanged at 1.6% for the week ended November 7, while the advance number for continuing unemployment insurance claims was 2,175,000, a decrease of 2,000 from the previous week’s revised level.

Eye on the Week Ahead

Several important economic indicators are highlighted in reports during the week of November 23. Reports on existing home sales and new home sales may reveal the direction of the housing market heading to the end of the year. Imports and exports have generally been lagging for much of this year, and the latest figures are expected to reveal more of the same. The report on gross domestic product is the final take on overall economic activity available to the FOMC before its December meeting.

The Markets (as of market close November 13, 2015)

Stocks fell sharply this week, possibly in anticipation of the Federal Reserve’s impending interest rate hike, maybe as soon as next month. The Dow lost a little over 665 points, or 3.71%, closing the week at 17245.24. The S&P 500 fell 3.63%, and the Nasdaq, which had been a consistent gainer, dropped over 4%. Last week’s declines follow an October during which equities climbed out of a summer slump to register positive gains year-to-date. Those gains have dissipated for the most part, with only the Nasdaq ahead of last year.

The price of gold (COMEX) decreased, selling at $1,083.20 by late Friday afternoon compared to $1,088.90 a week earlier. Crude oil (WTI) prices fell, selling at $40.73 per barrel by week’s end. The national average retail regular gasoline price increased to $2.235 per gallon on November 9, 2015, $0.011 over the previous week’s price of $2.224 per gallon, but still $0.706 below a year ago.

Market/Index	2014 Close	Prior Week	As of 11/13	Weekly Change	YTD Change
DJIA	17823.07	17910.33	17245.24	-3.71%	-3.24%
Nasdaq	4736.05	5147.12	4927.88	-4.26%	4.05%
S&P 500	2058.90	2099.20	2023.04	-3.63%	-1.74%
Russell 2000	1204.70	1199.75	1146.55	-4.43%	-4.83%
Global Dow	2501.66	2433.65	2358.29	-3.10%	-5.73%
Fed. Funds	0.25%	0.25%	0.25%	0%	0%
10-year Treasuries	2.17%	2.32%	2.26%	-6 bps	9 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

• The latest report from the Bureau of Labor Statistics reveals that the Producer Price Index (PPI) decreased 0.4% in October. The PPI measures the average change over time in the prices domestic producers receive for goods and services. Final demand prices moved down 0.5% in September and were unchanged in August. On an unadjusted basis, the final demand index fell 1.6% for the 12 months ended in October, a record 12-month decline for this index, which was introduced in November 2009.
• Retail sales and services, on the other hand, increased 0.1% from the previous month to $447.3 billion in October, according to the latest report from the Department of Commerce. This also marks an increase of 1.7% from October 2014.
• Business inventories for September increased 0.3% from the prior month, according to the latest figures from the Census Bureau. The inventories-to-sales ratio was 1.38 for September–up 0.01 from August and 0.07 ahead of September 2014. Rising inventories may reflect business optimism that sales will be growing in the coming months.
• U.S. import prices fell 0.5% in October, after falling 0.6% in September, according to the latest figures from the Bureau of Labor Statistics. Lower prices for both fuel and nonfuel imports contributed to the October decrease. Prices for U.S. exports fell 0.2% in October, following a 0.6% drop the previous month.
• The U.S. budget deficit increased to $137 billion in October–the first month of the government’s 2016 fiscal year. Total receipts for the month were $211 billion, while outlays reached $348 billion. The deficit for October 2015 is 12.2% higher than October 2014. Part of the recently passed Bipartisan Budget Act of 2015 includes increases in the federal debt limit and discretionary spending levels. As such, the deficit could continue to expand as government spending increases.
• The number of job openings was little changed at 5.5 million on the last business day of September, according to the Job Openings and Labor Turnover (JOLTS) report from the U.S. Bureau of Labor Statistics. Hires and separations were little changed at 5.0 million and 4.8 million, respectively. Within separations, the quits rate was 1.9% for the sixth consecutive month, and the layoffs and discharges rate remained unchanged at 1.2%. So while the number of job openings increased, the rate of hires didn’t, possibly indicating a lack of interest on the part of those unemployed, or a potential cutback on employer hires.
• According to the latest report on consumer sentiment from the University of Michigan, consumer confidence rose in early November, coming in with an index reading of 93.1 compared to 90.0 in October. Consumers showed growing confidence in the overall economy, as evidenced by the Current Economic Conditions index, which rose to 104.8 in November from 102.3 in October.
• Initial claims for unemployment insurance were unchanged from the prior week, closing at 276,000 for the week ended November 7. The advance seasonally adjusted insured unemployment rate was unchanged at 1.6% for the week ended October 31, while the advance number for continuing unemployment insurance claims increased 5,000 to 2,174,000.

Eye on the Week Ahead

A few important economic indicators are highlighted in reports this week. The Consumer Price Index, a monthly indicator of inflation, has not shown signs of significant upward movement, but October’s report may reveal increasing consumer prices, further bolstering the likelihood of an interest rate hike by the Fed. Reports on industrial production and housing starts are also on tap.

The Markets (as of market close November 6, 2015)

Following a very favorable jobs report at the end of last week, the domestic indexes listed here posted overall gains as of last Friday’s close. The Russell 2000, which had been lagging a bit, saw the largest increase, gaining 3.26%, followed by the Nasdaq, which rose over 93 points. Only the Global Dow regressed by week’s end, but only by 0.11%. Also of note is the sharp increase in the 10-year Treasuries yield–up 18 basis points, as money moved out of bonds, possibly in anticipation of higher interest rates on the horizon.

The price of gold (COMEX) decreased, selling at $1,088.90 by late Friday afternoon compared to $1,141.70 a week earlier. Crude oil (WTI) prices fell, selling at $44.52 per barrel by week’s end. The national average retail regular gasoline price decreased to $2.224 per gallon on November 2, 2015, $0.004 under the previous week’s price of $2.228 per gallon, and $0.769 below a year ago.

Market/Index	2014 Close	Prior Week	As of 11/6	Weekly Change	YTD Change
DJIA	17823.07	17663.54	17910.33	1.40%	0.49%
Nasdaq	4736.05	5053.75	5147.12	1.85%	8.68%
S&P 500	2058.90	2079.36	2099.20	0.95%	1.96%
Russell 2000	1204.70	1161.86	1199.75	3.26%	-0.41%
Global Dow	2501.66	2436.23	2433.65	-0.11%	-2.72%
Fed. Funds	0.25%	0.25%	0.25%	0%	0%
10-year Treasuries	2.17%	2.14%	2.32%	18 bps	15 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

• For those at the Fed looking to raise interest rates in December, last week’s employment report will certainly support that move. The Bureau of Labor Statistics reported that nonfarm employment increased by 271,000 in October, while the unemployment rate (5.0%) and did the number of unemployed persons (7.9 million) remained steady. In October, average hourly earnings for all employees on private nonfarm payrolls rose by 9 cents to $25.20, following little change in September. Hourly earnings have risen by 2.5% over the year.
• The trade deficit for goods and services narrowed in September compared to August, according to the latest figures from the Bureau of Economic Analysis. The trade deficit was $40.8 billion in September, down $7.2 billion from $48.0 billion in August–the smallest deficit since February. September exports were $187.9 billion, $3.0 billion more than exports in August. September imports were $228.7 billion, $4.2 billion less than August imports. The September decrease in the goods and services deficit reflected a decrease in the goods deficit of $7.3 billion to $60.3 billion and a decrease in the services surplus of $0.1 billion to $19.5 billion.
• According to the Institute for Supply Management Report on Business®, the October Purchasing Managers’ Index (PMI®) registered 50.1%, a decrease of 0.1% from the September reading of 50.2%. October’s reading marks the third consecutive month of decline in the manufacturing sector. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting. The report also includes information on a number of sub-indexes, which provide some insight into manufacturing activity. For instance, the New Orders Index, the Production Index, and the Prices Index each increased in October compared to September. Yet, the Employment Index and the Imports Index both regressed. Survey respondents expressed concerns over the high price of the dollar and the continuing low price of oil.
• In contrast to the PMI®, the ISM Non-Manufacturing Index (NMI®) has been posting positive data indicating growth. October’s report maintained that trend as the NMI® came in at 59.1%–2.2% ahead of September’s reading. The reading for October represents growth in the non-manufacturing sector, but at a faster pace, since readings over 50% represent some growth. According to the report, the Non-Manufacturing Business Activity Index increased 2.8%; the New Orders Index gained 5.3%; the Employment Index rose 0.9%; and the Prices Index increased 0.7%–an indication that prices decreased in October.
• The U.S. Census Bureau of the Department of Commerce reported last week that construction spending during September 2015 was estimated at a seasonally adjusted annual rate of $1,094.2 billion, 0.6% above the revised August estimate of $1,087.5 billion. The September figure is 14.1% above the September 2014 estimate of $959.2 billion. Spending on private construction was at a seasonally adjusted annual rate of $794.2 billion, 0.6% above the revised August estimate of $789.7 billion. In September, the estimated seasonally adjusted annual rate of public construction spending was $300.0 billion, 0.7% above the revised August estimate of $297.8 billion.
• Nonfarm business sector labor productivity increased at a 1.6% annual rate during the third quarter of 2015, the U.S. Bureau of Labor Statistics reported last week, as output increased 1.2% and hours worked decreased 0.5%–the first decline in hours worked since 2009. From the third quarter of 2014 to the third quarter of 2015, productivity increased 0.4%, reflecting increases in output and hours worked of 2.3% and 1.9%, respectively.
• Continuing a somewhat disturbing trend, new orders for manufactured goods, down in July and August, decreased $4.7 billion, or 1.0%, to $466.3 billion in September, the U.S. Census Bureau reported last week. Shipments, unfilled orders, and inventories each decreased in September from August. The decline in factory orders can be traced, at least in part, to weakness in exports, low oil prices, and a soft energy sector.
• Initial claims for unemployment insurance increased by 16,000 for the week ended October 31, to close at 276,000, up from the previous week’s unrevised level of 260,000. The advance seasonally adjusted insured unemployment rate was unchanged at 1.6% for the week ended October 24, while the advance number for continuing unemployment insurance claims increased 17,000 to 2,163,000.

Eye on the Week Ahead

Next week will likely be fairly slow, with Veterans Day falling smack in the middle of the week. While equities markets are open for business, banks are generally closed. Reports on import and export prices, retail sales, and the Producer Price Index are scheduled for release next week.

The Markets (as of market close October 30, 2015)

News that the Fed would not be raising interest rates at least until December had little impact on the markets in general, as equities closed last week without much movement from the prior week. The Dow and S&P 500 finished last week up 0.1% and 0.2%, respectively. Of the indexes listed here, last week’s biggest gainer was the Nasdaq, up 0.44% to 5053.75, while the Russell 2000 and the Global Dow both finished the week losing value.

The price of gold (COMEX) decreased, selling at $1,141.70 by late Friday afternoon compared to $1,164.00 a week earlier. Crude oil (WTI) prices gained a bit, selling at $46.39 per barrel by week’s end. The national average retail regular gasoline price decreased to $2.228 per gallon on October 26, 2015, $0.049 under the previous week’s price of $2.277 per gallon, and $0.828 below a year ago.

Market/Index	2014 Close	Prior Week	As of 10/30	Weekly Change	YTD Change
DJIA	17823.07	17646.70	17663.54	0.10%	-0.90%
Nasdaq	4736.05	5031.86	5053.75	0.44%	6.71%
S&P 500	2058.90	2075.15	2079.36	0.20%	0.99%
Russell 2000	1204.70	1166.06	1161.86	-0.36%	-3.56%
Global Dow	2501.66	2458.13	2436.23	-0.89%	-2.62%
Fed. Funds	0.25%	0.25%	0.25%	0%	0%
10-year Treasuries	2.17%	2.04%	2.14%	10 bps	-3 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

• The Federal Open Market Committee (FOMC) again voted to maintain its current interest rate policy through November. While noting that economic activity has been expanding at a moderate pace, with household spending and business fixed investment increasing in recent months, the FOMC also noted that net exports are soft, the pace of job gains has slowed, and inflation continues to run below the FOMC’s target rate of 2.0%. The FOMC does not meet again until December, at which time it will assess progress towards its objectives of maximum employment and 2.0% inflation. While a rate increase is still in play for December, the FOMC cautioned that, “even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the [c]ommittee views as normal in the longer run.”
• As predicted by the FOMC, last Thursday’s first report on the third-quarter GDP showed a slowdown in the economy’s growth. Real gross domestic product–the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production–increased at an annual rate of 1.5% in the third quarter of 2015, according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 3.9%. The deceleration in the growth of the GDP is attributable, in part, to a decrease in private inventory investment and in exports.
• While consumers spent a little more in September, it wasn’t much of an increase, according to the latest figures on personal income and outlays from the Bureau of Economic Analysis. Personal spending by consumers for durable goods, nondurable goods, and services increased by a scant 0.1% in September compared to August. Personal pretax income also rose only 0.1% for the month–the smallest increase since this past March. Most importantly from the perspective of the FOMC, inflation, as measured by the personal consumption expenditures index, increased only 1.3% (excluding food and energy) from last September–well below the FOMC’s target rate of 2.0%.
• The housing market, which has been a consistently favorable performer this year, received a bit of a jolt with the latest U.S. Census Bureau report revealing that sales of new single-family houses in September were at a seasonally adjusted annual rate of 468,000–11.5% below the revised August rate of 529,000. The median sales price of new houses sold in September was $296,900, while the average sales price was $364,100. The seasonally adjusted estimate of new houses for sale at the end of September was 225,000. This represents a supply of 5.8 months at the current sales rate. Despite the drop in new home sales in September, sales of newly constructed homes is still 2% above the September 2014 estimate of 459,000. The slowdown in new home sales could be attributed to a rise in asking price, which, at $296,900, is 13.5% higher than a year ago.
• The National Association of Realtors Pending Home Sales Index® declined 2.3% to 106.8 in September from August’s revised 109.3. This is the second-lowest level of the year (January was 103.7), and is likely due to the lack of available inventory, especially in the lower end of the market, coupled with a possible hesitancy from consumers who may fear a continued economic slowdown.
• The S&P/Case-Shiller home price index showed a 4.7% annual increase in August 2015 versus a 4.6% increase in July 2015. “Home prices continue to climb at a 4% to 5% annual rate across the country,” according to David M. Blitzer, Managing Director and Chairman of the Index Committee.
• The U.S. Census Bureau publishes an advance report on the trade gap in goods (not services) about a week before more detailed information is released by the U.S. Bureau of Economic Analysis. The advanced report revealed that the trade gap is expected to narrow–closing at $58.6 billion in September compared to $67.2 billion in August.
• An early estimate of new orders for durable goods (manufactured items expected to last at least three years) placed with domestic manufacturers for immediate and future delivery predicts a decrease of $2.9 billion, or 1.2%, in September, according to the U.S. Census Bureau. This decrease, down two consecutive months, followed a 3% August decrease. Excluding transportation, new orders decreased 0.4%. Excluding defense, new orders decreased 2%. The dip in durable goods orders may be attributable to low oil prices and weak exports resulting from a strong U.S. dollar.
• For the third quarter, compensation costs for civilian workers increased 0.6%, the U.S. Bureau of Labor Statistics reported last week. Wages and salaries (which make up about 70% of compensation costs) increased 0.6%, and benefits (which make up the remaining 30% of compensation) increased 0.5%. As the number of available jobs contracts, wages may be showing some upward movement based on these latest figures.
• According to The Conference Board Consumer Confidence Index®, consumer confidence declined in October. The index dropped from 102.6 in September to 97.6 in October. Lynn Franco, Director of Economic Indicators at The Conference Board said, “Consumers were less positive in their assessment of present-day conditions, in particular the job market, and were moderately less optimistic about the short-term outlook.” Conversely, the University of Michigan’s Index of Consumer Sentiment for October rose to 90.0 from 87.2 in September due to gains in confidence among lower income households. However, confidence among households with incomes in the top third retreated a bit.
• Initial claims for unemployment insurance increased by 1,000 for the week ended October 24, to close at 260,000, up from the previous week’s unrevised level of 259,000. The advance seasonally adjusted insured unemployment rate was unchanged at 1.6% for the week ended October 17, while the advance number for continuing unemployment insurance claims decreased 37,000 to 2,144,000–the lowest level since November 4, 2000.

Eye on the Week Ahead

With news that the Fed will not be raising interest rates in the near term, focus for the coming week will center on manufacturing, the trade deficit, and the employment situation–areas of particular interest to the FOMC.

The Markets (as of market close October 30, 2015)

October proved to be a month filled with highs and lows in the equities markets. But in the end, all of the indexes listed here posted gains over their closing values in September. The Dow gained almost 8.5%–its largest monthly percentage gain in four years. The S&P 500 almost matched the Dow’s percentage increase by month’s end, gaining almost 160 points to finish the month up 8.30%. Of the indexes listed here, the tech-heavy Nasdaq recorded the largest monthly percentage increase, closing up 9.38%.

At the close of October, the price of gold (COMEX) was $1,141.70, compared to September’s closing price of 1,134.90. Crude oil (WTI) prices remained below $50 a barrel, selling at $46.39 a barrel by month’s end.

Market/Index	2014 Close	Prior Month	As of 10/30	Month Change	YTD Change
DJIA	17823.07	16284.70	17663.54	8.47%	-0.90%
Nasdaq	4736.05	4620.16	5053.75	9.38%	6.71%
S&P 500	2058.90	1920.03	2079.36	8.30%	0.99%
Russell 2000	1204.70	1100.69	1161.86	5.56%	-3.56%
Global Dow	2501.66	2247.84	2436.23	8.38%	-2.62%
Fed. Funds	0.25%	0.25%	0.25%	0%	0%
10-year Treasuries	2.17%	2.04%	2.14%	10 bps	-3 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

The Month in Review

• Globally, developments in China during the past month have cautiously eased concerns about the world’s second-largest economy. In an effort to spur growth, the People’s Bank of China cut short-term lending rates. In addition, European Central Bank President Mario Draghi hinted that he might extend a bond-purchase stimulus program in an effort to induce Europe’s economic growth rate.
• At September’s Federal Open Market Committee (FOMC) meeting, members voted to maintain the 0 to 1/4 percent target range for the federal funds rate. In support of its decision, once again the Committee referenced slow job growth and inflation, which has remained below the FOMC’s target rate of 2%. The FOMC noted that interest rates will be increased when there is improvement in the labor market and when inflation moves back to its 2% target rate.
• The first estimate of the third-quarter showed continued expansion of the GDP, but at a much slower pace compared to the second quarter. The first “advance estimate” of gross domestic product showed economic growth increasing at an annual rate of 1.5% compared to the second quarter’s growth rate of 3.9%. While source data used as the basis for this initial report may change significantly over time, it provides evidence that the economic growth of the first and second quarters may be fizzling. This report further supports the FOMC’s decision to keep interest rates at their current level.
• The FOMC relies on the personal consumption expenditures (PCE) index as a source for determining inflationary trends. The PCE index is essentially a measure of the price change of consumer goods and services, or household expenditures. As suggested by the FOMC, inflation is still relatively stagnant as evidenced by the latest report from the Bureau of Economic Analysis, which reveals that PCE increased 0.1% in September to $15.6 billion. In August, PCE increased $44.2 billion, or 0.4%, based on revised estimates. Personal income increased $18.6 billion, or 0.1%, and disposable personal income increased $19.2 billion, or 0.1%, in September. Wages and salaries decreased $3.7 billion in September, in contrast to an increase of $36.0 billion in August.
• A further indication of low inflationary trends, the overall Consumer Price Index fell 0.2% for September from a month earlier, according to the Bureau of Labor Statistics. Over the last 12 months, the index has essentially remained unchanged. Also of significance, the Consumer Price Index for Urban Wage Earners and Clerical Workers decreased 0.6% over the last 12 months, meaning there will be no cost-of-living adjustment for Social Security recipients next year–the first time that’s happened since 2011.
• October’s U.S. Treasury report for September revealed a budget surplus of $91.1 billion for the month. The budget deficit for the U.S. government’s fiscal year, which runs from October through September, came in at $438.9 billion, which represents a 9.2% reduction compared to fiscal 2014. This is the lowest budget deficit since fiscal year 2007.
• Lower gas prices may be giving consumers a few more discretionary dollars to spend, as U.S. retail and food services sales advance estimates for September were $447.7 billion, an increase of 0.1% from the previous month and 2.4% ahead of September 2014, according to the U.S. Census Bureau. Total sales for the July 2015 through September 2015 period were up 2.3% from the same period a year ago. However, excluding motor vehicles, retail and food sales were actually down 0.3% in September.
• S. producer prices for goods and services fell 0.5% in September, according to the Bureau of Labor Statistics Producer Price Index. For the 12-month period ended September 2015, overall producer prices are down 1.1%, with prices for goods falling 1.2%, while prices for services declined 0.4%. September’s falling prices can be attributed, in large part, to energy prices, which fell 5.9%.
• Orders for manufactured durable goods (expected to last at least three years) continued to contract in September, down 1.2% compared to August, which was revised lower to -3.0%. Once again, a soft export market coupled with the continued strength of the U.S. dollar factor into the decline in durable goods orders.
• The Federal Reserve’s monthly index of industrial production fell 0.2% in September from August. Manufacturing output dropped for the second month in a row–falling 0.1%, while mining decreased 2.0%. Conversely, utilities rose 1.3%.
• According to the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS), the number of job openings in August fell slightly to 5.4 million compared to 5.7 million in July. The number of hires and separations was little changed at 5.1 million and 4.8 million, respectively. The job openings rate for August was 3.6%, the same rate as in April, May, and June.
• September saw total nonfarm employment increase by only 142,000, while the unemployment rate remained at 5.1%, according to the U.S. Bureau of Labor Statistics. The job increase for September fell well below the monthly average of 198,000 jobs per month in 2015. Evidence of employment contraction includes declines in the labor force participation rate, employment-population ratio, and a drop in average hourly earnings ($25.09–down a cent for August).
• Following the second quarter’s soft labor cost increase of only 0.2%, compensation costs for civilian workers increased 0.6%, seasonally adjusted, for the three-month period ended in September 2015, according to a U.S. Bureau of Labor Statistics report. Wages and salaries (which make up about 70% of compensation costs) increased 0.6%, and benefits (which make up the remaining 30% of compensation) increased 0.5%.
• Evidencing continuing weakness in goods exports, the U.S. trade deficit for August came in at $48.3 billion–up $6.5 billion from July’s revised total. Compared to July, exports dropped by $3.7 billion, while imports increased by $2.8 billion. Year-to-date, the goods and services deficit increased $17.6 billion, or 5.2%, from the same period in 2014. Decreasing exports is indicative of weakness in foreign demand for U.S. goods and services, augmented by a strong U.S. dollar.
• Import and export prices continue to feel deflationary pressures. Import prices for goods bought in the United States but produced abroad fell 0.1% in September, after a 1.6% decrease in August, according to the latest report from the U.S. Bureau of Labor Statistics. Export prices for goods sold abroad but produced domestically were down 0.7% following a 1.4% drop in August.
• The housing market generally has been a solid performer this year. New residential construction jumped 6.5% in September to 1.2 million–17.5% over the September 2014 rate. Sales of existing residences increased 4.7% in September to a seasonally adjusted annual rate of 5.55 million. Sales of existing homes are 8.8% above a year ago (5.10 million). On the other hand, the median existing home price for all housing types fell in September to $221,900, a drop of $6,600 from August’s median sales price.
• In other developments, for the week ended October 24, there were 260,000 initial claims for unemployment insurance (compared to 276,000 for the week ended September 26), and 2,144,000 continuing claims for unemployment insurance for the week ended October 17 (compared to 2,195,000 for the week ended September 19), which yielded an insured unemployment rate of 1.6%. Compared to last month, the national average retail regular gasoline price dropped from $2.322 per gallon on September 28, 2015, to $2.228 per gallon on October 26–a decrease of $0.094.
• Not surprisingly, consumer confidence waned in October, decreasing to 97.6 compared to 102.6 in September, according to The Conference Board’s Consumer Confidence Index®.

Eye on the Month Ahead

Now that we know the Fed will not be raising interest rates in the near term, the focus for November will be on the economy in general, particularly as we head into the holiday season. Equity markets may begin to focus on what’s left of the earnings season as well as jobs and the world economy, paying particular attention to developments in China.