What I’m Watching This Week – 9 November 2015

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.