What I’m Watching This Week – 28 November 2016

The Markets (as of market close November 25, 2016)

Based on the performance of stock market indexes, it was another banner week for equities amidst slow trading volume. The Dow, S&P 500, Russell 2000, and Nasdaq each reached record highs, with the Dow eclipsing 19000 for the first time ever. Some analysts suggest the market surge is based on expectations that the new administration will reduce taxes and spend more on infrastructure. Money continues to move from long-term bonds and gold into equities. Also, investors may view the likelihood of the Fed raising interest rates next month with more certainty, which could lead to money fleeing from long-term bonds and gold.

The price of crude oil (WTI) increased by last week’s end, closing at $45.96 per barrel, up from the prior week’s price of $45.58 per barrel. The price of gold (COMEX) fell again last week closing at $1,186.10 by late Friday afternoon, down from the prior week’s price of $1,207.30. The national average retail regular gasoline price decreased to $2.155 per gallon on November 21, 2016, $0.029 less than the prior week’s price but $0.061 more than a year ago.

Market/Index 2015 Close Prior Week As of 11/25 Weekly Change YTD Change
DJIA 17425.03 18867.93 19152.14 1.51% 9.91%
Nasdaq 5007.41 5321.51 5398.92 1.45% 7.82%
S&P 500 2043.94 2181.90 2213.35 1.44% 8.29%
Russell 2000 1135.89 1315.64 1347.20 2.40% 18.60%
Global Dow 2336.45 2428.04 2466.14 1.57% 5.55%
Fed. Funds target rate 0.25%-0.50% 0.25%-0.50% 0.25%-0.50% 0 bps 0 bps
10-year Treasuries 2.26% 2.35% 2.35% 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

  • For the second consecutive month, the number of existing home sales increased in October. According to the National Association of Realtors®, total existing home sales grew 2.0% in October to an annual rate of 5.60 million from 5.49 million in September. October’s sales pace is 5.9% above a year ago and is the highest annual rate since February 2007. The median existing-home price for all housing types in October was $232,200, up 6.0% from October 2015 ($219,100). Total housing inventory at the end of October declined 0.5% to 2.02 million, and is now 4.3% lower than a year ago (2.11 million). Unsold inventory is at a 4.3-month supply at the current sales pace, which is down from 4.4 months in September. According to Lawrence Yun of the NAR, “As a result of the anticipated economic stimulus in early 2017, mortgage rates post-election have now surged to around 4% as investors expect a strengthening economy and higher inflation. In the short-term, some prospective buyers may rush to lock in their rate and buy now, while others — especially those in higher-priced markets — may be forced to delay as a larger monthly payment outstretches their budget.”
  • While existing home sales increased in October, new home sales lagged a bit compared to the prior month. According to the Census Bureau, sales of new single family houses in October were at a rate of 563,000, 1.9% below the revised September rate, but still 17.8% above October 2015. The median sales price of new houses sold in October 2016 was $304,500; the average sales price was $354,900. The seasonally adjusted estimate of new houses for sale at the end of October was 246,000. This represents a supply of 5.2 months at the current sales rate.
  • The advance report on durable goods orders for October was generally favorable, according to the Census Bureau. New orders for manufactured durable goods (items expected to last at least three years) increased 4.8% to $239.4 billion, up $11 billion from September. Shipments of durable goods increased 0.1%. Unfilled orders, following four consecutive monthly decreases, gained 0.7% in October, while inventories remained relatively the same as the prior month. Year-to-date, shipments of durable goods are down 0.9%, while new orders for durable goods are lagging by 0.2%.
  • The minutes of the last Federal Open Market Committee meeting held on November 2 revealed that, by an 8-2 vote, members agreed to maintain the current Fed funds rate range of 0.25%-0.50%. A couple of points to note: members generally agreed that the case for an interest rate hike has strengthened, but several members wanted more evidence that inflationary trends are gaining momentum; and this meeting occurred before the results from the presidential election, the results of which could impact the Committee’s decision on interest rates when it next meets in December.
  • The international trade deficit widened to $62.0 billion in October, up $5.5 billion from September, according to the monthly advance report from the Census Bureau. Exports of goods were $122.1 billion, $3.4 billion less than September exports. Imports for goods for October were $184.1 billion, $2.1 billion more than September imports. Exports of foods, feed & beverages declined 11.8%, while exports of industrial supplies, including petroleum, fell 4.1%.
  • According to the University of Michigan’s Surveys of Consumers chief economist, Richard Curtin, “The initial reaction of consumers to Trump’s victory was to express greater optimism about their personal finances as well as improved prospects for the national economy.” The Index of Consumer Sentiment jumped 6.6 points to 93.8, the Current Economic Conditions Index increased from 103.2 in September to 107.3 for October, and the Index of Consumer Expectations climbed 8.4 points to 85.2.
  • In the week ended November 19, the advance figure for seasonally adjusted initial unemployment insurance claims was 251,000, an increase of 18,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate increased 0.1 percentage point to 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended November 12 was 2,043,000, an increase of 60,000 from the previous week’s revised level.

Eye on the Week Ahead

Important economic indicators relied upon by the FOMC are posted this week ahead of the Committee’s meeting during the second full week of December. The latest reports on the third-quarter GDP, personal income and outlays, and the employment situation are on tap this week.

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What I’m Watching This Week – 21 November 2016

The Markets (as of market close November 18, 2016)

Treasury yields continue to climb as the 10-year rate jumped 20 basis points for the week while exceeding last year’s closing yield for the first time in 2016. The dollar has been keeping pace with rising bond yields, which is good for imports but not so good for exports. Equities have apparently benefitted from money moving from Treasuries as each of the indexes listed here posted week-over-week gains, except for the Global Dow. The Russell 2000 small-cap index has been on a roll of late, climbing over 10% by the end of election week and gaining another 2.60% last week.

The price of crude oil (WTI) increased by last week’s end, closing at $45.58 per barrel, up from the prior week’s price of $43.17 per barrel. The price of gold (COMEX) continued its downward trend, closing last week at $1,207.30 by late Friday afternoon, down from the prior week’s price of $1,225.50. The national average retail regular gasoline price decreased to $2.184 per gallon on November 14, 2016, $0.049 less than the prior week’s price but $0.006 more than a year ago.

Market/Index 2015 Close Prior Week As of 11/18 Weekly Change YTD Change
DJIA 17425.03 18847.66 18867.93 0.11% 8.28%
Nasdaq 5007.41 5237.11 5321.51 1.61% 6.27%
S&P 500 2043.94 2164.45 2181.90 0.81% 6.75%
Russell 2000 1135.89 1282.38 1315.64 2.59% 15.82%
Global Dow 2336.45 2441.96 2428.04 -0.57% 3.92%
Fed. Funds target rate 0.25%-0.50% 0.25%-0.50% 0.25%-0.50% 0 bps 0 bps
10-year Treasuries 2.26% 2.15% 2.35% 20 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 prices consumers pay for goods and services increased 0.4% in October and 1.6% over the last 12 months, according to the latest Consumer Price Index (CPI). Components of the CPI that saw price increases include the energy index (3.5%) and the indexes for fuel oil (5.9%) and gasoline (7.0%). The index for food was unchanged for the fourth consecutive month. The index for all items less food and energy (core prices) rose 0.1% for the second straight month, but is up 2.1% over the last 12 months. The increase in the CPI over the past year is closing in on the Fed’s 2.0% inflation target, which could further strengthen the argument for an interest rate increase next month.
  • Food and services sales at the retail level increased last month. The Census Bureau announced last week that advance estimates of U.S. retail and food services sales for October were $465.9 billion, an increase of 0.8% from the previous month, and 4.3% above October 2015. Total sales for the August 2016 through October 2016 period were up 3.3% from the same period a year ago. Retail trade sales were up 1.0% from September 2016, and up 4.3% from last year. Nonstore (online) retailer sales were up 12.9% from October 2015, while miscellaneous store retailer sales were up 9.5% from last year. This retail sales report bodes well for the fourth-quarter GDP.
  • The prices producers received for goods and services in October did not change compared to the prior month. Year-over-year, producer prices are up 0.8%. Prices for goods edged up 0.4% in October, but the increase was offset by a 0.3% reduction in the prices for services. Prices less foods, energy, and trade services edged down 0.1% in October after rising 0.3% in both August and September. Food prices dropped 0.8% in October, while energy prices climbed 2.5% with gas jumping 9.7%.
  • October was a banner month for new home construction. According to the Census Bureau, privately owned housing starts increased 25.5% above September and are 23.3% ahead of last October. Housing completions were up 5.5% for the month and 7.2% year-over-year. And the new home-building boom should continue as the number of building permits issued in October was 0.3% ahead of the number of permits pulled in September. Across the country, housing starts experienced substantial gains in the Northeast (44.8%) and Midwest (44.1%) in October.
  • Speaking before the Joint Economic Committee, FOMC chair Janet Yellen indicated that economic conditions may be sufficiently improved to prompt the Committee to raise short-term interest rates soon. The Committee has held off raising interest rates this year in anticipation of continued improvement in the labor market and a return of inflation to 2.0%. Nevertheless, Yellen warned that, “were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the Committee’s longer-run policy goals.”
  • According to the latest report from the Federal Reserve, industrial production was unchanged in October after decreasing 0.2% in September. On the positive side, manufacturing output increased 0.2%, and mining posted a gain of 2.1% for its largest increase since March 2014. Overall production was pulled down by the index for utilities, which dropped 2.6%, as warmer-than-normal temperatures reduced the demand for heating. Total industrial production in October was 0.9% lower than its year-earlier level. Capacity utilization for the industrial sector edged down 0.1 percentage point in October to 75.3%.
  • We’re still paying a little more for products purchased abroad (imports) compared to the prices we’re receiving for products sold overseas (exports). According to the latest figures from the Bureau of Labor Statistics, U.S. import prices grew by 0.5% in October, following a 0.2% increase in September. The October increase was driven by higher fuel prices (7.5%), which more than offset declining nonfuel prices. Import prices, excluding fuel, actually fell 0.1% for the second consecutive month. The price index for U.S. exports increased 0.2% in October following a 0.3% advance the previous month. Despite the recent increases, prices for U.S. exports fell over the past year, declining 1.1%.
  • The National Association of Home Builders Housing Market Index (HMI®) is based on a survey of association members concerning their opinions on the economy in general and single-family housing market conditions in particular. The HMI® for November was 63 — unchanged from October. An index reading above 50 is considered positive. Most members responded before the presidential election, which may explain why levels remained unchanged pending the election results. The index for single-family home sales over the next six months dropped from 71 to 69 in November, while the index for traffic of prospective buyers gained a bit, moving from October’s reading of 46 to 47 for November.
  • In the week ended November 12, the advance figure for seasonally adjusted initial unemployment insurance claims was 235,000, a decrease of 19,000 from the previous week’s unrevised level. The advance seasonally adjusted insured unemployment rate fell 0.1 percentage point to 1.4%. The advance number for seasonally adjusted insured unemployment during the week ended November 5 was 1,977,000, a decrease of 66,000 from the previous week’s revised level.

Eye on the Week Ahead

Trading may be light during Thanksgiving week, which could exaggerate any market movements during the holiday-shortened week. Nevertheless, the latest reports on existing and new home sales for October are out as is the Census Bureau’s report on international trade in goods, which closed September with a trade balance deficit of $56.1 billion.

What I’m Watching This Week – 14 November 2016

The Markets (as of market close November 11, 2016)

The markets climbed at the beginning of last week as money moved from bonds (yield on 10-year Treasuries gained 5 basis points) to equities. The Dow jumped 370 points and Nasdaq gained over 2.0% by the close of trading last Monday. Following the election, equities surged as did long-term bond yields. The Dow gained over 256 points, Nasdaq and the S&P 500 each jumped over 1.0%, and the Russell 2000 climbed over 3.0%. Money continued to move from long-term government bonds as the yield on 10-year Treasuries reached 2.0% for the first time in nine months. The trading frenzy calmed by the end of last week, but not before the Dow reached a record high, gaining almost 1000 points over the week to close at 18847.66. The Russell 2000 was last week’s strongest performer, climbing more than 10.0% on the heels of its best weekly performance since December 2011.

The price of crude oil (WTI) fell by last week’s end, closing at $43.17 per barrel, down from the prior week’s price of $44.13 per barrel. The price of gold (COMEX) also sunk, closing at $1,225.50 by late Friday afternoon, down from the prior week’s price of $1,305.60. The national average retail regular gasoline price increased to $2.233 per gallon on November 7, 2016, $0.003 more than the prior week’s price but $0.002 less than a year ago.

Market/Index 2015 Close Prior Week As of 11/11 Weekly Change YTD Change
DJIA 17425.03 17888.28 18847.66 5.36% 8.16%
Nasdaq 5007.41 5046.37 5237.11 3.78% 4.59%
S&P 500 2043.94 2085.18 2164.45 3.80% 5.90%
Russell 2000 1135.89 1163.44 1282.38 10.22% 12.90%
Global Dow 2336.45 2390.21 2441.96 2.17% 4.52%
Fed. Funds target rate 0.25%-0.50% 0.25%-0.50% 0.25%-0.50% 0 bps 0 bps
10-year Treasuries 2.26% 1.77% 2.15% 38 bps -11 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

  • Donald Trump was elected as the 45th president of the United States last Tuesday. He is the first person elected to the Oval Office without prior political or military experience. The long-term impact president-elect Trump’s election will have on the economy and the stock market has yet to be determined, however following an immediate drop in equities early last Wednesday, stocks rebounded during the week, led by the Dow, which reached an all-time high. As the next several weeks unfold, more information about the president-elect’s policies and cabinet appointments should be revealed. How the economy and markets respond is open to speculation at this point.
  • According to the Job Openings and Labor Turnover report for September, the number of job openings increased slightly from 5.453 million in August to 5.486 million in September. There were 187,000 fewer hires in September, while total separations (quits, layoffs, discharges) fell by about 138,000. The quits rate was unchanged at 2.1% and the layoffs and discharges rate decreased to 1.0% — a record low. Some 3.1 million workers quit their jobs in September, while another 1.5 million workers lost their jobs to discharges or layoffs.
  • October is the first month of the federal government’s 2017 fiscal year. According to the October monthly statement from the Department of the Treasury, there was a $44.19 billion deficit for the month. The government took in $221.69 billion and spent $265.88 billion for the month. Compared to the last fiscal year, the deficit for this October is $92.37 billion lower than the deficit from 12 months earlier.
  • Following a decline in October, consumers’ opinion of the economy has picked up, according to November’s preliminary results from the University of Michigan’s Surveys of Consumers. Respondents’ improving economic outlook helped drive the Index of Consumer Sentiment to 91.6 — well ahead of October’s 87.2. It should be noted that the preliminary data for this report was collected before last week’s presidential election.
  • In the week ended November 5, the advance figure for seasonally adjusted initial unemployment insurance claims was 254,000, a decrease of 11,000 from the previous week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended October 29 was 2,041,000, an increase of 18,000 from the previous week’s revised level.

Eye on the Week Ahead

With the results of the U.S. presidential election in the rearview mirror, it will probably take a while for the dust to settle as to the effect the election results will have on the equities markets and the economy. Will the Trump victory impact the Fed’s decision regarding interest rates? With respect to the economy, reports next week highlight the latest information on retail sales, the Consumer Price Index, and the Producer Price Index — each of which are indicators of consumer spending and inflationary trends.

What I’m Watching This Week – 7 November 2016

The Markets (as of market close November 4, 2016)

Even a good jobs report wasn’t enough to steady investors last week, as each of the indexes listed here lost value from the prior week. Oil prices fell sharply midweek following a report that crude oil inventories are much larger than expected. While OPEC leaders agreed to reduce production following a September meeting, several countries sought and received exemptions from the cut, prompting crude oil production to increase. Crude oil prices continued to drop, closing the week 10.0% below the previous week’s closing price. With oil prices falling, energy shares tumbled, leading to drop-offs in the large-cap indexes such as the S&P 500. The Nasdaq, Russell 2000, and Global Dow each lost over 2.0% on the week, while the Dow fell 1.50%. The Nasdaq, which had been up over 6.0% year-to-date in early October, is close to its 2015 year-end value. Prices increased on 10-year Treasuries as yields dropped. Gold had a good week, climbing 2.2%. It appears the tight U.S. presidential election is prompting investors to exercise caution for now.

The price of crude oil (WTI) fell by last week’s end, closing at $44.13 per barrel, down from the prior week’s price of $48.64 per barrel. The price of gold (COMEX) increased, closing at $1,305.60 by late Friday afternoon, up from the prior week’s price of $1,277.00. The national average retail regular gasoline price decreased to $2.230 per gallon on October 31, 2016, $0.013 less than last week’s price but $0.006 more than a year ago.

Market/Index 2015 Close Prior Week As of 11/4 Weekly Change YTD Change
DJIA 17425.03 18161.19 17888.28 -1.50% 2.66%
Nasdaq 5007.41 5190.10 5046.37 -2.77% 0.78%
S&P 500 2043.94 2126.41 2085.18 -1.94% 2.02%
Russell 2000 1135.89 1187.61 1163.44 -2.04% 2.43%
Global Dow 2336.45 2449.11 2390.21 -2.40% 2.30%
Fed. Funds target rate 0.25%-0.50% 0.25%-0.50% 0.25%-0.50% 0 bps 0 bps
10-year Treasuries 2.26% 1.85% 1.77% -8 bps -49 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 jobs report for October was a mixed bag of information, but most of it was positive. There were 161,000 new jobs added in October, down from September’s upwardly revised total of 191,000. The unemployment rate fell 0.1 percentage point to 4.9%. Employment continued to trend upward in health care, professional and business services, and financial activities. But the big news from the report is on the earnings side, where average hourly earnings increased $0.10 to $25.92, following an $0.08 gain in September. Over the year, average hourly earnings have risen by 2.8%.
  • In a move that was not unexpected, the Fed decided to maintain the federal funds rate at its current 0.25%-0.50% range. While the Committee acknowledges that the case for an increase in the federal funds rate has continued to strengthen, it decided, for the time being, to wait for some further evidence of continued progress toward further improvement in labor market conditions and a return to 2.0% inflation. Unless economic conditions worsen over the course of the next several weeks, it is expected that the Committee will raise interest rates following its last meeting of the year in December.
  • An indicator of inflationary trends that receives special consideration by the Fed, the personal consumption expenditures price index rose 0.2% in September from August. The PCE index is up 1.2% from a year earlier — still short of the Fed’s 2.0% target inflation rate. Overall, personal income increased $46.7 billion (0.3%) in September, disposable personal income (personal income less current taxes) increased $37.0 billion (0.3%), and personal consumption expenditures (PCE) increased $61.0 billion (0.5%). Excluding food and energy (core PCE), the index increased 0.1% in September. The increase in personal income in September primarily reflected gains in employee and nonfarm proprietors’ income.
  • The latest figures from the Bureau of Economic Analysis show that the goods and services trade deficit fell $4.0 billion in September to $36.4 billion. September exports were $189.2 billion, $1.0 billion more than August exports. September imports were $225.6 billion, $3.0 billion less than August imports. Year-to-date, the goods and services deficit decreased $9.2 billion, or 2.5%, from the same period in 2015. Exports decreased $60.5 billion, or 3.5%. Imports decreased $69.7 billion, or 3.3%.
  • In the manufacturing sector, Markit’s U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) for October was 53.4 — better than September’s 51.5. The improvement in the index, based on a survey of purchasing managers, was driven by strengthening in production and new orders. The latest Manufacturing ISM® Report On Business® also noted an increase in manufacturing activity, as its PMI registered 51.9% — a 0.4 percentage point increase over September’s reading. While the ISM® report saw a drop in new orders, production and employment increased in October compared to September.
  • The latest Non-Manufacturing ISM® Report On Business® shows economic activity in the non-manufacturing sector slowed in October as the non-manufacturing index registered 54.8% — 2.3 percentage points lower than September’s reading of 57.1%. Non-manufacturing business activity, new orders, and employment all decreased in October from September. Only the Prices Index increased 2.6 percentage points, indicating rising producer prices in October. There has been a slight cooling-off in the non-manufacturing sector month-over-month, indicating that September’s increases weren’t sustainable.
  • Business sector labor productivity (output per hour) increased at a 3.1% annual rate during the third quarter of 2016, the U.S. Bureau of Labor Statistics reported last week, as output increased 3.4% and hours worked increased 0.3%. This is the first labor productivity increase out of the last four quarters. Labor costs increased 0.3% in the third quarter, reflecting a 3.4% increase in hourly compensation and a 3.1% increase in productivity.
  • In the week ended October 29, the advance figure for seasonally adjusted initial unemployment insurance claims was 265,000, an increase of 7,000 from the previous week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended October 22 was 2,026,000, a decrease of 14,000 from the previous week’s revised level.

Eye on the Week Ahead

There isn’t much in terms of economic reports this week, which is probably a good thing as all eyes will be on the results of Tuesday’s U.S. presidential election.

Monthly Market Review – October 2016

The Markets (as of market close October 31, 2016)

Trading in the early part of October saw equities respond negatively to rumors of a pullback on stimulus measures by the European Central Bank, which ultimately proved to be unfounded. Each of the indexes listed here closed the first week of October below their respective September closing values, except for the Global Dow, which eked out a marginal gain. Markets continued their tailspin during the second week of October led by the Global Dow and Nasdaq, each of which lost close to 1.5%.

Stocks rebounded during the third week of the month, posting week-over-week gains by the October 21 market close. Nevertheless, equities fell on the last day of October, closing the month in the red. The Dow fell for the third consecutive month in October, losing almost 1.0%. The S&P 500 lost nearly 2.0% compared to September. But the biggest downturn was posted by the Russell 2000, which plunged about 5.0%. Ultimately, investors may be cautious entering November’s presidential election.

U.S. government bond prices fell during October, as the yield on 10-year Treasuries closed up 23 basis points month-over-month. Gold lost value, closing October at $1,277.80, down $41 from its September closing value.

Market/Index 2015 Close Prior Month As of October 31 Month Change YTD Change
DJIA 17425.03 18308.15 18142.42 -0.91% 4.12%
NASDAQ 5007.41 5312.00 5189.13 -2.31% 3.63%
S&P 500 2043.94 2168.27 2126.15 -1.94% 4.02%
Russell 2000 1135.89 1251.65 1191.39 -4.81% 4.89%
Global Dow 2336.45 2459.66 2445.57 -0.57% 4.67%
Fed. Funds 0.25%-0.50% 0.25%-0.50% 0.25%-0.50% 0 bps 0 bps
10-year Treasuries 2.26% 1.59% 1.82% 23 bps -44 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

  • Employment: The employment sector has not been overwhelmingly strong, but it has been steady throughout much of the year. According to the Bureau of Labor Statistics, there were 156,000 new jobs added in September, up from 151,000 jobs added in August. Thus far this year, job growth has averaged 178,000 per month, compared with an average of 229,000 per month in 2015. The unemployment rate remained relatively the same at 5.0% (4.9% in August). There were 7.9 million unemployed persons. Both the unemployment rate and the number of unemployed persons has changed little since August of last year. The labor force participation rate was 62.9% and the employment/population ratio came in at 59.8%. The average workweek increased by 0.1 hour to 34.4 hours (the workweek in manufacturing was 40.7 hours compared to 33.3 workweek hours for private service-providing employees). Average hourly earnings rose by $0.06 to $25.79. Over the year, average hourly earnings have risen by 2.6%.
  • FOMC/interest rates:The FOMC did not meet in October, keeping the federal funds target rate at the 0.25%-0.50% range. However, minutes from its September meeting indicate several Committee members are of the opinion that the time is right for another rate hike — at least by the end of the year.
  • Oil: The price of crude oil (WTI) fluctuated during October, reaching almost $52 per barrel, before finally settling at $46.74 per barrel by the end of the month. The national average retail regular gasoline price was $2.243 per gallon on October 24, down from the September 26 selling price of $2.224.
  • GDP/budget: According to the first advance estimate of the GDP from the Bureau of Economic Analysis, the third-quarter 2016 gross domestic product grew at an annualized rate of 2.9% — exceeding the second-quarter GDP growth rate of 1.4%. The primary positives driving the upward movement of the GDP were exports, which increased at a 10% rate in the third quarter, offsetting a 2.3% increase in imports, which are a negative in the calculation of GDP. Nonresidential (e.g., business) fixed investment increased at a rate of 1.2%, slightly ahead of the prior quarter’s 1.0% rate of growth. The third quarter’s 2.9% annualized increase is the strongest since the third quarter of 2014. September was the last month of the government’s fiscal year. The federal deficit for FY 2016 was $587.4 billion — about 34% over the FY 2015 budget deficit. For the year, total receipts increased only 0.6%, while expenditures rose 4.5%. For the month, September saw a surplus of $33.4 billion.
  • Inflation/consumer spending: Inflationary trends showed some life in September. Personal income (pre-tax earnings) and disposable personal income (income less taxes) each rose 0.3%, while personal spending, as measured by personal consumption expenditures, increased 0.5% for the month. Core personal consumption expenditures (personal spending excluding volatile food and energy costs) rose 0.1% in September, following a 0.2% monthly increase in August. The core PCE index is up 1.7% compared to last year. The price index increased 0.2% for the month, and is up 1.2% year-over-year. The Producer Price Index, which measures the prices companies receive for goods and services, jumped 0.3% in September and is up 0.7% year-over-year — the largest 12-month increase since December 2014. Excluding food, trade services, and energy, prices increased 0.3% for the month, the same as August. For the 12 months ended in September, the index for final demand less foods, energy, and trade services rose 1.5% — the largest increase since climbing 1.5% for the 12 months ended November 2014. The Consumer Price Index, which measures what consumers pay for both goods and services, increased 0.3% in September. Over the last 12 months, the CPI has risen 1.5%. Increases in the shelter (0.4%) and gasoline (5.8%) indexes were the main causes of the rise in the CPI. The index less food and energy increased 0.1% in September after a 0.3% increase in August.
  • Housing: The housing sector has been a mixed bag for much of the year. Higher home prices and a lack of available homes for sale are keeping the housing market in check. Existing home sales for all housing types increased 3.2% in September to an annual rate of 5.47 million sales, compared to a downwardly revised 5.30 million in August, according to the National Association of Realtors®. Existing home sales are at their highest pace since June (5.57 million) and are 0.6% above a year ago (5.44 million). The median sales price for existing homes in September was $234,200, down over 2.5% from the price in August, but up 5.6% from September 2015. Total housing inventory at the end of September increased 1.5% to 2.04 million existing homes available for sale, but is 6.8% lower than a year ago (2.19 million) and has declined year-over-year for 16 straight months. The Census Bureau’s latest report reveals sales of new single-family homes increased 3.1% in September to an annual rate of 593,000 — up from August’s rate of 575,000. The median sales price of new houses sold in September was $235,000, while the average sales price was $377,700. The seasonally adjusted estimate of new houses for sale at the end of September was 235,000. This represents a supply of 4.8 months at the current sales rate, which is down from 236,000 homes available (supply of 4.9 months) in August.
  • Manufacturing:One of the reasons the Fed has held off on raising interest rates is the continued weakness in the manufacturing and industrial production sectors. The Federal Reserve’s monthly index of industrial production (which includes factories, mines, and utilities) rose a scant 0.1% in September following a 0.4% drop in August. Manufacturing output increased 0.2% for the month. Industrial production rose at an annual rate of 1.8% for the third quarter, which is its first quarterly increase since the third quarter of 2015. However, compared to last year, industrial production is down 1.0%. At 104.2% of its 2012 average, total industrial production in September was 1.0% lower than its year-earlier level. Capacity utilization for the industrial sector edged up 0.1 percentage point in September to 75.4%, a rate that is 4.6 percentage points below its long-run (1972-2015) average. The advance report from the Census Bureau shows new orders for all durable goods (expected to last at least three years) fell $0.3 billion, or 0.1%, in September from the prior month. Excluding the volatile transportation segment, new orders increased 0.2%. Orders for capital goods increased $1.0 billion, or 1.5%, and shipments rose 0.8%.
  • Imports and exports:In a positive sign for business investment, the advance report on international trade in goods revealed that the trade gap narrowed by about 3.1% in September from August. The overall trade deficit was $56.10 billion in September, down from $59.15 billion in August. Exports rose 0.9% to $125.6 billion, $1.1 billion more than August exports. Imports dropped 1.1% to $181.7 billion, $2.0 billion less than August imports. Rising fuel prices lifted the prices for U.S. imports (goods purchased here but produced abroad) 0.1% in September following a 0.2% decline in August. The prices for exports rose 0.3% following an 0.8% dip the prior month. Year-over-year, import prices are down 1.1% and export prices have fallen 1.5%.
  • International markets: The European Central Bank didn’t expand its stimulus measures, but it didn’t retract them either — keeping its policies and benchmark interest rate intact. In the United Kingdom, September’s CPI was up 1.0%, which is a two-year high. Following completion of several economic overhauls, Greece is expected to receive an additional round of fresh loans. In China, the GDP expanded 6.7% from a year ago. Retail sales were up almost 11%, while industrial production advanced 6.1%.
  • Consumer sentiment:Consumers’ confidence in the economy gained some momentum in September. The Conference Board Consumer Confidence Index® for September rose 2.3 points to 104.1. The Surveys of Consumers of the University of Michigan Index of Consumer Sentiment expanded from 90.1 in August to 91.2 in September. Both reports show consumers are bullish on future economic gains, but guarded when it comes to present economic conditions.

Eye on the Month Ahead

November should be an interesting month for the economy in general and the stock market in particular. Of course, the big news focuses on the results of the November 8 presidential election. In addition, the FOMC meets in November. While interest rates may be raised by the end of the year, it is not expected to occur until December. Once the dust settles from the election, and presuming interest rates aren’t increased in November, equities markets may begin to focus on what’s left of earnings season as well as the jobs and inflation data.