The Markets (as of market close October 26, 2018)
The benchmark indexes suffered another sharp decline last week. Each of the indexes listed here lost value, led by the Global Dow. The S&P 500 and the Nasdaq could be nearing a correction (down more than 10% from recent peaks) following last week’s drop. Equally noteworthy is the fact that all of the year-to-date gains have essentially dissipated, with only the Nasdaq still ahead of last year’s closing value. Quarterly earnings season reached its busiest time, offering a mixed bag with some major corporations posting healthy gains, while other companies reported a slowdown in revenue. Business investment has waned, while oil prices pulled energy stocks down.
The price of crude oil (WTI) fell once again last week, closing at $67.69 per barrel by late Friday, down from the prior week’s closing price of $69.37 per barrel. The price of gold (COMEX) rose for the fourth week in a row, reaching $1,236.10 by Friday evening, up from the prior week’s price of $1,230.00. The national average retail regular gasoline price was $2.841 per gallon on October 22, 2018, $0.038 lower than the prior week’s price but $0.362 higher than a year ago.
|Market/Index||2017 Close||Prior Week||As of 10/26||Weekly Change||YTD Change|
|Fed. Funds target rate||1.25%-1.50%||2.00%-2.25%||2.00%-2.25%||0 bps||75 bps|
|10-year Treasuries||2.41%||3.20%||3.07%||-13 bps||66 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 Economic Headlines
- The advance estimate of the third-quarter gross domestic product showed the economy grew at a 3.5% annual rate. The second-quarter GDP increased 4.2%. Consumer spending was a major driver of the overall growth in the third quarter, jumping 4.0%, after increasing 3.8% in the second quarter. Nonresidential (business) investment inched up 0.8% in the third quarter, following a robust 8.7% bump in the prior quarter. As expected, residential investment fell a dismal 4.0% for the quarter and has been a negative for 2018. Also of note is the expanding deficit in net exports, which widened by $98 billion.
- The housing sector continued to slide in September as new home sales dipped 5.5% below their August rate. The pace of sales lagged despite more new homes on the market, as inventory increased from August’s 6.5- month supply to 7.1 months in September. Sales of new homes are 13.2% below the September 2017 rate. The median sales price of new houses sold in September was $320,000 ($319,200 in August). The average sales price was $377,200 ($384,500 in August). Rising mortgage rates and higher prices (along with a disastrous hurricane) may be undercutting the housing market, as sales of new and existing homes have stagnated.
- Led by a 1.9% jump in transportation, new orders for manufactured durable goods rose 0.8% in September, following a 4.6% jump in August. Excluding transportation, new orders edged up 0.1%. Shipments (1.3%), unfilled orders (0.8%), and inventories (0.7%) also showed gains in September over the prior month. The negative in this report is the 2.4% drop in capital goods orders. Capital goods are machinery and equipment used in everyday business. Capital goods orders are reflective of real business spending since they exclude large orders for defense, aircraft, and automobiles. Having fallen for the second consecutive month, the decline in capital goods orders could be a sign of concerns over global trade rifts.
- The international trade deficit was $76.0 billion in September, up $0.6 billion from $75.5 billion in August. Exports of goods for September were $141.0 billion, $2.5 billion more than August exports. Imports of goods for September were $217.0 billion, $3.1 billion more than August imports. From September 2017, exports are up 8.3%, while imports have advanced 11.2%. Overall, the goods deficit in September of 2018 is $11.1 billion, or 17%, higher than the deficit a year ago.
- For the week ended October 20, the advance figure for seasonally adjusted initial claims for unemployment insurance was 215,000, an increase of 5,000 from the previous week’s level. According to the Department of Labor, the advance rate for insured unemployment claims fell to 1.1% for the week ended October 13. The advance number of those receiving unemployment insurance benefits during the week ended October 13 was 1,636,000, a decrease of 5,000 from the prior week’s level, which was revised up by 1,000. This is the lowest level for insured unemployment since August 4, 1973, when it was 1,633,000.
Eye on the Week Ahead
The employment figures for October are out this week. A good report is usually enough to move the market in a positive direction, at least temporarily.
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