What I’m Watching This Week – 12 November 2018

The Markets (as of market close November 9, 2018)

Despite a fall at the end of the week, stocks rode a midweek push to finish in the black. Oil prices officially reached bear territory, hitting their largest price drop in many years. What looked like a very strong week ended with just minor gains for each of the indexes listed here. The Dow led the way, closing last week almost 3.0% ahead of its prior week’s value. The S&P 500 was close behind, gaining over 2.0%. Domestically, the tech stocks of the Nasdaq and the small caps of the Russell 2000 were hit hardest by last Friday’s sell-off, each index losing most of the gains achieved earlier in the week. Year-over-year, the Nasdaq continues to lead the way, followed by the Dow and the S&P 500. The Russell 2000, which had made considerable gains earlier in the year, has given most of them back. Feeling the ongoing effects of global-growth concerns, the Global Dow has lost value from its 2017 closing mark.

Down 21% from its October high, the price of crude oil (WTI) continued to slide on concerns of oversupply, as prices fell to $59.83 per barrel by late Friday, down from the prior week’s closing price of $62.89 per barrel. The price of gold (COMEX) lost value again last week, dropping to $1,209.90 by Friday evening, off from the prior week’s price of $1,234.50. The national average retail regular gasoline price was $2.753 per gallon on November 5, 2018, $0.058 lower than the prior week’s price but $0.192 higher than a year ago.

Market/Index 2017 Close Prior Week As of 11/9 Weekly Change YTD Change
DJIA 24719.22 25270.83 25989.30 2.84% 5.14%
Nasdaq 6903.39 7356.99 7406.90 0.68% 7.29%
S&P 500 2673.61 2723.06 2781.01 2.13% 4.02%
Russell 2000 1535.51 1547.98 1549.49 0.10% 0.91%
Global Dow 3085.41 2930.66 2954.43 0.81% -4.25%
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% 3.21% 3.18% -3 bps 77 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

  • As expected, the Federal Reserve Open Market Committee refrained from raising the federal funds rate following its meeting last week. While describing economic activity and job gains as strong, the Committee noted that business investment has moderated. There is one more rate hike in the offing this year, which, if it occurs, would follow FOMC’s December 19 meeting.
  • Producer prices climbed 0.6% in October following a 0.2% rise in September. Much of the increase last month was attributable to a 1.6% jump in trade services. Excluding food, energy, and trade services, producer prices inched up 0.2%. Year-over-year, producer prices are up 2.9% (2.8% excluding food, energy, and trade services).
  • After reaching a high of 7.3 million job openings in August, the number of job openings fell by 284,000 in September, according to the latest Job Openings and Labor Turnover report. Notable job losses occurred in professional and business services (118,000), finance and insurance (82,000), and state and local government (67,000). The number of hires in September was 5.7 million, after reaching a revised series high of 5.9 million in August. There were about 5.7 million total separations, which includes quits, layoffs, and discharges. Overall, there were still many more job openings than those considered unemployed.
  • While growth in the services sector continued to show strength in October, expansion slowed compared to September. According to the Non-Manufacturing ISM® Report On Business®, business activity, new orders, employment, and prices each grew in October, but at a slower pace than in the prior month.
  • For the week ended November 3, the advance figure for seasonally adjusted initial claims for unemployment insurance was 214,000, a decrease of 1,000 from the previous week’s level, which was revised up by 1,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.1% for the week ended October 27. The advance number of those receiving unemployment insurance benefits during the week ended October 27 was 1,623,000, a decrease of 8,000 from the prior week’s level.

Eye on the Week Ahead

The first Treasury budget report for fiscal 2019 is out this week with the release of October’s figures. The 2018 budget deficit was over $100 billion greater than the 2017 deficit. The Consumer Price Index and the report on retail sales for October are released this week. Consumer prices have gone up, but not at the pace of consumer income and spending.

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What I’m Watching This Week – 5 November 2018

The Markets (as of market close November 2, 2018)

Stocks posted a solid week of returns for the first time in several weeks, pulling all but one of the major benchmark indexes listed here into positive territory for the year to date. A strong labor report helped push stocks higher at the end of last week, while somewhat positive tweets from President Trump following discussions with Chinese president Xi also helped quell investors’ concerns over the ongoing tariff war. Small caps fared the best last week, led by the Russell 2000. Global stocks also reversed course as the Global Dow climbed over 3.0%. The Nasdaq, S&P 500, and the Dow each posted strong returns by last week’s end. Not surprisingly, long-term bond prices fell, driving yields higher.

The price of crude oil (WTI) fell notably last week, closing at $62.89 per barrel by late Friday, down from the prior week’s closing price of $67.69 per barrel. The price of gold (COMEX) lost value for the first time in several weeks, dropping to $1,234.50 by Friday evening, off from the prior week’s price of $1,236.10. The national average retail regular gasoline price was $2.811 per gallon on October 29, 2018, $0.030 lower than the prior week’s price but $0.323 higher than a year ago.

Market/Index 2017 Close Prior Week As of 11/2 Weekly Change YTD Change
DJIA 24719.22 24688.31 25270.83 2.36% 2.23%
Nasdaq 6903.39 7167.21 7356.99 2.65% 6.57%
S&P 500 2673.61 2658.69 2723.06 2.42% 1.85%
Russell 2000 1535.51 1483.82 1547.98 4.32% 0.81%
Global Dow 3085.41 2843.00 2930.66 3.08% -5.02%
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% 3.07% 3.21% 14 bps 80 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

  • October saw a whopping 250,000 new jobs added while the unemployment rate remained at 3.7%, according to the Bureau of Labor Statistics. Job gains occurred in healthcare, manufacturing, construction, and transportation and warehousing. There were about 6.1 million unemployed — down almost 450,000 from a year ago. The labor force participation rate increased by 0.2 percentage point to 62.9%. The employment-population ratio edged up by 0.2 percentage point to 60.6% in October and had increased by 0.4 percentage point over the year. The average workweek increased by 0.1 hour to 34.5 hours in October. Also in October, average hourly earnings for all employees rose by $0.05 to $27.30. Over the year, average hourly earnings have increased by $0.83, or 3.1%.
  • The trade deficit continued to expand in September. The goods and services deficit was $54.0 billion, or 1.3%, in September, up $0.7 billion from August. September exports increased by $3.1 billion, while imports were $3.8 billion more than August imports. Year-to-date, the goods, and services deficit increased $40.7 billion, or 10.1%, from the same period in 2017. Exports increased $143.8 billion, or 8.2%. Imports increased $184.5 billion, or 8.6%.
  • Consumers’ income rose by 0.2% in September, while spending jumped 0.4%, according to the latest report from the Bureau of Economic Analysis. Disposable (after-tax) personal income also rose by 0.2% for the month. Inflation was steady as prices for consumer goods and services increased 0.1%. However, excluding food and energy, prices bumped ahead by 0.2%. For the year, consumer prices are up 2.0%, right at the inflation target set by the Federal Reserve.
  • Reaching a five-month high, a spurt in new orders helped drive manufacturing in October, according to Markit’s report on manufacturing. The bump in new orders coupled with efforts to clear backlogs drove new hires, which also outpaced September’s rate.
  • The October 2018 Manufacturing ISM® Report On Business®, not atypically, differed in its assessment of manufacturing conditions compared to Markit’s survey. The ISM® report had new orders, as well as production and employment, decrease. Oftentimes, the difference between the surveys lies in the number of purchasing managers who respond to each survey and how the responses are weighted.
  • For the week ended October 27, the advance figure for seasonally adjusted initial claims for unemployment insurance was 214,000, a decrease of 2,000 from the previous week’s level, which was revised up by 1,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.1% for the week ended October 20. The advance number of those receiving unemployment insurance benefits during the week ended October 20 was 1,631,000, a decrease of 7,000 from the prior week’s level, which was revised up by 2,000. This is the lowest level for insured unemployment since July 28, 1973, when it was 1,603,000.

Eye on the Week Ahead

The Federal Open Market Committee meets this week. Speculation is that the Committee will maintain interest rates at their current level, although that is not a certainty.

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Monthly Market Review – October 2018

The Markets (as of market close October 31, 2018)

October truly was a scary month as stocks closed the month well below their end-of-September values. The tech-heavy Nasdaq lost over 9.0% by the end of October, while the small caps of the Russell 2000 fared even worse, losing almost 11.0%. The S&P 500 fell close to 7.0% — its largest monthly decline in over seven years. The Dow dropped 5.0%, and the Global Dow sank over 7.0%. A slide in internet stocks, coupled with investor concerns that global economic growth is slowing, helped amp up volatility during October. Yields on long-term bonds rose as prices fell, with the yield on 10-year Treasuries climbing about 8 basis points on the last day of the month.

By the close of trading on October 31, the price of crude oil (WTI) was $64.95 per barrel, down from the September 28 price of $73.53 per barrel. The national average retail regular gasoline price was $2.811 per gallon on October 29, down from the September 24 selling price of $2.844 but $0.356 more than a year ago. The price of gold rose by the end of August, closing at $1,216.80 on the last trading day of the month, up from its price of $1,195.20 at the end of September.

Market/Index 2017 Close Prior Month As of October 31 Month Change YTD Change
DJIA 24719.22 26458.31 25115.76 -5.07% 1.60%
NASDAQ 6903.39 8046.35 7305.90 -9.20% 5.83%
S&P 500 2673.61 2913.98 2711.74 -6.94% 1.43%
Russell 2000 1535.51 1696.57 1511.41 -10.91% -1.57%
Global Dow 3085.41 3121.54 2893.68 -7.30% -6.21%
Fed. Funds 1.25%-1.50% 2.00%-2.25% 2.00%-2.25% 0 bps 75 bps
10-year Treasuries 2.41% 3.06% 3.14% 8 bps 73 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 Month’s Economic News

  • Employment: Total employment rose by 134,000 in September after adding 270,000 (revised) new jobs in August. The average monthly gain over the last 12 months is 201,000. Notable employment gains for the month occurred in professional and business services (54,000), health care (26,000), transportation and warehousing (24,000), and construction (23,000). The unemployment rate declined 0.2 percentage point to 3.7% in September. The number of unemployed persons fell to 6.0 million. The labor participation rate remained at 62.7%. The employment-population ratio increased 0.1 percentage point to 60.4%. The average workweek in September was unchanged at 34.5 hours. Average hourly earnings increased by $0.08 to $27.24. Over the last 12 months, average hourly earnings have risen $0.73, or 2.8%.
  • FOMC/interest rates: The Federal Open Market Committee did not meet in October. The next meeting is scheduled for November 7-8.
  • GDP/budget: The initial, or advance, estimate of the third-quarter gross domestic product showed the economy expanded at an annualized rate of 3.5%, according to the Bureau of Economic Analysis. The second-quarter GDP grew at an annualized rate of 4.2%. According to the report, consumer spending surged, increasing at a rate of 4.0% (3.8% in the second quarter). The net exports deficit expanded by $99.0 billion, pulling the GDP down by 1.8%. There was a $119 billion surplus in September. Nevertheless, the government deficit ended the fiscal year at roughly $779 billion — an increase of almost $113 billion, or 17%, over fiscal year 2017. For fiscal 2018, individual tax receipts were $96.4 billion higher than 2017 receipts, while corporate tax receipts fell by $92.3 billion.
  • Inflation/consumer spending: Inflationary pressures continue to creep along, while consumer spending continues to be strong. According to the Personal Income and Outlays report, prices for consumer goods and services rose only 0.1% in September, the same mark reached in August. Core consumer prices (excluding food and energy), a tracker of inflationary trends, rose 0.2%. Core prices have increased 2.0% over the last 12 months — right on the Federal Reserve’s target for inflation. Consumer spending climbed 0.4% in September after jumping 0.5% (revised) in August. Consumer income (pre-tax and after-tax) rose 0.2%, respectively, for the month.
  • The Consumer Price Index rose 0.1% in September after increasing 0.2% in August. Over the last 12 months ended in September, consumer prices are up 2.3%. Core prices, which exclude food and energy, climbed 0.1% for the month and are up 2.2% over the last 12 months.
  • According to the Producer Price Index, the prices companies receive for goods and services actually jumped 0.2% in September, the same increase as in August (revised). Producer prices have increased 2.6% over the 12 months ended in September. Prices less food and energy also gained 0.2% in September, and are up 2.5% over the last 12 months.
  • Housing: New home sales fell 5.5% in September and are down 13.2% from the September 2017 estimate. The median sales price of new houses sold in September was $320,000 ($320,200 in August). The September average sales price was $377,200 ($388,400 in August). Inventory rose to an estimated 7.1-month supply, slightly behind August’s 6.1 months. Sales of existing homes dropped in September by 3.4% from August. Year-over-year, existing home sales are down 4.1%. The September median price for existing homes was $258,100, down from $264,800 in August. However, existing home prices are up 4.2% from September 2017. Total housing inventory for existing homes for sale last month was 1.88 million, down from August’s 1.91 million. Unsold inventory is at a 4.4-month supply at the current sales pace.
  • Manufacturing: Industrial production advanced 0.3% in September, its fourth consecutive monthly increase. For the year, industrial production has advanced 5.1%. Manufacturing output increased 0.2% following a 0.2% increase in August. The output of utilities was unchanged from August but is up 5.4% for the year. The index for mining continued to show strong gains, climbing 0.5% in September and 13.4% over the last 12 months. New orders for long-lasting durable goods, up three of the past four months, grew 0.8% in September, following a 4.6% August increase. Most of the monthly gain was attributable to robust orders for defense aircraft. Durable goods orders excluding transportation inched up a scant 0.1%.
  • Imports and exports: The advance report on international trade in goods revealed that the trade gap expanded in September to $76.0 billion. The deficit for August was $75.5 billion. September exports of goods increased 1.8%, while imports rose 1.5%. Prices for imported goods grew by 0.5% in September after dropping 0.4% in August. Export prices were unchanged for the month. Over the last 12 months ended in September, import prices are up 3.5%, while export prices have advanced 2.7%.
  • International markets: Major investor sell-offs in October have cost global stock and bond markets about $5 trillion in value. The Chinese yuan fell to its weakest price since May 2008, hit by an economic tailspin that’s been exacerbated by U.S. tariffs. The United Kingdom announced that it would be the first industrialized nation to tax digital services, with other countries soon to follow. Angela Merkel announced that she will step down as German chancellor when her mandate ends in 2021.
  • Consumer confidence: Consumer confidence, as measured by The Conference Board Consumer Confidence Index®, rose in October, following a modest improvement in September. Consumer confidence increased in current business and labor market conditions. Consumers also looked favorably on short-term income, business, and labor market conditions.

Eye on the Month Ahead

Investors will be looking for stocks to rebound in November following a treacherous October. November’s midterm elections likely will play a big role in the stock market in particular, and in the economy in general.