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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