What I’m Watching This Week – 31 December 2018

The Markets (as of market close December 28, 2018)

The tech-heavy Nasdaq had been the only benchmark index to have exceeded its 2017 closing value. That is no longer the case, as an 8.36% drop last week put the Nasdaq more than 8.0% below its value at the end of last year and firmly in bear market territory. Investors saw the potential of a federal government shutdown and an implied warning from the Federal Reserve that the economy may be slowing as reason to seek shelter from stocks. Besides the Nasdaq, each of the other benchmark indexes listed here suffered large weekly losses, led by the small caps of the Russell 2000, followed by the large caps of the S&P 500 and the Dow. The Global Dow fell “only” 4.86% and is over 13% below its 2017 year-end value.

Oil prices plummeted last week, closing at $45.42 per barrel by late Friday, down from the prior week’s closing price of $51.16 per barrel. The price of gold (COMEX) increased last week, closing at $1,259.10 by last Friday evening, up from the prior week’s price of $1,242.20. The national average retail regular gasoline price was $2.369 per gallon on December 17, 2018, $0.052 lower than the prior week’s price and $0.081 less than a year ago.

Market/Index 2017 Close Prior Week As of 12/28 Weekly Change YTD Change
DJIA 24719.22 22445.37 -6.87% -9.20%
Nasdaq 6903.39 6332.99 -8.36% -8.26%
S&P 500 2673.61 2416.62 -7.05% -9.61%
Russell 2000 1535.51 1292.09 -8.42% -15.85%
Global Dow 3085.41 2676.76 -4.86% -13.24%
Fed. Funds target rate 1.25%-1.50% 2.25%-2.50% 2.25%-2.50% 25 bps 100 bps
10-year Treasuries 2.41% 2.78% 2.78% -11 bps 37 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

  • Due to the government shutdown, economic reports, such as the latest reports on international trade in goods and new home sales are unavailable as of the release of this report. If and when that information comes available it will be included in the corresponding Market Week report.
  • For the week ended December 22, there were 216,000 new claims for unemployment insurance, a decrease of 1,000 from the previous week’s level, which was revised up by 3,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended December 15. The advance number of those receiving unemployment insurance benefits during the week ended December 15 was 1,701,000, a decrease of 4,000 from the prior week’s level, which was revised up 17,000.

Eye on the Week Ahead

Hopefully, the first week of the new year will bring some encouragement to investors who have seen stocks drop precipitously over the past several weeks. On the economic front, the employment figures for December are out at the end of the week. New hirings have dipped some over the last few months, although wages have increased overall.

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What I’m Watching This Week – 24 December 2018

The Markets (as of market close December 21, 2018)

The tech-heavy Nasdaq had been the only benchmark index to have exceeded its 2017 closing value. That is no longer the case, as an 8.36% drop last week put the Nasdaq more than 8.0% below its value at the end of last year and firmly in bear market territory. Investors saw the potential of a federal government shutdown and an implied warning from the Federal Reserve that the economy may be slowing as reason to seek shelter from stocks. Besides the Nasdaq, each of the other benchmark indexes listed here suffered large weekly losses, led by the small caps of the Russell 2000, followed by the large caps of the S&P 500 and the Dow. The Global Dow fell “only” 4.86% and is over 13% below its 2017 year-end value.

Oil prices plummeted last week, closing at $45.42 per barrel by late Friday, down from the prior week’s closing price of $51.16 per barrel. The price of gold (COMEX) increased last week, closing at $1,259.10 by last Friday evening, up from the prior week’s price of $1,242.20. The national average retail regular gasoline price was $2.369 per gallon on December 17, 2018, $0.052 lower than the prior week’s price and $0.081 less than a year ago.

Market/Index 2017 Close Prior Week As of 12/21 Weekly Change YTD Change
DJIA 24719.22 24100.51 22445.37 -6.87% -9.20%
Nasdaq 6903.39 6910.66 6332.99 -8.36% -8.26%
S&P 500 2673.61 2599.95 2416.62 -7.05% -9.61%
Russell 2000 1535.51 1410.81 1292.09 -8.42% -15.85%
Global Dow 3085.41 2813.48 2676.76 -4.86% -13.24%
Fed. Funds target rate 1.25%-1.50% 2.00%-2.25% 2.25%-2.50% 25 bps 100 bps
10-year Treasuries 2.41% 2.89% 2.78% -11 bps 37 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 final estimate for the third-quarter gross domestic product showed the economy grew at an annual rate of 3.4%. This estimate is 0.1 percentage point below the second estimate, as personal consumption expenditures and exports were revised down and private inventory investment was revised up. The GDP increased 4.2% in the second quarter. Gross domestic income (the sum of all income earned and costs incurred while producing goods and services) increased 4.3% in the third quarter, compared with an increase of only 0.9% in the second quarter. Growth in consumer spending, which accounts for about two-thirds of the total economic output, grew at a rate of 3.5% in the latest estimate, down from the prior estimate of 3.6%. Also of note, exports, which add to the GDP, fell 4.9% in this estimate, compared to a decline of 4.4% in the prior estimate. Imports, which subtract from the GDP, rose 9.3%.
  • Citing strength in the labor market and rising economic activity, the Federal Reserve raised the target range for the federal funds rate 25 basis points to 2.25%-2.50%. This is the highest range since the spring of 2008. The Fed also modified its projection for future rate adjustments, now calling for two rate hikes in 2019, down from three such hikes as previously contemplated.
  • Consumer spending increased 0.4% in November following an 0.8% rise in October. Both pre-tax and after-tax personal income rose 0.2% in November after increasing 0.5% the prior month. Prices for consumer goods and services advanced a marginal 0.1% in November and are up 1.8% from November 2017 — below the Fed’s 2.0% inflation target rate.
  • New orders for manufactured durable goods increased 0.8% in November following a 4.3% advance in October. Transportation equipment, up three of the last four months, drove the increase, jumping up 2.9%. Excluding transportation, new orders decreased 0.3% for November.
  • In a sign that the housing market finally may be picking up steam, November saw a 5.0% increase in building permits over October’s total. Housing starts (3.2%) and housing completions (0.4%) also improved last month over October.
  • Sales of existing homes increased for the second month in a row after expanding by 1.9% in November over the prior month’s mark. Existing home sales are still off by 7.0% from a year ago. The median existing-home price in November was $257,700, up 4.2% from November 2017 ($247,200). The median existing-home price in October was $255,400. However, total inventory decreased to 1.74 million, down from 1.85 million existing homes available for sale in October. Unsold inventory is at a 3.9-month supply at the current sales pace, down from 4.3 last month and up from 3.5 months a year ago.
  • For the week ended December 15, there were 214,000 new claims for unemployment insurance, an increase of 8,000 from the previous week’s level. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended December 8. The advance number of those receiving unemployment insurance benefits during the week ended December 8 was 1,688,000, an increase of 27,000 from the prior week’s level.

Eye on the Week Ahead

The Christmas holiday week is a slow one for economic reports. The November report on the goods trade deficit is expected to show an expansion of the difference between the value of imports and exports. Also, the November figures on new home sales are out this week. No significant change is expected in what has been a mundane housing market for much of the year.

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What I’m Watching This Week – 17 December 2018

The Markets (as of market close December 14, 2018)

A market correction refers to a decline in a stock or index of at least 10% following a temporary high price. After last week’s losses, the Dow, S&P 500, and Nasdaq are entering correction territory. Of the benchmark indexes listed here, only the Nasdaq remains ahead of its 2017 closing price. The Russell 2000, which had pushed year-to-date gains of over 10%, now wallows more than 8.0% below last year’s ending value. It appears last week’s sell-off was fueled by increased investor fears of a global economic slowdown resulting from unfavorable reports on Chinese and eurozone economic indicators.

Oil prices closed down last week following two consecutive weeks of increasing prices. Oil prices closed at about $51.16 per barrel by late Friday, down from the prior week’s closing price of $52.21 per barrel. The price of gold (COMEX) also fell off after several weeks of gains, dropping to $1,242.20 by last Friday evening, down from the prior week’s price of $1,253.70. The national average retail regular gasoline price was $2.421 per gallon on December 10, 2018, $0.030 lower than the prior week’s price and $0.064 lower than a year ago.

Market/Index 2017 Close Prior Week As of 12/14 Weekly Change YTD Change
DJIA 24719.22 24388.95 24100.51 -1.18% -2.50%
Nasdaq 6903.39 6969.25 6910.66 -0.84% 0.11%
S&P 500 2673.61 2633.08 2599.95 -1.26% -2.76%
Russell 2000 1535.51 1448.09 1410.81 -2.57% -8.12%
Global Dow 3085.41 2835.95 2813.48 -0.79% -8.81%
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% 2.85% 2.89% 4 bps 48 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 federal government deficit expanded by over $100 billion in November over the prior month. Year-to-date, the deficit sits at $305.4 billion ($201.8 billion last year). In November, the government spent $411 billion, with most of the expenditures going to Social Security ($84 billion), Medicare ($77 billion), and national defense ($62 billion). Receipts last month totaled $206 billion, consisting mostly of individual income taxes ($93 billion) and social insurance and retirement ($93 billion).
  • Inflation was rather benign in November for consumers. The Consumer Price Index was unchanged in November after rising 0.3% in October. Over the 12 months ended in November, the CPI has increased 2.2%. Energy prices fell 2.2%, pulled down by a 4.2% drop in gasoline prices. The CPI less food and energy inched up 0.2% in November and is up 2.2% over the last 12 months.
  • Inflationary pressures at the producer level receded in November. The Producer Price Index edged up 0.1% in November following increases of 0.6% in October and 0.2% in September. Of note, a 0.3% jump in producer services drove the modest November price increase. Producer prices for goods actually decreased 0.4% for the month. Another sign that inflation is easing is evident in the 12-month rate, which was 3.4% in July and now sits at 2.5% for the 12 months ended in November. The index less foods, energy, and trade services moved up 0.3% in November, the third consecutive increase. For the 12 months ended in November, prices less foods, energy, and trade services advanced 2.8%.
  • Retail sales increased 0.2% in November from October, and are up 4.2% over November 2017. Notable sales increases occurred in furniture and home furnishing stores, electronics and appliance stores, and web-based retailers. Gasoline stations saw sales drop by 2.3% in November due to falling gas prices.
  • Import prices fell 1.6% in November following a 0.5% rise the previous month. The November decrease is the largest monthly decline since a 1.8% drop in August 2015. An 11.0% decrease in fuel prices contributed to the drop-off in import prices. Over the 12 months ended in November, import prices are up 0.7% — the smallest such increase since the index increased 0.2% from November 2015 to November 2016. Export prices fell 0.9% in November after advancing 0.5% in October — the largest one-month drop since January 2016. While agricultural export prices rose 1.8% for the month, nonagricultural export prices, particularly industrial supplies and materials, fell 1.0%. Over the past 12 months, export prices have increased 1.8%.
  • According to the Federal Reserve, industrial production rose 0.6% in November after moving down 0.2% in October; the index for October was previously reported to have edged up 0.1%. In November, manufacturing production was unchanged, the output of mining increased 1.7%, and the index for utilities gained 3.3%. Total industrial production was 3.9% higher in November than it was a year earlier.
  • According to the Job Openings and Labor Turnover report for October, the number of job openings ticked up by about 119,000, hires edged up by 196,000, and total separations fell by 85,000. Job openings increased in information (45,000), real estate and rental and leasing (38,000), educational services (20,000), and state and local government education (17,000). The number of job openings decreased in state and local government, excluding education (38,000) and transportation, warehousing, and utilities (33,000).
  • For the week ended December 8, the advance figure for seasonally adjusted initial claims for unemployment insurance was 206,000, a decrease of 27,000 from the previous week’s level, which was revised up by 2,000. According to the Department of Labor, the advance rate for insured unemployment claims inched up 0.1 percentage point to 1.2% for the week ended December 1. The advance number of those receiving unemployment insurance benefits during the week ended December 1 was 1,661,000, an increase of 25,000 from the prior week’s level, which was revised up by 5,000.

Eye on the Week Ahead

While the latest report on the gross domestic product is out this week, most eyes will be focused on the announcement from the Federal Open Market Committee’s December meeting. While many expect a quarter-of-a-point rate hike, recent market volatility may sway some committee members to hold off on pushing interest rates higher.

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What I’m Watching This Week – 10 December 2018

The Markets (as of market close December 7, 2018)

Losses in technology and health-care stocks accounted for much of last week’s market drop. The tech-heavy Nasdaq and the small caps of the Russell 2000 suffered the largest declines, leading a week of high market volatility. Bank and industrial stocks also took a big hit last week. Oil prices rose on news that OPEC members agreed to cut back production next year. Uncertainty over the economy and a prolonged trade dispute between the United States and China seem to be prompting investors to capture any stock gains and invest in bonds and futures such as gold. The yield on 10-year Treasuries continued to drop as bond prices climbed with increased demand.

Oil prices closed up for the second week in a row, ending last week at about $52.21 per barrel by late Friday, up from the prior week’s closing price of $50.72 per barrel. The price of gold (COMEX) gained for the fourth week in a row, climbing to $1,253.70 by Friday evening, up from the prior week’s price of $1,227.80. The national average retail regular gasoline price was $2.451 per gallon on December 3, 2018, $0.088 lower than the prior week’s price and $0.049 lower than a year ago.

Market/Index 2017 Close Prior Week As of 12/7 Weekly Change YTD Change
DJIA 24719.22 25538.46 24388.95 -4.50% -1.34%
Nasdaq 6903.39 7330.54 6969.25 -4.93% 0.95%
S&P 500 2673.61 2760.17 2633.08 -4.60% -1.52%
Russell 2000 1535.51 1533.27 1448.09 -5.56% -5.69%
Global Dow 3085.41 2936.77 2835.95 -3.43% -8.09%
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% 2.99% 2.85% -14 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.

Last Week’s Economic Headlines

  • Job growth slowed in November, according to the latest report from the Bureau of Labor Statistics. Employment increased by 155,000 new jobs last month, compared with an average monthly gain of 209,000 over the prior 12 months. The unemployment rate remained unchanged at 3.7% for the third month in a row. In November, job gains occurred in health care, in manufacturing, and in transportation and warehousing. Over the year, the unemployment rate and the number of unemployed persons declined by 0.4 percentage point and 641,000, respectively. Both the labor force participation rate, at 62.9%, and the employment-population ratio, at 60.6%, were unchanged in November. The average workweek decreased by 0.1 hour to 34.4 hours in November. Average hourly earnings rose by $0.06 to $27.35. Over the year, average hourly earnings have increased by $0.81, or 3.1%.
  • The international trade deficit expanded by $0.9 billion in October, growing to $55.5 billion. October exports were $211.0 billion, $0.3 billion less than September exports. October imports were $266.5 billion, $0.6 billion more than September imports. Year-to-date, the goods, and services deficit increased $51.3 billion, or 11.4%, from the same period in 2017. Exports increased $149.3 billion, or 7.7%. Imports increased $200.6 billion, or 8.4%. The deficit with China grew by almost $3 billion in October over September, and sits at $420.8 billion year-to-date — 23% greater than this time last year.
  • The IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ for November posted its lowest figure in three months, indicating growth in the manufacturing sector, but at a slower pace than October. More encouraging from this report was the notable growth in new orders, export orders, and employment.
  • The November purchasing managers index (PMI®) from the Institute for Supply Management® not only showed growth in the manufacturing sector, but at a higher rate than October. Survey respondents also reported increases in new orders, production, employment, and inventories. Prices and deliveries fell in November from the prior month. While the surveys from Markit and ISM® may differ in some aspects, both reports clearly show that demand remains strong in manufacturing, which is a good sign for the economy.
  • According to the Non-Manufacturing ISM® Report On Business®, the services sector expanded in November over October. Business activity, new orders, and prices also grew in October. Only employment decreased slightly from September’s survey results.
  • For the week ended December 1, the advance figure for seasonally adjusted initial claims for unemployment insurance was 231,000, a decrease of 4,000 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 dipped to 1.1% for the week ended November 24. The advance number of those receiving unemployment insurance benefits during the week ended November 24 was 1,631,000, a decrease of 74,000 from the prior week’s level, which was revised down by 5,000.

Eye on the Week Ahead

Several reports that serve as indicators of inflationary trends are out this week, including the Consumer Price Index, the Producer Price Index, and the report on import and export prices. Inflation has been inching up slowly, and these indicators aren’t expected to change that trend for this past November.

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What I’m Watching This Week – 3 December 2018

The Markets (as of market close November 30, 2018)

Stocks rebounded last week, posting their best gains since February. The S&P 500 climbed 4.85% last week, a percentage jump not reached since the end of 2011. Overall, the large-cap indexes and the tech-heavy Nasdaq outperformed the small caps of the Russell 2000, which rebounded nicely, nevertheless. As has been the case for most of the year, foreign trade made headlines early last week as President Trump threatened to impose further sanctions on China in advance of the Group of 20 summit. However, more positive rhetoric from both the White House and China at the end of the week may have quelled worries of an all-out trade war, at least for the time being. Comments from Federal Reserve Chairman Jerome Powell last week implied that the Fed may be rethinking the timing of further interest rate hikes, although another quarter-of-a-point bump in December is still a strong possibility.

Oil prices stabilized following several weeks of losses, ending last week at about $50.72 per barrel by late Friday, up from the prior week’s closing price of $50.39 per barrel. The price of gold (COMEX) gained for the third week in a row, climbing to $1,227.80 by Friday evening, up from the prior week’s price of $1,223.40. The national average retail regular gasoline price was $2.539 per gallon on November 26, 2018, $0.072 lower than the prior week’s price but $0.006 higher than a year ago.

Market/Index 2017 Close Prior Week As of 11/30 Weekly Change YTD Change
DJIA 24719.22 24285.95 25538.46 5.16% 3.31%
Nasdaq 6903.39 6938.98 7330.54 5.64% 6.19%
S&P 500 2673.61 2632.56 2760.17 4.85% 3.24%
Russell 2000 1535.51 1488.68 1533.27 3.00% -0.15%
Global Dow 3085.41 2852.37 2936.77 2.96% -4.82%
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% 3.03% 2.99% -4 bps 58 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 second estimate of the third-quarter gross domestic product showed the economy expanded at an annual rate of 3.5% — the same rate as reported following the initial estimate last month. The GDP grew at an annualized rate of 4.2% in the second quarter. Compared to the initial estimate for the third quarter, this rendering indicated consumer spending, the main driver of the GDP, declined 0.4 percentage point to 3.6%, while state and local government spending also came in lower. On the other hand, business inventories expanded significantly, adding to the overall growth of the GDP. The trade deficit, a negative in the calculation of the GDP, averaged $74.6 billion in the third quarter.
  • Personal income increased by 0.5% in October. Disposable (after-tax) income also grew by 0.5%. The increase in personal income primarily reflected increases in wages and salaries, proprietors’ income, and government social benefits payments. Consumer spending for goods and services rose by 0.6% in October. Within goods, spending for prescription drugs was the leading contributor to the increase. Within services, the largest contributor to the increase was spending for household electricity and gas. Consumer prices for goods and services increased 0.2% for the month. Core prices, excluding food and energy, inched up 0.1%. For the 12 months ended in October, consumer prices rose 2.0%. Core prices are up 1.8% over the same period — 0.2 percentage point below the Fed’s target inflation rate.
  • The first month of fiscal 2019 saw the international goods trade deficit reach $77.2 billion in October. The deficit was $76.3 billion in September. Exports were $140.5 billion, $0.8 billion less than September exports. Imports of goods for October were $217.8 billion, $0.2 billion more than September imports.
  • The housing sector continues to stall as new home sales dipped 8.9% in October following a 1.0% drop in September. For the 12 months ended in October, new home sales are down 12.0%. The median sales price of new houses sold in October was $309,700 ($321,300 in September). The average sales price was $395,000 ($379,000 in September). The seasonally adjusted estimate of new houses for sale at the end of October was 336,000, representing a supply of 7.4 months at the current sales rate.
  • For the week ended November 24, the advance figure for seasonally adjusted initial claims for unemployment insurance was 234,000, an increase of 10,000 from the previous week’s level. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended November 17. The advance number of those receiving unemployment insurance benefits during the week ended November 17 was 1,710,000, an increase of 50,000 from the prior week’s level, which was revised down by 8,000.

Eye on the Week Ahead

Investors are hoping a favorable employment report this week will favorably influence the stock market.

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