Month: November 2019

The Markets (as of market close November 22, 2019)

The market’s run of weekly gains ended last week as each of the benchmark indexes listed here lost value. Once again, trade concerns may have prompted investors to pull back from stocks. News last Wednesday of new demands from both the United States and China may delay completion of “phase one” of the trade deal until after the new year. In addition, China threatened “strong countermeasures” if President Trump signed a bill supporting human rights in Hong Kong, following the passage of the Hong Kong Human Rights and Democracy Act by the Senate. As of last Friday, the president had not signed the bill.

By the close of the week, the large caps of the Dow and S&P 500 each fell by less than 0.5%, while the tech stocks of the Nasdaq dropped a quarter of a percent. The small caps of the Russell 2000 lost the most by week’s end, but still only a modest 0.47%.

Oil prices fell slightly last week, closing at $57.89 per barrel by late Friday afternoon, down from the prior week’s price of $57.93. The price of gold (COMEX) dropped last week, closing at $1,462.50 by late Friday afternoon, down from the prior week’s price of $1,468.70. The national average retail regular gasoline price was $2.592 per gallon on November 18, 2019, $0.023 less than the prior week’s price and $0.019 less than a year ago.

The Markets (as of market close November 15, 2019)

The large caps of the Dow and S&P 500 surged last week. The Dow reached 28000 for the first time in its history while the S&P 500 posted solid gains for the sixth consecutive week. Investors continued to be bullish on hopes that a trade deal between the United States and China is on the horizon. The tech stocks of the Nasdaq also climbed last week while the small-cap Russell 2000 and the Global Dow dropped back. Year-to-date, each of the benchmark indexes listed here are well ahead of their 2018 closing values, led by the Nasdaq, which is nearly 30% ahead of last year’s ending mark.

Oil prices rose last week, closing at $57.93 per barrel by late Friday afternoon, up from the prior week’s price of $57.39. The price of gold (COMEX) rebounded last week, closing at $1,468.70 by late Friday afternoon, up from the prior week’s price of $1,459.20. The national average retail regular gasoline price was $2.615 per gallon on November 11, 2019, $0.010 more than the prior week’s price but $0.071 less than a year ago.

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 News

• Inflation, as measured by the Consumer Price Index, rose 0.4% in October. However, core prices (less food and energy) inched up 0.2%. After recent monthly declines, energy prices increased 2.7% last month, accounting for more than half of the increase in the overall CPI. Within the energy index, gasoline prices rose 3.7% in October. Food prices rose 0.2%. Over the last 12 months, the CPI has risen 1.8%. Over the same period, core prices are up 2.3%.
• Retail sales rose 0.3% in October and are up 3.1% since October 2018. Last month turned out to be a bounce-back for retail sales, which fell 0.3% in September. In October, motor vehicle sales rose 0.5%, gasoline sales climbed 1.1%, and nonstore (online) sales surged 0.9%. On the downside, sales at clothing stores fell 1.0% and furniture store sales dropped 0.9%.
• Producer prices rose 0.4% in October after falling 0.3% in September. Prices are up 1.1% for the 12 months ended in October, the smallest increase since a comparable rise in the 12-month period ended October 2016. Prices for services rose 0.3% last month, boosted by a 0.8% advance in margins for trade services, which measure changes in margins received by wholesalers and retailers. The index for goods advanced 0.7% in October, the largest increase since a 1.0% jump in March. Seventy percent of the October rise in goods is attributable to prices for energy, which moved up 2.8%.
• Both import and export prices fell in October, further evidencing waning global inflation. Import prices dropped 0.5% while export prices dipped 0.1%. For the year, import prices are down 3.0% and export prices are off 2.2%. Driving import prices lower was a 3.7% drop in petroleum prices, which more than offset a 32.0% increase in natural gas prices. Fuel prices declined 13.7% over the past year. For exports, a 0.6% decline in prices of nonagricultural industrial supplies and materials offset a 1.9% increase in agricultural export prices.
• Manufacturing continues to lag in 2019. The Federal Reserve’s industrial production index fell 0.8% in October after dropping 0.3% in September. Manufacturing production decreased 0.6%, primarily due to a 7.1% drop in the output of motor vehicles and parts that resulted from a strike at a major auto manufacturer. The decreases for total industrial production, manufacturing, and motor vehicles and parts were their largest since May 2018, April 2019, and January 2019, respectively. Mining production decreased 0.7%, while utilities output fell 2.6%. Overall, total industrial production was 1.1% lower in October than it was a year earlier.
• The first month of the new fiscal year for the federal government saw October start off with a deficit of $134.5 billion, 34% higher than the $100.5 billion deficit the prior October. Government receipts totaled $245.5 billion, with $126.4 billion coming from individual income taxes and $6.6 billion received from corporate income taxes. The federal government spent $380.0 billion in October, with Social Security ($89.0 billion), National Defense ($71.0 billion), and Medicare ($56.0 billion) accounting for most of the expenditures, as usual.
• For the week ended November 9, there were 225,000 claims for unemployment insurance, an increase of 14,000 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 2. The advance number of those receiving unemployment insurance benefits during the week ended November 2 was 1,683,000, a decrease of 10,000 from the prior week’s level, which was revised up by 4,000.

Eye on the Week Ahead

This week the focus is on the continuing trade negotiations between the United States and China — clearly a market mover. Also, economic reports center on the housing sector, with October housing starts figures as well as the latest on existing home sales.

The Markets (as of market close November 1, 2019)

A better-than-expected jobs report and strong third-quarter earnings from some major companies drove stock prices higher for the fourth consecutive week. The S&P 500 and the Nasdaq reached closing highs while the other benchmark indexes listed here posted solid returns. The small caps of the Russell 2000 recorded the largest weekly gain, followed by the Nasdaq, the S&P 500, the Dow, and the Global Dow. Long-term bond prices rose, pulling yields lower as the yield on 10-year Treasuries fell 8 basis points.

Oil prices fell last week, closing at $56.14 per barrel by late Friday afternoon, down from the prior week’s price of $56.65. The price of gold (COMEX) rose for the third week in a row last week, closing at $1,515.70 by late Friday afternoon, up from the prior week’s price of $1,507.10. The national average retail regular gasoline price was $2.596 per gallon on October 28, 2019, $0.042 less than the prior week’s price and $0.215 less than a year ago.

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 News

• The Federal Reserve lowered interest rates for the third consecutive time, dropping the target range for the federal funds rate 25 basis points to 1.50%-1.75%. The Committee noted that while the labor market remains strong, economic activity has been rising at a moderate rate, and household spending has been accelerating at a strong pace, business fixed investment and exports remain weak. In addition, inflation continues to run below the Fed’s target rate of 2.0%. The Committee vote was 8 in favor and 2 voting to maintain the target range at 1.75%-2.00%. Further rate cuts are on hold for the time being. The Committee next meets in December.
• The initial, or “advance,” estimate of the third-quarter gross domestic product showed the economy grew at an annualized rate of 1.9%. The second-quarter GDP increased 2.0%. While economic growth decelerated in the third quarter, it is better than most experts expected, primarily due to consumer spending, which offset weakness in other sectors of the economy. In the third quarter, personal income increased $172.8 billion compared with an increase of $244.2 billion in the second quarter. Disposable personal income increased $181.7 billion last quarter compared to $192.6 billion in the second quarter. With a reduction in consumer income in the third quarter came a deceleration in consumer spending (accounting for more than two-thirds of economic activity). However, consumer spending was enough to offset weak business investment, which turned negative for the first time since 2016.
• There were 128,000 new jobs added in October, and the unemployment rate inched up one-tenth to 3.6%. Job growth has averaged 167,000 per month thus far in 2019. The number of unemployed persons also climbed marginally from 5.8 million in September to 5.9 million. The labor participation rate rose from 63.2% to 63.3% last month. The employment-population ratio held at 61.0%. Notable job gains in October occurred in food services and drinking places (48,000), social assistance (20,000), professional and business services (22,000), and financial activities (16,000). Indicative of the slowdown in manufacturing production, that sector declined by 36,000 jobs in October. The average workweek was unchanged at 34.4 hours in October. Average hourly earnings rose by $0.06 to $28.18. Over the past 12 months, average hourly earnings have increased by 3.0%.
• Prices for consumer goods and services decreased less than 0.1% in September as inflationary pressures remained muted. Personal income and disposable (after-tax) personal income each climbed 0.3%. Consumer spending ramped up 0.2% in September, helped by robust employment and rising wages.
• Manufacturing continued to lag in October, according to the latest Manufacturing ISM® Report On Business®. The purchasing managers’ index registered 48,3%, which, while better than September’s 47.8%, still represents contraction in the manufacturing sector (a reading below 50% constitutes contraction). Survey respondents noted an increase in new orders, up 1.8% at 49.1%, but still contracting. Production, supplier deliveries, and prices each fell in October and are all below 50.0%. Employment, inventories and new export orders increased, respectively.
• The international trade in goods (excluding services) deficit for September was $70.4 billion, down $2.7 billion from August. Exports of goods for September were $135.9 billion, $2.2 billion less than August exports. Imports of goods for September were $206.3 billion, $4.9 billion less than August imports. While the goods deficit shrank last month, both import and export trading contracted — evidence of a slowing global economy.
• For the week ended October 26, there were 218,000 claims for unemployment insurance, an increase of 5,000 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 1.2% for the week ended October 19. The advance number of those receiving unemployment insurance benefits during the week ended October 19 was 1,690,000, an increase of 7,000 from the prior week’s level, which was revised up by 1,000.

Eye on the Week Ahead

While the last week of October was full of economic information and reports, the first week of November is relatively calm. The goods and services trade report for September is available this week. The 2019 goods and services international trade deficit sat at $429 billion for January through August — about $28 billion higher than the deficit over the same eight-month period in 2018.

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The Markets (as of market close October 31, 2019)

Investors continued to buy stocks, pushing values higher in October. Each of the benchmark indexes listed here posted solid monthly gains despite signs that the economy is slowing, both domestically and globally. Businesses remain hesitant to invest in nonresidential structures, equipment, and software, exports are lagging in volume, and prices remain subdued. Manufacturing continues to wane, and residential sales have been erratic at best. However, there may be headway in the negotiations between the United States and China, as the two economic giants try to resolve their ongoing trade war (although rhetoric from either side changes almost daily). The labor market continues to add new jobs, although wage inflation was muted last month. Since the beginning of the year, interest rates have been reduced by 75 basis points to their lowest levels since May 2018. The last day of the month saw the House of Representatives pass a resolution establishing a framework for a new phase of the impeachment inquiry.

By the close of trading on the last day of the month, each of the benchmark indexes listed here posted gains, led by the tech stocks of the Nasdaq, which climbed more than 3.50% from its September closing value. The large caps of the S&P 500 and the small caps of the Russell 2000 each gained over 2.0% by the end of October, while the Global Dow was close behind. The Dow advanced on the month, but by less than 0.50%. The yield on long-term bonds fluctuated during the month, ultimately closing October about where it began.

By the close of trading on October 31, the price of crude oil (WTI) was $54.09 per barrel, down from the September 30 price of $54.37 per barrel. The national average retail regular gasoline price was $2.596 per gallon on October 28, down from the September 30 selling price of $2.642 and $0.215 less than a year ago. The price of gold rose by the end of October, climbing to $1,515.10 by close of business on the 31st, up from its $1,479.30 price at the end of September.

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.

• Employment: The unemployment rate declined 0.2 percentage point to 3.5% in September. The last time the rate was this low was in December 1969, when it also was 3.5%. Total employment increased by 136,000 in September after adding 168,000 (revised) new jobs in August. The average monthly job gain so far in 2019 is 161,000 per month (223,000 in 2018). Notable employment increases for September occurred in health care (39,000), professional and business services (34,000), government (22,000), and transportation and warehousing (16,000). The number of unemployed persons dropped by 275,000 to 5.8 million. The labor participation rate remained at 63.2%, and the employment-population ratio rose to 61.0% (60.9% in August). The average workweek remained at 34.4 hours for September. Average hourly earnings fell by $0.01 to $28.09. Over the last 12 months ended in September, average hourly earnings have risen 2.9% (3.2% for the 12 months ended in August).
• FOMC/interest rates: By an 8-2 vote, the Federal Open Market Committee dropped the target range for the federal funds rate 25 basis points following July’s 25-basis-point cut and September’s comparable rate slash. The federal funds rate range has been decreased by 75 basis points so far this year. The target range now sits at 1.50%-1.75%. In support of its decision to reduce interest rates again, the Committee noted that inflation continues to run below the Fed’s 2.0% target rate, business fixed investment and exports have weakened, and global economic developments are uncertain.
• GDP/budget: Economic growth slowed again in the third quarter. According to the initial estimate for the third-quarter gross domestic product, the economy accelerated at a rate of 1.9%, down from the second quarter’s 2.0% annual growth rate. The first quarter saw an annualized growth of 3.1%. The personal consumption expenditures price index increased 1.5% in the third quarter compared to an increase of 2.4% in the second quarter. Driving economic growth in the third quarter was consumer spending, which increased at an annualized rate of 2.9% (4.6% in the second quarter). Another positive from the report comes from residential investment, which rose 5.1% — the first positive contribution to the GDP since 2017. Nonresidential (business) fixed investment continues to lag, falling 3.0% in the third quarter after dropping 1.0% in the second quarter. September marked the close of the 2019 fiscal year for the federal government. For the month, the federal budget came in at a smaller-than-expected surplus of $82.2 billion in September, narrowing the fiscal 2019 deficit to $984.4 billion, still 26.4% higher than the fiscal 2018 deficit.
• Inflation/consumer spending: According to the personal income and outlays report, inflationary pressures remain weak, as prices for consumer goods and services rose less than 0.1% in September. Prices are up 1.3% over the last 12 months. Consumer prices excluding food and energy showed no movement in September and are up 1.7% year-over-year. On the other hand, consumers continue spending, as purchases rose 0.2% (0.2% in August). Personal income and disposable (after-tax) personal income each climbed 0.3% in September (0.5% and 0.6%, respectively, in August).
• The Consumer Price Index was unchanged in September following a 0.1% advance in August. Over the 12 months ended in September, the CPI rose 1.7%. Energy prices fell 1.4% on the month with gasoline down 2.4%. Prices less food and energy rose 0.1% in September after increasing 0.3% the previous month. Since last September, core prices (less food and energy) are up 2.4%.
• According to the Producer Price Index, the prices companies received for goods and services fell 0.3% in September after increasing 0.1% in August. The index increased 1.4% for the 12 months ended in September. Prices for goods fell 0.4% in September. Most of the decline is attributable to energy prices, which tumbled 2.5%. Prices for services dropped 0.2% in September, pulled down by declining prices for machinery and vehicle wholesaling, which fell 2.7%. The price index less foods, energy, and trade services was unchanged after jumping ahead 0.4% in August. For the 12 months ended in September, producer prices less foods, energy, and trade services advanced 1.7%.
• Housing: The housing sector has been anything but steady for much of the year, and September was no exception. Existing home sales plunged 2.2% in September following two consecutive monthly increases. Year-over-year, existing-home sales are up 3.9%. Existing home prices fell in September, as the median price for existing homes was $272,100, down from August’s median price of $278,200. Nevertheless, existing home prices were up 5.9% from September 2018. Total housing inventory for existing homes for sale in September decreased to 1.83 million (1.86 million in August), representing a 4.1-month supply at the current sales pace. After rising 6.1% in August, sales of new single-family houses tumbled 0.7% in September. However, new home sales are up 15.5% over their September 2018 estimate. The median sales price of new houses sold in September was $299,400 ($328,400 in August). The average sales price was $362,700 ($404,200 in August). Inventory at the end of September remained at a supply of 5.5 months.
• Manufacturing: According to the Federal Reserve, industrial production fell 0.4% in September after advancing 0.8% in August. Manufacturing output declined 0.5% following a 0.5% rise the prior month. In September, mining output fell 1.3%, while utilities climbed 1.4%. Total industrial production was 0.1% lower in September than it was a year earlier. Following three consecutive monthly increases, new orders for durable goods dropped 1.1% in September. Excluding transportation, new orders decreased 0.3%. Excluding defense, new orders decreased 1.2%. Transportation equipment, also down following three consecutive monthly increases, led the decrease, dropping 2.7%. New orders for capital goods (used by businesses to produce consumer goods) fell 2.8% in September as business investment continues to be weak.
• Imports and exports: Both import and export prices remained soft in September. Import prices rose 0.2%, pushed higher by a boost from petroleum-based products. Nonfuel goods edged down 0.1%. For the year, import prices are also down 1.6%. Export prices fell 0.2% and are down 1.6% over the past 12 months. Agricultural export prices declined 1.8% in September, while nonagricultural prices for items such as consumer goods, automobiles, and industrial supplies and materials dropped 0.1%. The latest information on international trade in goods and services, out October 4, is for August and shows that the goods and services deficit was $59.4 billion, $0.9 billion over July’s revised figure. August exports were $207.9 billion, $0.5 billion more than July exports. August imports were $262.8 billion, $1.3 billion more than July imports. Year-to-date, the goods, and services deficit increased $28.3 billion, or 7.1%. Exports decreased $3.2 billion, or 0.2%. Imports increased $24.1 billion, or 1.2%. The advance report on international trade in goods (excluding services) revealed the trade deficit fell to $70.4 billion in September, down from $73.1 billion in August. However, both export and import trading slowed in September, with exports of goods dropping $2.2 billion from August and imports falling $4.9 billion below August’s total.
• International markets: Still unable to reach an accord on a Brexit plan, the United Kingdom requested, and was granted, another extension by the European Union, this time to January 31. However, the UK could leave before that date if Parliament passes a withdrawal bill. UK stocks sank following news that the country was headed to yet another general election before the end of the year. In China, consumer prices rose 0.9% in September and are up 3.0% over the past 12 months — the highest level since 2013. Nevertheless, the Chinese economy continued to slow as its third-quarter gross domestic product expanded at a 6.0% year-over-year pace, down from the 6.2% rate of expansion in the second quarter.
• Consumer confidence: Consumer confidence remained tepid in October. The Conference Board Consumer Confidence Index® registered 125.9, down from 126.3 in September. The Present Situation Index — based on consumers’ assessment of current business and labor market conditions — increased from 170.6 to 172.3. The Expectations Index — based on consumers’ short-term outlook for income, business and labor market conditions — declined from 96.8 last month to 94.9 this month.

Eye on the Month Ahead

While stocks rebounded nicely last month, will that trend continue in November? Stock market growth seemingly rides on the progress made in the trade negotiations between the United States and China. With the impeachment process moving on to another phase and the government on target to shut down by the middle of November, it should be an interesting fourth quarter.