What I’m Watching This Week – 21 January 2020

The Markets (as of market close January 17, 2020)

Each of the benchmark indexes listed here enjoyed strong gains last week, led by the Russell 2000, which climbed 2.53% to push its year-to-date gains to nearly 2.0%. The Dow has posted weekly gains for five of the last six weeks, the S&P 500 advanced for the second consecutive week, and the Nasdaq has risen for six straight weeks. A strong housing starts report helped push stocks higher. But investors were most encouraged by advances on the trade front with Congress passing a revised trade deal between the United States, Canada, and Mexico, which was followed by last Thursday’s signing of the first phase of a trade agreement between the United States and China.

Oil prices dropped again last week, closing at $58.73 per barrel by late Friday afternoon, down from the prior week’s price of $59.14. The price of gold (COMEX) fell for the first time in several weeks, closing at $1,556.80 by late Friday afternoon, off from the prior week’s price of $1,561.60. The national average retail regular gasoline price was $2.570 per gallon on January 13, 2020, $0.008 lower than the prior week’s price but $0.323 more than a year ago.

Market/Index 2019 Close Prior Week As of 1/17 Weekly Change YTD Change
DJIA 28538.44 28823.77 29348.10 1.82% 2.84%
Nasdaq 8972.60 9178.86 9388.94 2.29% 4.64%
S&P 500 3230.78 3265.35 3329.62 1.97% 3.06%
Russell 2000 1668.47 1657.64 1699.64 2.53% 1.87%
Global Dow 3251.24 3260.65 3299.82 1.20% 1.49%
Fed. Funds target rate 1.50%-1.75% 1.50%-1.75% 1.50%-1.75% 0 bps 0 bps
10-year Treasuries 1.91% 1.82% 1.83% 1 bps -8 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 News

  • The federal government incurred a $13 billion deficit in December, effectively the same shortfall as in December 2018. Year-to-date, the federal deficit sits at $357 billion, 12% higher than the deficit over the same period a year earlier. Total government receipts through December were $806 billion ($771 billion last fiscal year) and total government expenditures were $1.163 billion ($1.090 billion last year). There are some important budgetary line items to note through the first three months of the government’s fiscal year (FY 2020 started in October 2019). Individual income taxes ($385 billion) accounted for 47.7% of total government receipts, followed by social insurance ($290 billion) at 35.9%. Those two line items combined represent 83.6% of the government’s total receipts. The government spent $266 billion on Social Security, which accounted for almost 22.8% of total government expenditures. This expense was followed closely by the $196 billion spent on national defense (16.8%) and the $166 billion outlay for Medicare (14.2%). Lastly, customs duties provided $21 billion in receipts, or 2.6% of total receipts. However, customs duties are up 18.6% over last year, likely a reflection of the increased tariffs on Chinese imports.
  • Consumer prices rose 0.2% in December following a 0.3% jump in November. Over the last 12 months, consumer prices have increased 2.3%, the largest 12-month increase since the period ended October 2018. Driving the monthly price increase was a 2.8% hike in gasoline prices (up 7.9% since December 2018). Consumer prices less food and energy crept up 0.1% last month and are up 2.3% over the last 12 months.
  • Producer prices edged up 0.1% in December, the first increase since jumping ahead 0.4% in October. Overall, producer prices rose 1.3% in 2019 after climbing 2.6% in 2018. Prices less foods, energy, and trade services inched up 0.1% in December following no change in November. In 2019, the index for final demand less foods, energy, and trade services climbed 1.5% after advancing 2.8% in 2018. For December, much of the increase in producer prices was driven by a 1.5% increase in energy prices (gas prices advanced 3.7% in December), while prices for goods fell 0.2%.
  • Consumers ramped up their purchases at the retail level in December as sales increased by 0.3% from November’s total. Retail sales are up 5.8% over December 2018, and total sales for 2019 are 3.6% ahead of sales for the previous year. Retail trade sales (resales of consumer items) were up 0.4% from November 2019 and 6.0% above last year. Nonstore (online) retail sales were up 19.2% from December 2018, and gasoline station sales were up 11.3% from last year.
  • Import prices rose 0.3% in December after ticking up 0.1% in November. The December increase in import prices (the biggest monthly gain since March) was largely driven by increasing fuel prices. Prices for imports rose 0.5% in 2019 after decreasing 0.9% in 2018. The 12-month advance in December was the largest over-the-year increase since the index rose 0.7% between November 2017 and November 2018. Prices for import fuel increased 19.3% in 2019 following a 13.1% drop the previous year. Export prices fell 0.2% last month following a 0.2% advance in November. Prices for exports declined 0.7% in 2019 following a 1.1% increase in 2018. The 2019 drop was the first calendar-year fall since the index declined 6.6% in 2015.
  • December’s building permits were 3.9% below November’s totals, but are 5.8% over December 2018. The last month of the year saw plenty of new construction as housing starts rose 16.9% above November’s estimate and finished 2019 40.8% over the December 2018 rate. Single-family housing starts in December were 11.2% above the November totals. The inventory for new homes for sale to start 2020 should increase as housing completions in December were 5.1% over November’s estimate, and 19.6% above the December 2018 rate.
  • Industrial production declined 0.3% in December, as a decrease of 5.6% for utilities outweighed increases of 0.2% for manufacturing and 1.3% for mining. The drop for utilities resulted from a large decrease in demand for heating, as unseasonably warm weather in December followed unseasonably cold weather in November. Total industrial production was 1.0% lower in December than it was a year earlier.
  • According to the latest Job Openings and Labor Turnover report, the number of job openings fell to 6.8 million (-561,000) on the last business day of November. The job openings rate decreased to 4.3%. The largest decreases in job openings were in retail trade (-139,000) and construction (-112,000). Over the month, hires and separations were little changed at 5.8 million and 5.6 million, respectively. Over the 12 months ended in November, hires totaled 69.8 million and separations totaled 67.5 million, yielding a net employment gain of 2.3 million.
  • For the week ended January 11, there were 204,000 claims for unemployment insurance, a decrease 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 January 4. The advance number of those receiving unemployment insurance benefits during the week ended January 4 was 1,767,000, a decrease of 37,000 from the prior week’s level, which was revised up by 1,000.

Eye on the Week Ahead

The holiday-shortened week comes with a dearth of major economic reports. December’s existing-home sales information is available this week. November’s sales were down 1.7% from the prior month. Another drop in sales in December could pull 2019 total sales back to their 2018 levels.

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What I’m Watching This Week – 13 January 2020

The Markets (as of market close January 10, 2020)

Last Friday’s jobs report was a mixed bag of information. While 145,000 new jobs were added and the unemployment rate remained at 3.5%, wage growth was tepid in December to cap off a year of only moderate wage growth. This information, coupled with news that the Senate would receive the articles of impeachment this week, culled what was otherwise a strong week for stocks. The Dow passed 29000 earlier last week only to pull back by week’s end. In any case, most of the indexes listed here posted gains last week, except for the small caps of the Russell 2000, which has gotten off to a relatively slow start in 2020. Conversely, the tech-heavy Nasdaq continues to post strong returns, climbing 1.75% last week and 2.30% ahead of its 2019 closing value.

Oil prices plummeted last week, closing at $59.14 per barrel by late Friday afternoon, down from the prior week’s price of $63.05. The price of gold (COMEX) rose higher again last week, closing at $1,561.60 by late Friday afternoon, up from the prior week’s price of $1,553.30. The national average retail regular gasoline price was $2.578 per gallon on January 6, 2020, $0.007 more than the prior week’s price and $0.341 more than a year ago.

Market/Index 2019 Close Prior Week As of 1/10 Weekly Change YTD Change
DJIA 28538.44 28634.88 28823.77 0.66% 1.00%
Nasdaq 8972.60 9020.77 9178.86 1.75% 2.30%
S&P 500 3230.78 3234.85 3265.35 0.94% 1.07%
Russell 2000 1668.47 1660.87 1657.64 -0.19% -0.65%
Global Dow 3251.24 3258.76 3260.65 0.06% 0.29%
Fed. Funds target rate 1.50%-1.75% 1.50%-1.75% 1.50%-1.75% 0 bps 0 bps
10-year Treasuries 1.91% 1.78% 1.82% 4 bps -9 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 News

  • There were 5.8 million unemployed persons in December, and the unemployment rate remained at 3.5%. A year earlier, the unemployment rate was 3.9% based on 6.3 million unemployed persons. The labor force participation rate was unchanged at 63.2% in December. The employment-population ratio was 61.0% for the fourth consecutive month but was up by 0.4 percentage point over the year. There were 145,000 new jobs added in December. Notable job gains occurred in retail trade and health care, while mining lost jobs. In 2019, employment rose by 2.1 million, down from a gain of 2.7 million in 2018. The average workweek was unchanged at 34.3 hours in December. Average hourly earnings rose by $0.03 to $28.32 last month. Over the last 12 months, average hourly earnings have increased by 2.9%.
  • In the latest report from the Census Bureau, the goods and services trade deficit for November was $43.1 billion, down $3.9 billion from October’s deficit of $46.9 billion, revised. November exports were $208.6 billion, $1.4 billion more than October exports. November imports were $251.7 billion, $2.5 billion less than October imports. Year-to-date, the goods, and services deficit decreased $3.9 billion, or 0.7%, from the same period in 2018. Exports decreased less than $0.1 billion, or less than 0.1%. Imports decreased $3.9 billion, or 0.1%.
  • According to the latest Non-Manufacturing ISM® Report On Business®, the December non-manufacturing index was 55%, 1.1 percentage points higher than the November reading. In the services sector, survey respondents saw an uptick in prices and business activity. However, new orders and employment dropped in December from the prior month.
  • For the week ended January 4, there were 214,000 claims for unemployment insurance, a decrease of 9,000 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 December 28. The advance number of those receiving unemployment insurance benefits during the week ended December 28 was 1,803,000, an increase of 75,000 from the prior week’s level.

Eye on the Week Ahead

This is a busy week for market-influencing economic reports, starting with the Treasury budget report for December. The government deficit has been expanding, reaching close to $1 trillion. The latest information on inflationary trends is also out with reports on consumer and producer prices. The Federal Reserve’s report on industrial production is also out at the end of the week. If surveys of purchasing managers are any indication, the Fed’s report on industrial production will show continued weakness in December.

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What I’m Watching This Week – 6 January 2020

The Markets (as of market close January 3, 2020)

A strong start last week for the benchmark indexes listed here was wiped out by rising tensions in the Middle East. Only the Nasdaq was able to close slightly higher last week as the other benchmark indexes listed here closed the week in the red. Both the Dow and S&P 500 lost value, as did the Global Dow. The small caps of the Russell 2000 had the worst week-over-week performance, falling about 0.50%. On the other hand, oil, gold, and 10-year Treasuries pushed higher last week.

Oil prices continued to climb last week, closing at $63.05 per barrel by late Friday afternoon, up from the prior week’s price of $61.72. The price of gold (COMEX) rose higher last week, closing at $1,553.30 by late Friday afternoon, up from the prior week’s price of $1,515.60. The national average retail regular gasoline price was $2.571 per gallon on December 30, 2019, $0.039 more than the prior week’s price and $0.305 more than a year ago.

Market/Index 2019 Close Prior Week As of 1/3 Weekly Change YTD Change
DJIA 28538.44 28645.26 28634.88 -0.04% 0.34%
Nasdaq 8972.60 9006.62 9020.77 0.16% 0.54%
S&P 500 3230.78 3240.02 3234.85 -0.16% 0.13%
Russell 2000 1668.47 1669.03 1660.87 -0.49% -0.46%
Global Dow 3251.24 3265.24 3258.76 -0.20% 0.23%
Fed. Funds target rate 1.50%-1.75% 1.50%-1.75% 1.50%-1.75% 0 bps 0 bps
10-year Treasuries 1.91% 1.87% 1.78% -9 bps -13 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 News

  • The international trade deficit came in at a three-year low in November at $63.2 billion, down $3.6 billion from the $66.8 billion deficit in October. Exports of goods for November were $136.4 billion, $0.9 billion more than October exports. Imports of goods for November were $199.6 billion, $2.7 billion less than October imports.
  • Purchasing managers remained guarded in their assessment of the manufacturing sector in December. According to the latest report from Markit, the IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posted 52.4 in December, down slightly from 52.6 in November. IHS Markit Chief Business Economist Chris Williamson indicated that, while manufacturing continues to recover from a weak summer, overall expansion in that sector remains well below that seen this time last year. Williamson also noted that the impact of tariffs has pushed prices higher, softened business confidence, and curtailed hiring.
  • Purchasing manager respondents to the Institute for Supply Management survey were more reticent about the manufacturing sector than those who responded to the Markit survey. According to the December ISM® report, manufacturing contracted last month as the purchasing managers index registered 47.2%, 0.9 percentage point below November’s reading. December’s decline marks the fifth straight month of contraction in the manufacturing sector. In addition, new orders, supplier deliveries, new export orders, employment, and production contracted in December. Only imports, prices, and the backlog of orders expanded last month.
  • For the week ended December 28, there were 222,000 claims for unemployment insurance, a decrease of 2,000 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 remained at 1.2% for the week ended December 21. The advance number of those receiving unemployment insurance benefits during the week ended December 21 was 1,728,000, an increase of 5,000 from the prior week’s level, which was revised up by 4,000.

Eye on the Week Ahead

The major economic report out this week covers December’s employment figures. This report will cap off a solid year for job hirings, although wage growth has been moderate. Also, the trade report for November is available this week. The trade deficit was over $47 billion in October and has been narrowing over the past few months. Year-to-date (through October 2019), however, the trade deficit has increased by $6.9 billion, or 1.3% from the same period in 2018.

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Annual Market Review 2019

Overview

The year began with the government stymied by a shutdown and ended with articles of impeachment levied against the president. In between, both domestic and global economies showed signs of slowing, all while the trade war between the United States and China loomed throughout the year. Nevertheless, investors remained relatively bullish toward stocks, pushing several major indexes to record highs.

While domestic economic growth may have slowed in 2019 compared to 2018, it showed resilience and stamina. The third-quarter gross domestic product expanded at an annualized rate of 2.1% — moderately down from 2018’s 3.0% rate, yet still strong enough to outpace global economic growth by a considerable margin. Consumer spending — which accounts for about two-thirds of the U.S. economy — surged, buoyed by a strong labor market, near-record unemployment, solid wage growth, and a burgeoning stock market. All told, the domestic economic expansion continued into its 11th straight year, the longest run in U.S. history.

Last year saw trade disputes between the United States and several of its trade partners reach an accord, but the trade war with China roared. The world’s two largest economies engaged in a tit-for-tat skirmish, with each country volleying tariffs on their respective imports at the expense of the exporting nation. Coincidentally, a limited deal was announced just before the holiday shopping season, with the U.S. agreeing to forgo new tariffs and China assenting to allow more U.S. agricultural imports. Further negotiations are presumed, but the relationship between the economic giants remains tenuous at best.

Not only did the ongoing trade war affect global economies, but it also impacted domestic business investment, industrial production, and exports. Part of the justification cited by the Federal Reserve for lowering interest rates three times last year was weakness in business fixed investment and exports. As of November, new orders for durable goods were down 1.3% from the same period in 2018, and business (nonresidential) investment fell 2.3% in the third quarter.

The new year begins with a strong stock market and solid economic growth. The Secure Act, passed in late December, should change the retirement planning (and saving) landscape to some extent. However, the Treasury budget deficit for fiscal 2019 (October 2018-September 2019) exceeded $98 billion — 26% higher than the 2018 fiscal-year deficit. The trade war with China may cool with more mutual concessions, or accelerate, which would continue to dampen global economic growth. The new year will begin with the impeachment process and end with November’s presidential election. What happens in between is anyone’s guess. Will unemployment and inflation remain low? Will stocks continue to experience growth? Will oil and gas prices moderate or surge? Will the domestic economy continue to accelerate, or suffer a setback? Can the world economy recover, or will it continue to stagnate? If nothing else, 2020 looks to be an interesting year.

Market/Index
2018 Close
As of 9/30
2019 Close
Month Change
Q4 Change
2019 Change
DJIA
23327.46
26916.83
28538.44
1.74%
6.02%
22.34%
Nasdaq
6635.28
7999.34
8972.60
3.54%
12.17%
35.23%
S&P 500
2506.85
2976.74
3230.78
2.86%
8.53%
28.88%
Russell 2000
1348.56
1523.37
1668.47
2.71%
9.52%
23.72%
Global Dow
2736.74
3021.34
3251.24
3.18%
7.61%
18.80%
Fed. Funds
2.25%-2.50%
1.75%-2.00%
1.50%-1.75%
0 bps
-25 bps
-75 bps
10-year Treasuries
2.68%
1.67%
1.91%
14 bps
24 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.

Snapshot 2019

The Markets

  • Equities: The year 2019 was a solid one for investors. A year after one of the worst fourth quarters since the Great Recession, stocks rebounded to close 2019 with several major indexes reaching record highs. During the year, investors faced a yield curve inversion for the first time since 2007, a slowing economy, and a constant barrage of positive and negative information on the trade war with China. Nevertheless, investors stayed the course for most of the year, pushing stocks to their best year since 2013.
  • Each of the benchmark indexes listed here closed 2019 in fine fashion, led by the tech stocks of the Nasdaq, which gained more than 35.0%. The large caps of the Dow (23.34%) and the S&P 500 (28.88%) also fared well by year’s end. The small caps of the Russell 2000 began the year on a tear, ending February up almost 17.0%. However, the small-cap benchmark index pulled back some in March but remained a steady gainer for much of the rest of the year, closing 2019 about 24.0% ahead of where it started. The Global Dow gained about 19.0% on the year despite ongoing Brexit turmoil, frequent terrorist attacks, and overall global economic weakening.
  • Bonds: U.S. Treasury yields swung dramatically in 2019, ranging from a low of 1.43% to a high of 2.80%. Investors were a bit unnerved in March when a recession indicator — an inverted yield curve — occurred for the first time since 2007. That’s what happened when the yield on U.S. 10-year Treasuries fell below the yield on the 3-month note — a potential sign of an economic slowdown. However, the yield inversion was short-lived. Investors saw a steadying economy, modest inflationary pressures, and continued job growth, all of which helped ease investor concerns. Overall, the yield on 10-year Treasuries closed at 1.91%, about 77 basis points below where it began the year, as rising bond prices dragged yields lower (bond yields move in the opposite direction from bond prices).
  • Oil: Oil prices began 2019 at $46.54 per barrel and continued pushing higher, reaching a peak price of $66.60 per barrel in April. During the year, oil prices fell in the summer months, averaging about $54 per barrel. Oil prices spiked nearly 20% in September, reaching almost $63 per barrel, only to fall back again in October. Since then, prices have climbed steadily to their year-end price of $61.21 per barrel. Ultimately, oil prices closed 2019 with their largest yearly gain since 2016. WTI crude has climbed nearly 36% from its January opening price.
  • FOMC/interest rates: The Federal Open Market Committee lowered interest rates three times during 2019 after raising them four times in 2018. Each time the target range decreased by 25 basis points. The first-rate drop occurred in July, followed by a rate decrease in September and a final cut in October. The Committee left rates unchanged following its last meeting for 2019 in December. For the year, the target range has decreased 75 basis points, from 2.25%-2.50% to 1.50%-1.75%. Following each rate increase, the Committee noted that inflation continued to run below the Committee’s target 2.0% rate, business fixed investment and exports weakened, and global economic developments were uncertain. Nevertheless, the overall view of the economy is favorable, and a higher bar will have to be met before further rate reductions are suggested.
  • Currencies: The dollar maintained a relatively strong position throughout much of 2019. The United States Dollar Index, or DYX, which measures the U.S. dollar against the currencies of several other countries, ranged from a low of $95.02 to a high of $99.67, ultimately closing 2019 at $96.92.
  • Gold: Gold prices rose over 18% in 2019. Gold prices began the year at $1,278.30 on January 1. Prices hit a low in May of $1,267.30 to a high in September of $1,566.20. The price of gold closed 2019 at $1,520.00.

Last Month’s Economic News

  • Employment: The unemployment rate inched down 0.1 percentage point to 3.5% in November as the number of unemployed persons dipped from 5.86 million in October to 5.81 million in November. Total employment rose by 266,000 in November after adding 156,000 (revised) new jobs in October. The average monthly job gain through November is 180,000 (223,000 in 2018). Notable employment increases for November occurred in manufacturing (54,000), health care (45,000), professional and technical services (31,000), leisure and hospitality (45,000), and transportation and warehousing (16,000). The labor participation rate fell 0.1 percentage point to 63.2%, and the employment-population ratio remained at 61.0%. The average workweek remained at 34.4 hours for November. Average hourly earnings rose by $0.07 to $28.29. Over the last 12 months ended in November, average hourly earnings have risen 3.1%.
  • FOMC/interest rates: The Federal Open Market Committee met in December for the first time since October. After dropping interest rates for the third time this year in October, the Committee elected to maintain rates at their current target range of 1.50%-1.75%. The Committee next meets January 28-29.
  • GDP/budget: According to the third and final estimate for the third-quarter gross domestic product, the economy accelerated at an annualized rate of 2.1%, up from the second quarter’s 2.0% annual growth rate. The first quarter saw an annualized growth of 3.1%. Growth in consumer spending (personal consumption expenditures), which accounts for roughly two-thirds of the GDP, slowed from 4.6% in the second quarter to 3.2%. Gross domestic income increased 2.1% in the third quarter, compared with an increase of 0.9% in the second quarter. The personal consumption expenditures price index increased 1.5% in the third quarter. November saw the federal budget deficit grow to $208.8 billion, $74.0 billion over October’s deficit. The government spent roughly $434.0 billion in November and had receipts of $225.2 billion. Most of the government outlays were for Social Security ($89 billion), Medicare ($83 billion), and national defense ($63 billion). Individual income taxes accounted for the majority of receipts ($106 billion), followed by social insurance and retirement receipts ($97 billion). Corporate income taxes accounted for a little over $0.5 billion.
  • Inflation/consumer spending: According to the Personal Income and Outlays report, inflationary pressures remain weak, as prices for consumer goods and services rose 0.2% in November, the same increase as in October. Prices are up 1.5% over the last 12 months. Consumer prices excluding food and energy rose 0.1% in November (0.1% in October) and are up 1.6% year-over-year. Personal income and disposable (after-tax) personal income each advanced 0.5% ahead of October’s respective figures. Consumers continued to spend, as personal consumption expenditures increased 0.4% in November after expanding 0.3% the previous month.
  • The Consumer Price Index climbed 0.3% in November following a 0.4% increase in October. Over the 12 months ended in November, the CPI rose 2.1%. Increases in shelter and energy were major factors in the CPI increase. Energy prices increased 0.8% on the month with gasoline up 1.1%. Prices less food and energy rose 0.2% in November, the same increase as in October. Since last October, core prices (less food and energy) are up 2.3%.

  • Prices producers receive for goods and services rose 0.4% in November following a similar October jump. The index increased 1.1% for the 12 months ended in November. Producer prices less foods, energy, and trade services was unchanged in November after inching up 0.1% in October. For the 12 months ended in November, prices less foods, energy, and trade services moved up 1.3%, the smallest advance since climbing 1.3% in the 12 months ended September 2016. Prices for goods rose 0.3% in November while prices for services edged down 0.3%.

  • Housing: The housing sector has been anything but consistent this year. After rising 1.9% in October, sales of existing homes dropped 1.7% in November. Year-over-year, existing home sales are up 2.7%. Existing home prices advanced in November to a median price of $271,300, compared to $270,900 in October. Existing home prices were up 5.4% from November 2018. Total housing inventory at the end of November sat at 1.64 million units (representing a 3.7-month supply), down from October’s 3.9% inventory rate. After falling 0.7% in October, sales of new single-family home advanced 1.3% in November, and are 16.9% above the November 2018 estimate. The median sales price of new houses sold in November was $330,800 ($316,700 in October). The average sales price was $388,200 ($383,300 in October). Available inventory, at a 5.4-month supply, remained about the same in November as it was in October.
  • Manufacturing: Industrial production and manufacturing production both rebounded 1.1% in November after declining in October. These sharp November increases were largely due to a bounce back in the output of motor vehicles and parts following the end of a strike at a major manufacturer. Excluding motor vehicles and parts, the indexes for total industrial production and for manufacturing moved up 0.5% and 0.3%, respectively. In November, mining output fell 0.2% (-0.7% in October), while utilities increased 2.9% after falling 2.4% in October. Total industrial production was 0.8% lower in November than it was a year earlier. Following an October increase, new orders for durable goods fell 2.0% in November. Excluding transportation, new orders were virtually unchanged. Excluding defense, new orders expanded by 0.8%. Helping drive the decrease in durable goods orders were retractions in defense aircraft and parts (-72.7%), nondefense aircraft and parts (-1.8%), machinery (-1.6%), and transportation equipment (-5.9%). New orders for capital goods (used by businesses to produce consumer goods) dropped 7.8% in November after climbing 3.8% in October.
  • Imports and exports: Both import and export prices inched higher in November. Import prices rose 0.2% after falling 0.5% in the prior month, an increase largely driven by higher fuel prices. Import prices excluding fuel dropped 0.1% in November. Import prices declined 1.3% from November 2018 to November 2019. The 12-month decrease was the smallest over-the-year decline since the index fell 0.9% during the 12-month period ended May 2019. Export prices advanced 0.2% in November after declining 0.1% in October. Overall, export prices dipped 1.3% over the past year. Agricultural export prices rose 2.2% in November, while nonagricultural prices for items such as consumer goods, automobiles, and industrial supplies and materials were unchanged, but are down 1.6% during the 12 months ended in November. The latest information on international trade in goods and services, out December 5, is for October and shows that the goods and services deficit was $47.2 billion, $3.9 billion less than September’s revised $51.1 billion deficit. October exports were $0.4 billion less than September exports. October imports were $4.3 billion under September imports. Year-to-date, the goods and services deficit increased $6.9 billion, or 1.3%, from the same period in 2018. Exports decreased less than 0.1%. Imports increased 0.2%. The advance report on international trade in goods (excluding services) revealed the trade deficit fell to its lowest level in three years in November. The international trade deficit was $63.2 billion in November, down $3.6 billion from $66.8 billion in October. Exports of goods for November were $136.4 billion, $0.9 billion more than October exports. Imports of goods for November were $199.6 billion, $2.7 billion less than October imports.
  • International markets: British Prime Minister Boris Johnson’s Conservative Party scored a resounding electoral victory in last month’s parliamentary elections, likely securing Britain’s exit from the European Union. The gross domestic product for Great Britain rose 0.4% in the third quarter, lifting the annual economic expansion to 1.1%. In what is claimed as support for more open trade globally, China agreed to cut import tariffs on frozen pork, pharmaceuticals, and some high-tech components beginning January 1, 2020.
  • Consumer confidence: Consumer confidence fell again in December for the second consecutive month. The Conference Board Consumer Confidence Index® registered 125.5 in December, down from 126.8 in November. The Present Situation Index — based on consumers’ assessment of current business and labor market conditions — increased from 166.6 to 170.0. The Expectations Index — based on consumers’ short-term outlook for income, business and labor market conditions — decreased from November’s 100.3 to 97.4 in December.

Eye on the Year Ahead

Economic growth slowed in 2019, but not enough to prompt investors to avoid stocks. Fears of a global economic slowdown continuing into 2020 may affect the U.S. economy as well. The housing market hasn’t picked up the pace and is generally lagging behind other economic mainstreams. Ongoing global trade negotiations between the United States and China should bode well for the U.S. and global economies. Ultimately, our economy, equity markets, and standing in the world depends on the outcome of the impeachment proceedings and November’s presidential election.

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What I’m Watching This Week – 30 December 2019

The Markets (as of market close December 27, 2019)

The holiday spirit, coupled with renewed optimism on the trade front, helped propel stocks higher last week. The tech-heavy Nasdaq outperformed the other benchmark indexes listed here, crossing the 9000 plateau for the first time ever. News that the signing of the Phase One trade agreement between the United States and China is imminent helped boost investors’ spirits during the holiday-shortened week. However, details of the agreement are sketchy and, according to Chinese officials, won’t be released until after the actual signing. Oil stocks rose last week as did retail stocks, pushing the large caps of the S&P 500 and Dow higher. Only the small-cap Russell 2000 lagged behind the other indexes, closing last week in the red.

Oil prices rose again last week, closing at $61.72 per barrel by late Friday afternoon, up from the prior week’s price of $60.34. The price of gold (COMEX) climbed higher last week, closing at $1,515.60 by late Friday afternoon, up from the prior week’s price of $1,481.70. The national average retail regular gasoline price was $2.532 per gallon on December 23, 2019, $0.004 less than the prior week’s price but $0.211 more than a year ago.

Market/Index
2018 Close
Prior Week
As of 12/27
Weekly Change
YTD Change
DJIA
23327.46
28455.09
28645.26
0.67%
22.80%
Nasdaq
6635.28
8924.96
9006.62
0.91%
35.74%
S&P 500
2506.85
3221.22
3240.02
0.58%
29.25%
Russell 2000
1348.56
1671.90
1669.03
-0.17%
23.76%
Global Dow
2736.74
3248.06
3265.24
0.53%
19.31%
Fed. Funds target rate
2.25%-2.50%
1.50%-1.75%
1.50%-1.75%
0 bps
-75 bps
10-year Treasuries
2.68%
1.91%
1.87%
-4 bps
-81 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 News

  • November’s report on durable goods was not encouraging for manufacturing. New orders for durable (long-lasting) goods fell 2.0% in November from the previous month. The decrease, down two of the last three months, followed October’s 0.2% increase. Excluding transportation, new orders were virtually unchanged. Excluding defense, new orders increased 0.8%. Transportation equipment, also down two of the last three months, led the decrease, falling 5.9%. Shipments of durable goods in November, up following four consecutive monthly decreases, increased 0.1%. Nondefense new orders for capital goods in November decreased 1.8%.
  • New home sales ticked higher in November, up 1.3% from their October totals. Sales of new homes are 16.9% ahead of their 2018 pace. The median sales price of new houses sold in November 2019 was $330,800. The average sales price was $388,200. The estimate of new houses for sale at the end of November was 323,000. This represents a supply of 5.4 months at the current sales rate.
  • For the week ended December 21, there were 222,000 claims for unemployment insurance, a decrease of 13,000 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 December 14. The advance number of those receiving unemployment insurance benefits during the week ended December 14 was 1,719,000, a decrease of 6,000 from the prior week’s level, which was revised up by 3,000.

Eye on the Week Ahead

The first week of the new year kicks off with purchasing managers’ assessment of December’s manufacturing sector. Also, the December figures on international trade in goods is out this week. The goods trade deficit was $66.5 billion in November.

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What I’m Watching This Week – 23 December 2019

The Markets (as of market close December 20, 2019)

Stocks continued to surge last week, reaching new record highs ahead of the Christmas holiday. The S&P 500 recorded its largest weekly percentage gain in several months. Both the Dow and Nasdaq also hit new historical highs as solid economic news bolstered by optimism over continued progress in the trade negotiations between the United States and China provided encouraging signs for investors. Long-term bond prices fell, pushing yields 10 basis points higher by the end of the week.

Oil prices rose again last week, closing at $60.34 per barrel by late Friday afternoon, up from the prior week’s price of $59.82. The price of gold (COMEX) inched higher last week, closing at $1,481.70 by late Friday afternoon, up from the prior week’s price of $1,480.20. The national average retail regular gasoline price was $2.536 per gallon on December 16, 2019, $0.025 less than the prior week’s price but $0.167 more than a year ago.

Market/Index 2018 Close Prior Week As of 12/20 Weekly Change YTD Change
DJIA 23327.46 28135.38 28455.09 1.14% 21.98%
Nasdaq 6635.28 8734.88 8924.96 2.18% 34.51%
S&P 500 2506.85 3168.80 3221.22 1.65% 28.50%
Russell 2000 1348.56 1637.98 1671.90 2.07% 23.98%
Global Dow 2736.74 3214.02 3248.06 1.06% 18.68%
Fed. Funds target rate 2.25%-2.50% 1.50%-1.75% 1.50%-1.75% 0 bps -75 bps
10-year Treasuries 2.68% 1.81% 1.91% 10 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 News

  • The final release of the third-quarter gross domestic product was much like the prior iteration. The economy advanced at an annual rate of 2.1%. The GDP grew at an annual rate of 2.0% in the second quarter and 3.1% in the first quarter. Gross domestic income (the net of income and costs incurred in the production of goods and services) also rose 2.1% compared with an increase of 0.9% in the second quarter. Consumer spending slowed from 4.6% in the second quarter to 3.2% in the third quarter. Exports of goods rose 1.0% in the third quarter (-5.9% in the second) while imports increased 1.8% after no change in the second quarter. Still lagging is nonresidential (business) fixed investment, which fell 2.3% after dropping 1.0% in the second quarter.
  • Consumer income and spending ramped up in November ahead of the holiday season. Both personal income and disposable (after-tax) personal income increased 0.5% last month. Consumer spending advanced 0.4% in November after rising 0.3% in October. Inflationary pressures showed some upward movement in November as the personal consumption price index climbed 0.2%, the same increase as in October. Excluding food and energy, consumer prices inched ahead 0.1% in November.
  • Construction of new homes continued its steady advance in November. According to the latest report from the Census Bureau, building permits increased 1.4% past October’s rate, while single-family permits in November were 0.8% higher. There were more housing starts (3.2%) in November over October, and single-family construction was up 2.4%. Residential completions were down, however, falling 6.6% last month, while single-family home completions dropped 3.6%. From November 2018, building permits are up 11.1%, housing starts are 13.6% ahead, and completions have advanced 7.3%.
  • Sales of existing homes fell 1.7% in November from October’s total. That said, sales are still 2.7% ahead of last year’s pace. The number of existing homes for sale slipped from a supply of 3.9% in October to 3.7% in November. The median sales price climbed slightly to $271,300 ($271,000 in October). The sales price is 5.4% ahead of last year ($257,400). Sales of existing single-family homes dropped about 1.25% in November but are up 3.5% from a year ago. The median existing single-family home price is $274,000.
  • Industrial production and manufacturing production both rebounded 1.1% in November after declining in October. These sharp November increases were largely due to a resurgence in the output of motor vehicles and parts following the end of a strike at a major manufacturer. Excluding motor vehicles and parts, the indexes for total industrial production and for manufacturing moved up 0.5% and 0.3%, respectively. Mining production edged down 0.2%, while the output of utilities increased 2.9%. Despite the positive movement, total industrial production was 0.8% lower in November than it was a year earlier.
  • According to the Job Openings and Labor Turnover report for October, the number of job openings rose by 235,000 (4.6%) with notable increases in retail trade (125,000), finance and insurance (56,000), and durable goods manufacturing (50,000). The largest decreases in job openings were in nondurable goods manufacturing (36,000), information (33,000), and arts, entertainment, and recreation (26,000). Over the 12 months ended in October, hires totaled 69.8 million and separations totaled 67.4 million, yielding a net employment gain of 2.4 million.
  • For the week ended December 14, there were 234,000 claims for unemployment insurance, a decrease of 18,000 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 7. The advance number of those receiving unemployment insurance benefits during the week ended December 7 was 1,722,000, an increase of 51,000 from the prior week’s level, which was revised up by 4,000.

Eye on the Week Ahead

The holiday week is traditionally a slow one in the market and for economic news, however, two important reports are available this week. Information on new home sales for November is out. While sales were down in October, they are expected to rebound in November. Another important economic indicator is the durable goods report from the Census Bureau. October saw new orders for long-lasting goods rise following a September drop. However, new orders are not as robust in 2019 as they were the previous year.

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What I’m Watching This Week – 16 December 2019

The Markets (as of market close December 13, 2019)

Positive developments finally arrived in the ongoing trade war between the United States and China. Last Friday, President Trump announced phase one of a trade deal with China. The president indicated that he would forgo the imposition of tariffs scheduled for December 15 and reduce existing tariffs on about $120 billion of Chinese imports. According to the president’s tweets, China has agreed to make large purchases of targeted farm, energy, and manufactured goods. A representative of the Chinese government said the purchases would total about $200 billion over two years. Meanwhile, United Kingdom Prime Minister Boris Johnson’s Conservative Party enjoyed a robust victory in last week’s elections, securing a strong majority in Parliament. This development should give Johnson the votes needed to secure a Brexit deal and foster a new relationship with the European Union. Finally, the Federal Reserve maintained interest rates, noting strong consumer spending and steady economic growth.

All of this helped push stocks marginally higher for the week. Each of the benchmark indexes listed here posted gains, led by the Global Dow, most likely on the probability of a Brexit deal. The Nasdaq advanced close to 1.0%, followed by the S&P 500, the Dow, and the Russell 2000.

Oil prices inched higher last week, closing at $59.82 per barrel by late Friday afternoon, up from the prior week’s price of $59.12. The price of gold (COMEX) climbed last week, closing at $1,480.20 by late Friday afternoon, up from the prior week’s price of $1,464.50. The national average retail regular gasoline price was $2.561 per gallon on December 9, 2019, $0.014 less than the prior week’s price but $0.140 more than a year ago.

Market/Index 2018 Close Prior Week As of 12/13 Weekly Change YTD Change
DJIA 23327.46 28015.06 28135.38 0.43% 20.61%
Nasdaq 6635.28 8656.53 8734.88 0.91% 31.64%
S&P 500 2506.85 3145.91 3168.80 0.73% 26.41%
Russell 2000 1348.56 1633.84 1637.98 0.25% 21.46%
Global Dow 2736.74 3162.32 3214.02 1.63% 17.44%
Fed. Funds target rate 2.25%-2.50% 1.50%-1.75% 1.50%-1.75% 0 bps -75 bps
10-year Treasuries 2.68% 1.84% 1.81% -3 bps -87 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 News

  • As expected, the Federal Open Market Committee maintained interest rates at their current 1.50%-1.75% range. For the first time in several months, the Committee’s vote was unanimous. In support of its decision to maintain rates, the Committee noted that the labor market remained strong and that economic activity has been rising at a moderate rate. In addition, while household spending has been rising at a strong pace, business fixed investment and exports remain weak. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2%. Based on quarterly projections, the Committee sees the funds target rate ending 2020 at 1.625%, down from the previous projection of 1.875%.
  • The November deficit for the federal government increased to $208.8 billion, $74.0 billion over October’s deficit. Compared to last October and November, the deficit for the first two months of fiscal year 2020 is larger by about $38.0 billion.
  • Inflationary pressures may finally be gaining some momentum, likely influenced by the trade war between the United States and China. The Consumer Price Index for November advanced 0.3% after rising 0.4% in October. Over the last 12 months, the CPI is up 2.1%. Energy prices jumped 0.8% (gasoline increased 1.1%) last month, while food prices rose 0.1%. Consumer prices less food and energy advanced 0.2% in November, the same increase as in October.
  • Prices at the producer level showed no change in November, but they advanced 0.4% in October and are up 1.1% for the 12 months ended in November. A 0.3% rise in goods prices was offset by a comparable drop in prices for services. Producer prices less foods, energy, and trade services was unchanged in November after inching up 0.1% in October. For the 12 months ended in November, prices less foods, energy, and trade services moved up 1.3%, the smallest advance since climbing 1.3% in the 12 months ended September 2016.
  • Retail sales increased 0.2% last month and are up 3.3% over November 2018. In November, motor vehicle and parts dealers sales advanced 0.5%, electronics and appliance store sales jumped 0.7%, and gasoline station sales rose 0.7%, while health and personal care store sales fell 1.1% and clothing and clothing accessory store sales dropped 0.6%. Nonstore (online) sales increased 0.8% in November and are up 11.5% from November 2018.
  • Import prices increased 0.2% in November following a 0.5% drop in October. The increase in import prices was driven by a 2.6% jump in import fuel prices — the largest monthly increase since prices rose 3.6% in May. Export prices also rose 0.2% last month after declining 0.1% in October.
  • For the week ended December 7, there were 252,000 claims for unemployment insurance, an increase of 49,000 from the previous week’s level. This is the highest level for initial claims since September 30, 2017, when it was 257,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended November 30. The advance number of those receiving unemployment insurance benefits during the week ended November 30 was 1,667,000, a decrease of 31,000 from the prior week’s level, which was revised up by 5,000.

Eye on the Week Ahead

Aside from the impeachment news, there’s plenty of market-moving economic information available this week, including the final report for the third-quarter gross domestic product. Residential reports out this week include November’s figures for housing starts and existing home sales, which increased almost 2.0% in October. Also of note is the November report from the Federal Reserve on industrial production, which fell 0.8% in October.