Market Week: December 10, 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.

 

Data sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

IMPORTANT DISCLOSURES

 

Content has been provided by Broadridge Investor Communication Solutions, Inc.  Broadridge does not provide Investment, tax or legal advice.  The information presented here is not specific to any individual’s personal circumstances.

This publication is provided as a service to clients and associates of PFA solely for their own use and information.  The material is derived from sources believed to be reliable but its accuracy and the opinions based thereon are not guaranteed and have not been verified.  The content in this publication is for general information and education purposes only and not intended to serve as individual investment advice.  You should seek independent advice from a professional based on your individual circumstances.  The information in these materials may change at any time without notice.  To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

This communication is strictly intended for individuals residing in the state(s) of CA, FL, IL, MO and TX. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018.

Market Commentary: December 6, 2018

Paradigm Financial Advisors

Market Update

December 6, 2018

 

Wild Ride for Investors Continues into December:

The stock market rose almost 2% on Monday after it was announced that President Trump had reached an agreement with Chinese President Xi to suspend all tariffs and continue negotiating a trade agreement over the next 90 days.   However, the rally faded quickly and the market fell  3% on Tuesday due to concerns over the flattening bond yield curve.   On Tuesday the spread between the 2-year and 5-year Treasury notes became negative for the first time since 2007.    The spread between 2-year and 10-year Treasury Bonds flattened further to .13%.

Investors became very nervous on Tuesday as the noise level rose and many commentators declared dooms day is coming because in the past an inverted yield curve has historically been a leading indicator of an impending recession. However, as the chart below shows, an inverted yield curve does not always lead to a recession and there have been a number of time periods where the U.S. economy and stock market have continued to do very well with an inverted yield curve.

 

Programmed Trading Increased Selling Pressure on Tuesday:

After looking at the volume spikes on Tuesday, it appears that the selling was exacerbated by institutional trading programs that were triggered when the 2-year and 5-year yield curve became inverted for the first time since 2007.   Many hedge funds and wall street firms have built trading algorithms that are programmed to sell stocks when certain leading economic indicators hit certain levels.  These trading programs were triggered on Tuesday as the 2-year and 5-year yield curve became inverted and the programmed trading once again dramatically increased the volume of short term selling in the stock market.  As we have discussed, programmed trading by Wall Street firms, hedge funds, etc. is designed to create short-term chaos so that they can profit from “retail investor’s panic selling”.  The wild swings in the markets are frustrating but they do not impact disciplined investors that do not succumb to emotional selling because over the long-term stock prices have consistently been determined by earnings, cash flow and other fundamentals.

 

Disconnect between the Federal Reserve and the Bond Market:

The yield curve has been flattening for several years because of the disconnect between the Federal Reserve and the bond market’s divergent outlooks for future economic growth.

The Federal Reserve believes that the U.S. economy is going to continue to grow at a healthy pace in the next few years.  However,  bond market participants do not share this view because they think the following risks could derail the U.S. economy:

a)      The Federal Reserve could derail the U.S. economic recovery by raising short term rates too quickly.

b)      S. corporate earnings may have reached a peak in Q3 2018 and earnings could fall in 2019.

c)     President Trump’s tough trade negotiations with China could lead to a full-blown trade war which could have a negative impact on U.S. and global economic growth

d)      Geopolitical risks in the Middle East could rise if President Trump decides to  punish Saudi Arabia for the brutal murder of Jamal Khashoggi by cancelling the sale of U.S. military equipment and/or imposing harsh sanctions on Saudi Arabia.

e)     The European economy may continue to struggle due to the turmoil surrounding BREXIT and Italian debt negotiations.

Long term bond yields have fallen as the bond market continues to price in all of the risks that could have a negative impact on U.S. economic growth.

 

The Federal Reserve is moving more dovish on the likelihood and pace of future rate hikes:

Federal Reserve Chairman Powell made it clear last week that they recognize that there are a number of issues that could have a negative impact on economic growth and he indicated that the Fed is going to be more “data dependent” moving forward which should result in fewer rate hikes than they originally anticipated.   In the summer, the Federal Reserve indicated that they would likely raise rates on more time in December 2018 and three more times in 2019.   The data now suggests that they will probably do one hike in 2 weeks and possibly just one more in the summer of 2019.

 

Leading Economic Indicators remain positive:

Even though the yield curve has been flattening, nearly all of the other leading economic indicators are still positive which indicates that the U.S. economy is not at risk of entering into a recession any time soon.

 

Job Growth remains strong:

  • The November ADP payroll Report came out this morning which showed 179K new private sector jobs were created last month.
  • The November Non-Farm Payroll Report will be released tomorrow and the consensus estimate has come down slightly from 200K jobs to 198K jobs.
  • Initial Jobless Claims fell by 4,000 to 231K last week from an upwardly revised 235K the previous week, which is still near a 50-year low.
  • Continuing Jobless Claims fell from 1.705 million last week to 1.631 million, which is also near a 50-year low.

 

2018 Christmas Shopping Spending stronger than expected:

  • Black Friday sales grew 23.6% year over year to $6.2 billion.
  • Thanksgiving Day was also a big up-day for retailers, bringing in $3.7 billion, up 28% from a year ago.
  • Small-Business Saturday, also part of the holiday shopping pantheon, rose 24% this year to $3 billion overall.
  • Other big retail winners over the weekend: Walmart (WMT) grew sales 23% year over year between Thanksgiving and Black Friday, boosted notably by its Click & Collect feature, which cranked up 73% from the year-ago quarter.  Target (TGT) sales over the weekend grew at 47% from a year ago.
  • Cyber Monday sales were over $8 Billion which was the largest shopping day in U.S. history.  Total sales on Cyber Monday grew at over 20% from 2017.
  • Christmas spending from Thanksgiving through Cyber Monday was reported at over $60 Billion, which is an increase of over 20% from 2017.

 

The Conference Board’s Leading Economic Indicators Index for October rose 0.1 percent in October to 112.1 (2016 = 100), following a 0.6 percent increase in September, and a 0.5 percent increase in August.  The index still points to robust economic growth and should continue in 2019.

The chart below shows that the Leading Economic Indicator Index has historically dropped below its six-month moving average before a recession. The latest index reading shows no near-term recession risk.

 

President Trump and Chinese leader Xi agree to suspend Tariffs:

Over the weekend President Donald Trump and President Xi Jinping agreed to a “truce” during their meeting at the G20 summit.  President Trump agreed to leave tariffs on $200 billion worth of Chinese goods at 10%, rather than increase them to 25% on January 1, 2019, as originally planned. In turn, President Xi pledged to immediately resume purchases of U.S. agricultural goods, including corn and soybeans, which were hit particularly hard by China’s retaliatory tariffs. China also agreed to buy an unspecified amount of energy, industrial and other products from the U.S.

The two sides agreed to continue talks to resolve contentious policies at the heart of the trade conflict. Such policies include intellectual property protection, state-sanctioned cyber intrusion and forced technology transfer.  President Trump said he is confident that they can reach an agreement within 90 days.  Trump also cautioned that if China does not follow through on their promises made at their meeting then he will increase tariffs on China to 25%.

While considerable uncertainty remains around resolution of these trade conflicts, the fact that the U.S. and China reached a tentative agreement could benefit recently troubled emerging markets stocks (EM). We believe EM stocks offer a very good opportunity for investors because many EM companies are selling at deep discounts.  Many Chinese stocks have sold off by 30% to 40% this year due to concerns over a trade war with the U.S.   The sell-off in China presents an historic opportunity for investors because many Chinese companies have strong cash flow and are forecast to grow earnings by over 20% in 2019.  If a final agreement is reached between the U.S. and China in the next 90 days it will provide a much needed catalyst that could spark a strong rally in Chinese and EM stocks in 2019.

 

President Trump’s goals:

President Trump and his team of negotiators are going to try to convince the Chinese leaders to agree to a new trade agreement that will achieve the following goals:

  1. Prevent the Chinese from stealing technology, intellectual property and trade secrets from U.S. companies.
  2. Stop the Chinese government from forcing U.S. companies to turn over their trade secrets and technology as a prerequisite for doing business in China.
  3. Get China to agree to designate Fentanyl (an addictive opioid) as a controlled substance which would subject any Chinese sellers of the drug to criminal penalties.
  4. Get China to take affirmative action to help the U.S. in its efforts to convince North Korea to end nuclear weapons development.
  5. President Trump also wants to make sure that China’s new long-term development plan, “Made in China 2025,” does not create an unlevel playing field to help China gain a lead in artificial intelligence, automation, robotics and electric vehicles by unfairly subsidizing Chinese companies while discriminating against U.S. businesses operating in China.  Currently, China has two sets of rules for conducting business in China – one that favors Chinese companies and another set of laws that make it incredibly difficult for U.S. companies to succeed in China.

 

President Xi’s Goals:

Negotiating with the Chinese leaders will be the most difficult “deal” that President Trump has ever tried to make.  China has a Communist Ruling Party but it also has a quasi-free market system and their views and goals are very different than other countries the U.S. has negotiated trade deals with.

When Xi became President in 2010, he started creating a new vision for China – he announced a new national plan to create what he called a “great modern socialist country that is going to be prosperous” and “a global leader in terms of composite national power”.  Xi’s goal is to double China’s GDP per capita to $10,000  by 2021, which is the year that China will celebrate the 100th anniversary of the founding of the Chinese Communist Party.

Xi recently announced an expanded long-term national plan for China called “Made in China 2025”.  This new plan creates a vision for China to become the global leader in key technologies including computing, robotics, artificial intelligence and self-driving cars.   Xi’s vision for China is not just about economic growth and increasing the wealth of the Chinese people, Xi’s vision is to make China powerful and make the Chinese people proud again.  China’s goal is to become the global leader in finance, automation, defense, science, technology and the arts & culture.

President Xi’s wants the U.S. to allow China to pursue its “One-China policy” which they have used to assert that Taiwan is a part of China.  The negotiations will be complicated by the fact that the Chinese leaders believe that the U.S. wants to prevent China from achieving their goal of becoming one of the world’s economic and military super powers.  The Chinese think that America’s strategy is to isolate and contain China.  The Chinese also believe that the U.S. does not want to recognize and accept the political legitimacy of the Chinese Communist Party because it is not a democratic based party.

President Trump and his team have their work cut out for them to convince their Chinese counterparts that the U.S. is not going to try to sabotage the Chinese government or try to derail China’s economic growth plans.  The U.S. negotiators will have to remind their Chinese counterparts that the U.S. led the world back to stability after the second World War.  The U.S. has also played a major role in helping China and other Asian countries prosper.  The Chinese recognize the role the U.S. has played but China does not want to be dependent on the U.S. in the future. President Xi made this clear in a speech he gave in 2014 when he said, “In the final analysis, it is for the people of Asia to run the affairs of Asia, solve the problems of Asia and uphold the security of Asia.”

 

Investors remain concerned about uncertainty of a trade deal with China:

The initial excitement wore off quickly after Monday’s announcement of the truce agreed to by  President Trump and President Xi due to the fact that there does not appear to be any formal written agreement between the U.S. and China and many skeptics have expressed doubts over the trustworthiness of China.  However, we believe that Trump and Xi will be able to reach a formal agreement because both countries have too much at risk if they allow this to turn into a full-blown trade war.  The final deal may end up being criticized by media pundits but it would still be a monumental success if China agrees to make a genuine commitment to stop stealing U.S. technology and other intellectual property, to buy more U.S. agricultural and other products and agree to label Fentanyl as a controlled substance and to prosecute Chinese illegal sellers.  President Xi has an historic opportunity to improve China’s tarnished reputation in the World Trade Organization.

 

Huawei CFO Arrest threatens to derail U.S. and China trade negotiations:

After being closed on Wednesday for President Bush’s funeral, the market opened down over 400 points today after news broke that the CFO of Chinese technology giant Hauwei, Wanzhau Meng, was arrested in Canada and she is going to be extradited to the U.S. to face charges by the U.S. Department of Justice. It is unclear at this time if President Trump and President Xi knew about the arrest at the time of their meeting on Saturday.

It is being reported that the Justice Department is investigating Hauwei based on the following potential charges:

1) they violated U.S. sanctions on Iran by selling them telecommunications-equipment

2) they violated U.S. sanctions by selling U.S. technology to Syria and North Korea

3) they violated a variety of laws by installing secret chips that provided them with a “back door” into the equipment sold in the U.S. that allows them to monitor user activity and helped them steal technology from U.S. companies and possibly top-secret information from the U.S. government.

Chinese officials immediately condemned the arrest of Meng saying it is a violation of its citizens’ rights and demanding that the U.S. and Canada release her immediately.  Meng’s arrest will certainly increase tensions between President Trump and China’s President Xi.  The arrest was made on the same day Trump and Xi had dinner and agreed on a truce on tariffs.  Neither Trump or Xi has made any comments yet to address concerns that China may suspend negotiations on a new trade agreement.  The arrest is an unprecedented move by the U.S. Department of Justice and it remains to be seen if Trump knew about the impending arrest or if the Justice Department kept him in the dark as they arrested Meng.

Meng is the daughter of Ren Zhengfei, the founder of Hauwei.  Zhenfei is well connected with Xi and China’s ruling party.  He is a former army engineer and he has led Hauwei to become one of the world’s largest sellers of smartphones and networking gear. He’s regularly named among China’s top executives and he has a similar status in China as Bill Gates has in the U.S.

Huawei has been trying to acquire U.S. technology on artificial intelligence, chipmaking and 5G wireless technology and U.S. companies have complained to the Department of Justice that they have tried to hack their networks, etc. to try to steal U.S. technology.   By arresting the CFO of Huawei, the U.S. is threatening one of China’s most successful companies.

In August, Trump signed a bill banning the government’s use of Huawei technology based on the security concerns and many U.S. allies are either imposing or considering similar moves. That same month, Australia barred the use of Huawei’s equipment for 5G networks in the country and New Zealand last week did the same, citing national security concerns. The U.K. and European Union are also considering banning Hauwei products. In November, Huawei said that banning Hauwei products will hinder the development of 5G and raise prices for consumers.

 

Impact of the arrest on trade negotiations with China:

There is no question that the arrest of Hauwei’s CFO makes it clear that the U.S. is prepared to play “hard ball” with China on the trade negotiations.  The arrest does increase the risk of a break-down in negotiations leading to a trade war with China and more punitive tariffs from both sides.  It appears that China wants to get a deal done because they have more to lose because their economy is still dependent on exporting goods to the U.S.  A protracted trade war with the U.S. will lead to rising unemployment in China which could lead to Xi’s worst fear – civil unrest that could jeopardize the future of China’s communist ruling party.  The arrest of the CFO of Hauwei should make it clear to China that the U.S. is not going to allow them to continue to steal our technology and that China is going to have to abide by international law in the future.

We will update clients on any new developments on the tensions between China and the U.S. as we get new information.

 

PFA Investment Committee

Jim Reding      Ryan Powers

 

Brad Combs    Matt Schaller

 

Bob Spindel     Matt Kellermann

Market Week: December 3, 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.

Data sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

IMPORTANT DISCLOSURES

Content has been provided by Broadridge Investor Communication Solutions, Inc.  Broadridge does not provide Investment, tax or legal advice.  The information presented here is not specific to any individual’s personal circumstances.

This publication is provided as a service to clients and associates of PFA solely for their own use and information.  The material is derived from sources believed to be reliable but its accuracy and the opinions based thereon are not guaranteed and have not been verified.  The content in this publication is for general information and education purposes only and not intended to serve as individual investment advice.  You should seek independent advice from a professional based on your individual circumstances.  The information in these materials may change at any time without notice.  To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

This communication is strictly intended for individuals residing in the state(s) of CA, FL, IL, MO and TX. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018.

Market Week: November 26, 2018

Key Dates/Data Releases

11/28: GDP, international trade in goods, new home sales

11/29: Personal income and outlays

 

The Markets (as of market close November 23, 2018)

Trading volume may have been slower than usual during the Thanksgiving holiday week, but that didn’t stop the downward spiral for stocks. Tumbling oil prices, which fell to their lowest levels in over a year, pulled energy shares downward and raised fears of an economic slowdown. Each of the benchmark indexes listed here fell sharply last week, headed by the Dow, followed closely by the Nasdaq. As stocks regularly hit new highs earlier in the year, pushing values higher than their 2017 closing marks, all of those gains have frittered away these past few months. Of the indexes listed here, only the Nasdaq is still ahead of its 2017 year-end price — but only barely. Each of the other indexes have fallen notably below last year’s respective values.

Oil prices continued to fall, plummeting to $50.39 per barrel by late Friday, down from the prior week’s closing price of $56.77 per barrel. The price of gold (COMEX) gained for the second week in a row, climbing to $1,223.40 by Friday evening, up from the prior week’s price of $1,221.70. The national average retail regular gasoline price was $2.611 per gallon on November 19, 2018, $0.075 lower than the prior week’s price but $0.043 higher than a year ago.

Market/Index 2017 Close Prior Week As of 11/23 Weekly Change YTD Change
DJIA 24719.22 25413.22 24285.95 -4.44% -1.75%
Nasdaq 6903.39 7247.87 6938.98 -4.26% 0.52%
S&P 500 2673.61 2736.27 2632.56 -3.79% -1.54%
Russell 2000 1535.51 1527.53 1488.68 -2.54% -3.05%
Global Dow 3085.41 2925.22 2852.37 -2.49% -7.55%
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% 3.06% 3.03% -3 bps 62 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 pace of home building picked up in October, but applications for building permits and home completions each fell below their respective September rates. Applications for building permits were 0.6% below their September pace, while home completions dropped 3.3% from their September estimate. On the other hand, housing starts were 1.5% above their September figures, which should add to new home inventory for November. A comparison of year-on-year rates shows how much the housing sector has slowed. Building permits are down 6.0% from October 2017, housing starts are off by 2.9%, and housing completions are 6.5% below last year’s pace.
  • For the first time in seven months, sales of existing homes expanded. Total existing home sales increased 1.4% in October from September, yet are still down 5.1% compared to a year ago. The median existing-home price in October was $255,400, which is down from September’s price of $256,900 but up from the October 2017 price ($246,000). Total housing inventory at the end of October decreased from 1.88 million in September to 1.85 million existing homes available for sale, representing a 4.3-month supply at the current sales pace.
  • New orders for durable goods fell for the third time in the last four months in October. New orders dropped 4.4% from September. Transportation equipment, down 12.2% following two consecutive monthly increases, drove the decrease. Excluding transportation, new orders increased 0.1%. Shipments of durable goods decreased 0.6% in October, while unfilled orders declined 0.2% following eight consecutive monthly increases. Inventories, down two of the last three months, were virtually unchanged from September.
  • For the week ended November 17, the advance figure for seasonally adjusted initial claims for unemployment insurance was 224,000, an increase of 3,000 from the previous week’s level, which was revised up by 5,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended November 10. The advance number of those receiving unemployment insurance benefits during the week ended November 10 was 1,668,000, a decrease of 2,000 from the prior week’s level, which was revised down by 6,000.

Eye on the Week Ahead

The last week of the month offers several important economic reports, including the second report on gross domestic product for the third quarter. The initial report showed the economy grew at an annual rate of 3.5%. With consumer spending continuing to show strength, the GDP is not expected to vary significantly from last month’s growth rate.

 

Data sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

 

IMPORTANT DISCLOSURES

Content has been provided by Broadridge Investor Communication Solutions, Inc.  Broadridge does not provide Investment, tax or legal advice.  The information presented here is not specific to any individual’s personal circumstances.

This publication is provided as a service to clients and associates of PFA solely for their own use and information.  The material is derived from sources believed to be reliable but its accuracy and the opinions based thereon are not guaranteed and have not been verified.  The content in this publication is for general information and education purposes only and not intended to serve as individual investment advice.  You should seek independent advice from a professional based on your individual circumstances.  The information in these materials may change at any time without notice.  To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

This communication is strictly intended for individuals residing in the state(s) of CA, FL, IL, MO and TX. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018.

Market Week: November 19, 2018

The Markets (as of market close November 16, 2018)

Volatility best describes last week in the market, as each of the benchmark indexes listed here lost value. Apparently, investors may be having trepidations about ongoing business growth and fear that the economy is slowing. Declining oil prices have also contributed to diminishing stock index values. Even optimistic rhetoric between the United States and China wasn’t enough to quell investors’ concerns. Following last week’s slide, the indexes listed here are moving closer to their 2017 year-end values. In fact, the small caps of the Russell 2000 have given back all of the gains garnered during the year and are now below last year’s closing mark. Even the Nasdaq, which has led the way for much of the year reaching double digit year-to-date gains, is now only roughly 5.0% ahead of its 2017 year-end value. Long-term bond prices rose as the yield on 10-year Treasuries fell 12 basis points last week.

Oil prices continue to fall, dropping to $56.77 per barrel by late Friday, down from the prior week’s closing price of $59.83 per barrel. The price of gold (COMEX) reversed course from prior weeks, climbing to $1,221.70 by Friday evening, up from the prior week’s price of $1,209.90. The national average retail regular gasoline price was $2.686 per gallon on November 12, 2018, $0.067 lower than the prior week’s price but $0.094 higher than a year ago.

Market/Index 2017 Close Prior Week As of 11/16 Weekly Change YTD Change
DJIA 24719.22 25989.30 25413.22 -2.22% 2.81%
Nasdaq 6903.39 7406.90 7247.87 -2.15% 4.99%
S&P 500 2673.61 2781.01 2736.27 -1.61% 2.34%
Russell 2000 1535.51 1549.49 1527.53 -1.42% -0.52%
Global Dow 3085.41 2954.43 2925.22 -0.99% -5.19%
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% 3.18% 3.06% -12 bps 65 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

 

Last Week’s Economic Headlines

·         October, the first month of fiscal year 2019, saw the government deficit reach $100.5 billion (59% higher than last October). Receipts totaled $252.7 billion. The government spent $353.2 billion. Of receipts, individual income taxes accounted for $129 billion, while corporate income taxes contributed $8 billion. The largest government expenditures in October were for Social Security ($84 billion), defense ($69 billion), and Medicare ($53 billion).

·         Prices consumers paid for goods and services rose 0.3% in October, after inching up 0.1% in September. Over the last 12 months, the Consumer Price Index has risen 2.5%. An increase in gas prices was responsible for over one-third of the October price increase. The CPI less food and energy rose 0.2% for the month, and is up 2.1% over the last 12 months.

·         A spike in prices for gas, building materials, and autos pushed retail sales up 0.8% in October over the prior month and 4.6% higher than October 2017. Sales, excluding the aforementioned items (otherwise referred to as “control group sales”), rose a more moderate 0.3% for the month. Restaurant sales actually fell 0.2%, following monthly declines in September and August. Heading into shopping season, this report gives an indication that sales will be healthy, if not robust, in November and December.

·         According to the Bureau of Labor Statistics, prices for imports increased 0.5% in October following a 0.2% increase in September. This is the highest monthly increase in import prices since a 0.9% jump in May. Over the last 12 months ended in October, import prices have increased 3.5%. Expanding fuel prices (up 3.3%) were a major contributor to the import price increase. Excluding fuel, import prices edged up 0.2% for the month. Export prices advanced 0.4% after recording no change in September. The October advance was the largest monthly increase since the index rose 0.7% in May. For the 12 months ended in October, export prices are up 3.1%.

·         Industrial production edged up 0.1% in October, as a gain for manufacturing outweighed decreases in mining (-0.3%) and utilities (-0.5%). Overall, the index for industrial production is 4.1% ahead of October 2017.

·         For the week ended November 10, the advance figure for seasonally adjusted initial claims for unemployment insurance was 216,000, an increase of 2,000 from the previous week’s level. According to the Department of Labor, the advance rate for insured unemployment claims increased 0.1 percentage point to 1.2% for the week ended November 3. The advance number of those receiving unemployment insurance benefits during the week ended November 3 was 1,676,000, an increase of 46,000 from the prior week’s level, which was revised up 7,000.

 

Eye on the Week Ahead

Thanksgiving week is typically a slow one for market activity. However, there are a few reports out this week that bear watching. October’s housing starts and existing home sales reports are out this week. The housing sector has been slow and is unlikely to pick up much steam as the fall season blends into winter.

Data sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

 

IMPORTANT DISCLOSURES

Content has been provided by Broadridge Investor Communication Solutions, Inc.  Broadridge does not provide Investment, tax or legal advice.  The information presented here is not specific to any individual’s personal circumstances.

This publication is provided as a service to clients and associates of PFA solely for their own use and information.  The material is derived from sources believed to be reliable but its accuracy and the opinions based thereon are not guaranteed and have not been verified.  The content in this publication is for general information and education purposes only and not intended to serve as individual investment advice.  You should seek independent advice from a professional based on your individual circumstances.  The information in these materials may change at any time without notice.  To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

This communication is strictly intended for individuals residing in the state(s) of CA, FL, IL, MO and TX. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018.

Market Week: November 12, 2018

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

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

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

Market/Index 2017 Close Prior Week As of 11/9 Weekly Change YTD Change
DJIA 24719.22 25270.83 25989.30 2.84% 5.14%
Nasdaq 6903.39 7356.99 7406.90 0.68% 7.29%
S&P 500 2673.61 2723.06 2781.01 2.13% 4.02%
Russell 2000 1535.51 1547.98 1549.49 0.10% 0.91%
Global Dow 3085.41 2930.66 2954.43 0.81% -4.25%
Fed. Funds target rate 1.25%-1.50% 2.00%-2.25% 2.00%-2.25% 0 bps 75 bps
10-year Treasuries 2.41% 3.21% 3.18% -3 bps 77 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

 

Last Week’s Economic Headlines

·         As expected, the Federal Reserve Open Market Committee refrained from raising the federal funds rate following its meeting last week. While describing economic activity and job gains as strong, the Committee noted that business investment has moderated. There is one more rate hike in the offing this year, which, if it occurs, would follow FOMC’s December 19 meeting.

·         Producer prices climbed 0.6% in October following a 0.2% rise in September. Much of the increase last month was attributable to a 1.6% jump in trade services. Excluding food, energy, and trade services, producer prices inched up 0.2%. Year-over-year, producer prices are up 2.9% (2.8% excluding food, energy, and trade services).

·         After reaching a high of 7.3 million job openings in August, the number of job openings fell by 284,000 in September, according to the latest Job Openings and Labor Turnover report. Notable job losses occurred in professional and business services (118,000), finance and insurance (82,000), and state and local government (67,000). The number of hires in September was 5.7 million, after reaching a revised series high of 5.9 million in August. There were about 5.7 million total separations, which includes quits, layoffs, and discharges. Overall, there were still many more job openings than those considered unemployed.

·         While growth in the services sector continued to show strength in October, expansion slowed compared to September. According to the Non-Manufacturing ISM® Report On Business®, business activity, new orders, employment, and prices each grew in October, but at a slower pace than in the prior month.

·         For the week ended November 3, the advance figure for seasonally adjusted initial claims for unemployment insurance was 214,000, a decrease of 1,000 from the previous week’s level, which was revised up by 1,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.1% for the week ended October 27. The advance number of those receiving unemployment insurance benefits during the week ended October 27 was 1,623,000, a decrease of 8,000 from the prior week’s level.

 

Eye on the Week Ahead

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

Data sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

 

IMPORTANT DISCLOSURES

Content has been provided by Broadridge Investor Communication Solutions, Inc.  Broadridge does not provide Investment, tax or legal advice.  The information presented here is not specific to any individual’s personal circumstances.

This publication is provided as a service to clients and associates of PFA solely for their own use and information.  The material is derived from sources believed to be reliable but its accuracy and the opinions based thereon are not guaranteed and have not been verified.  The content in this publication is for general information and education purposes only and not intended to serve as individual investment advice.  You should seek independent advice from a professional based on your individual circumstances.  The information in these materials may change at any time without notice.  To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

This communication is strictly intended for individuals residing in the state(s) of CA, FL, IL, MO and TX. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018.

Market Week: November 5, 2018

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

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

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

Market/Index 2017 Close Prior Week As of 11/2 Weekly Change YTD Change
DJIA 24719.22 24688.31 25270.83 2.36% 2.23%
Nasdaq 6903.39 7167.21 7356.99 2.65% 6.57%
S&P 500 2673.61 2658.69 2723.06 2.42% 1.85%
Russell 2000 1535.51 1483.82 1547.98 4.32% 0.81%
Global Dow 3085.41 2843.00 2930.66 3.08% -5.02%
Fed. Funds target rate 1.25%-1.50% 2.00%-2.25% 2.00%-2.25% 0 bps 75 bps
10-year Treasuries 2.41% 3.07% 3.21% 14 bps 80 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

 

 

Last Week’s Economic Headlines

·         October saw a whopping 250,000 new jobs added while the unemployment rate remained at 3.7%, according to the Bureau of Labor Statistics. Job gains occurred in health care, manufacturing, construction, and transportation and warehousing. There were about 6.1 million unemployed — down almost 450,000 from a year ago. The labor force participation rate increased by 0.2 percentage point to 62.9%. The employment-population ratio edged up by 0.2 percentage point to 60.6% in October and had increased by 0.4 percentage point over the year. The average workweek increased by 0.1 hour to 34.5 hours in October. Also in October, average hourly earnings for all employees rose by $0.05 to $27.30. Over the year, average hourly earnings have increased by $0.83, or 3.1%.

·         The trade deficit continued to expand in September. The goods and services deficit was $54.0 billion, or 1.3%, in September, up $0.7 billion from August. September exports increased by $3.1 billion, while imports were $3.8 billion more than August imports. Year-to-date, the goods and services deficit increased $40.7 billion, or 10.1%, from the same period in 2017. Exports increased $143.8 billion, or 8.2%. Imports increased $184.5 billion, or 8.6%.

·         Consumers’ income rose by 0.2% in September, while spending jumped 0.4%, according to the latest report from the Bureau of Economic Analysis. Disposable (after-tax) personal income also rose by 0.2% for the month. Inflation was steady as prices for consumer goods and services increased 0.1%. However, excluding food and energy, prices bumped ahead by 0.2%. For the year, consumer prices are up 2.0%, right at the inflation target set by the Federal Reserve.

·         Reaching a five-month high, a spurt in new orders helped drive manufacturing in October, according to Markit’s report on manufacturing. The bump in new orders coupled with efforts to clear backlogs drove new hires, which also outpaced September’s rate.

·         The October 2018 Manufacturing ISM® Report On Business®, not atypically, differed in its assessment of manufacturing conditions compared to Markit’s survey. The ISM® report had new orders, as well as production and employment, decrease. Oftentimes, the difference between the surveys lies in the number of purchasing managers who respond to each survey and how the responses are weighted.

·         For the week ended October 27, the advance figure for seasonally adjusted initial claims for unemployment insurance was 214,000, a decrease of 2,000 from the previous week’s level, which was revised up by 1,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.1% for the week ended October 20. The advance number of those receiving unemployment insurance benefits during the week ended October 20 was 1,631,000, a decrease of 7,000 from the prior week’s level, which was revised up by 2,000. This is the lowest level for insured unemployment since July 28, 1973, when it was 1,603,000.

 

Eye on the Week Ahead

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

Data sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

IMPORTANT DISCLOSURES

Content has been provided by Broadridge Investor Communication Solutions, Inc.  Broadridge does not provide Investment, tax or legal advice.  The information presented here is not specific to any individual’s personal circumstances.

This publication is provided as a service to clients and associates of PFA solely for their own use and information.  The material is derived from sources believed to be reliable but its accuracy and the opinions based thereon are not guaranteed and have not been verified.  The content in this publication is for general information and education purposes only and not intended to serve as individual investment advice.  You should seek independent advice from a professional based on your individual circumstances.  The information in these materials may change at any time without notice.  To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

This communication is strictly intended for individuals residing in the state(s) of CA, FL, IL, MO and TX. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018.

Market Commentary: October 30, 2018

Paradigm Financial Advisors

Market Commentary

October 30, 2018

 

Stock Market Volatility:  Market volatility continued today with the Dow Jones Industrial Average closing up 431 points (1.77%) and the S&P 500 ended the trading session up 41.38 points (1.57%).  Last week U.S. equities declined 3.9% and global stock markets also struggled as European stocks fell 4% and Emerging Market stocks were down 3.3%.  Yesterday, stocks initially opened higher but the gains were lost after Bloomberg reported that the U.S. is planning more tariffs on Chinese imports if the meeting at next month’s G20 meeting between President Trump and Chinese President Xi fails. The October sell-off has erased all of the year to date gains in the S&P 500 despite strong economic reports and corporate earnings growth for Q3 coming in at 22%.

As we discussed in our market update last week, investors are concerned about a number of potential risks that could undermine the U.S economy such as the Federal Reserve raising rates too quickly, lower earnings growth in the future, negative consequences of the trade dispute with China, uncertainty in Europe surrounding  BREXIT & the EU’s rejection of Italy’s budget, and potential sanctions against Saudi Arabia after the murder of Jamal Khashoggi.

 

Over the weekend we dug deeper into the market data and it became clear that there are a number of trading related factors that also contributed to the magnitude of the sell-off:

1)  Stop-Loss Orders:  A large volume of trades were triggered by investors having entered Stop-Loss orders on stocks in order to protect their gains.  Stop prices are not guaranteed execution prices. A “stop order” becomes a “market order” when the “stop price” is reached – unless

the investor places a limit on the stop order.  Stop orders can add to selling pressure during volatile market conditions and many investors who enter stop orders end up selling at a price significantly below their expectations.

2) Profit-Taking:  Some active mutual fund managers do not want to risk trailing the indexes so they started taking profits as soon as the market went down two days in a row.

3) VIX Volatility Trading:  Data from the Commodity Futures Trading Commission indicates that during the 30 days prior to the sell-off a large volume of trades were made shorting VIX futures. When stocks started selling off, volatility rose very quickly and institutional investors

who had shorted VIX options had to unwind their trades very quickly which exacerbated the drop in the stock market.

4)  High-Frequency Trading Algorithms: Many of the big Wall Street firms have proprietary trading departments that use “high-frequency trading algorithms” that are designed to increase volatility by adding enormous selling pressure in down markets.   Wall Street’s

proprietary trading departments will likely end up making millions of dollars in October while their clients may end up losing more money than they would have otherwise!  Note:  this is one of the reasons Wall Street firms have spent a large amount of money lobbying against the

proposed Fiduciary Standard because they would have to shut down their proprietary trading departments since it is not in the best interest of their clients.

 

These trading factors contributed to the sell-off over the past few weeks.  The good news is that these factors only impact short term prices.  Long-term stock prices are primarily determined by valuations, future earnings and economic growth forecasts.

 

U.S. Economic Growth Outlook remains Positive: The much anticipated first release of the third quarter 2018 GDP estimate was released on Friday and it showed that GDP grew at an annualized rate of 3.5%.  This was 30 basis points (0.30%) higher than consensus estimates.  This follows second quarter GDP growth of 4.2% and first quarter growth of 2.2%.  This has been the best three-quarter average GDP growth since 2014.  The tax cuts and deregulation have produced higher U.S. economic growth than what economists have been forecasting.  In the third quarter, consumer spending (which accounts for approximately 70% of our economy) rose 4%, government spending on Defense rose by 0.50% and imports rose by 9.1%.

 

Q3 2018 Corporate Earnings RecapAccording to FactSet, as of October 26, 2018, almost half (48%) of the companies in the S&P 500 have reported earnings for the third quarter.

  • 77% of Companies in the S&P 500 have beat analyst’s expectations for EPS Growth.
  • 59% of Companies in the S&P 500 have beat analyst’s estimates on revenue growth.
  • Average earnings per share growth for the S&P 500 is 22.5%.
  • Average revenue growth for the S&P 500 is 7.6%.
  • The companies in the S&P 500 Index are on pace to increase EPS by 22% with 7.2% higher revenues.
  • The bottom up target price among analysts for the S&P 500 over the next 12-months is 3,205.55. This is approximately 20% higher than today’s closing price.

October has been a very frustrating month for investors as the market seems to be reacting irrationally by ignoring strong economic reports and not rewarding companies that have posted strong earnings growth.  Typically, when a company beats earnings estimates their stock moves up immediately but that has not been the case in Q3 for most companies.

 

The Chart below shows the average one-day stock price change for the companies that have reported results thus far in Q3 (solid column) compared to the change in stock price after Q2 earnings reports (shaded column).

 

Chart Comparing Stock Price Changes after Q2 vs Q3 Earnings Reports

 

Recap of Earnings Results from Last Week:

 

Amazon reported another quarter of record profit Thursday, fueled by the growth of online shopping and its cloud-computing service, but revenue grew less than Wall Street analysts expected.  For years, Amazon has  posted razor thin quarterly profits because it has been spending most of its earnings on building warehouses and making other investments to continue growing sales.   However, Amazon’s earnings are improving dramatically due to Amazon’s Cloud Computing business.  Just one year ago, Amazon reported profit of just $256 million but then last week Amazon posted third-quarter profit of $2.88 billion, its fourth straight quarter profit above $1 billion.  Amazon’s Revenue rose 29 percent to $56.58 billion in Q3 – which was slightly below analyst’s expectations of $57.05 billion.  Amazon reported earnings per share of $5.75, beating the $3.29 per share analyst expected.  Amazon gave guidance for the fourth quarter, which includes Christmas shopping season, in the range of $66.5 billion to $72.5 billion, which is slightly lower than the $73.8 billion Analysts had been expecting.

 

Google (Alphabet) posted earnings that were 25% higher than analyst’s estimates.  Google reported a net profit of $9.19 billion in Q3 and earnings per share of $13.06 – significantly above the $10.42 EPS that analysts expected.  Alphabet Q3 revenue was $33.7 billion, up 21% year-over-year but slightly lower than Wall Street’s consensus estimates of $34.04 billion.  Google’s hardware sales were down somewhat in Q3 but they anticipate significant growth going forward with the launch the new Google Pixel 3 smartphones and other products in Q4.  Google ad revenue climbed 20%, to $28.95 billion for the third quarter, and operating income rose 10.6%, to $9.49 billion.  Google ended the quarter with $106.4 billion in cash and equivalents and marketable securities, and $3.99 billion in long-term debt.

 

Netflix’s third-quarter revenue rose 34% year-over-year, to almost $4 billion, and net income was up 130% to $481 million. Revenue growth was fueled by a 25% increase in average paid streaming memberships, along with an 8% increase in average pricing. Netflix began raising its monthly prices in November 2017, and the increase helped Netflix post an impressive increase in revenue in the third quarter.  Netflix’s profit margins rose by 6% from the prior year to 28.8%.  Quarterly EPS rose to $0.89 from $0.29 in the same period last year, which was $0.21 or 31% higher than analyst’s consensus estimates.  Netflix grew subscribers by 22% in the third quarter.  They added 1.09 million new subscribers in the U.S. and 5.87 million international net streaming members in the quarter and now has 137 million total streaming subscribers. Management currently expects 1.8 million net additional U.S. streaming subscribers in Q4 2018. The company is also forecasting a continued ramp in international streaming net adds to 7.6 million.   The market has still sold Netflix stock off over overblown fears that the costs will continue to rise as the company plans to continue to spend heavily on creating new content.

 

Intel posted third quarter earnings of $1.40 per share on an 18.7% year-over-year jump in revenue to $19.16 billion, both of which also beat analyst’s estimates.  Intel also posted higher than expected guidance for the fourth quarter of 2018. Intel said that they expect fourth quarter earnings of $1.22 per share and fourth quarter revenue to be roughly $19.00 billion. Intel now expects full year 2018 earnings of $4.53 per share, which is significantly higher than previous guidance for earnings between $3.94 per share and $4.36 per share.  Intel said it expects revenue to reach $71.20 billion for full fiscal year 2018, which is also higher than their previous forecast for sales between $68.50 billion and $70.50 billion.  Intel generated record revenue in all of their business segments and their operating margin rose by 5% to 39.7%, the strongest level in more than a decade.  Business Computing sales grew 16.0% year-over-year to $10.20 billion while operating income jumped 26.0% to $4.50 billion.  Personal/Desktop computer sales increased 9.0% and notebook/laptop computer sales rose 13.0%. The average selling price of desktop processors increased 10.0% while the average selling price of notebook CPUs grew 4.0%.  Data Center revenue jumped 26.0% to $6.10 billion while operating income spiked 37.0% to $3.10 billion.  Cloud revenue grew 50.0% while unit volumes grew 15.0%. Intel’s average selling prices increased 10.0%.  INTC is currently trading at a P/E of 9.7, based on 2019 forecasted earnings per share, which is a 35% DISCOUNT to 5-year median for semiconductor companies.

 

Peak Earnings Fears are Overblown:  Despite the fact that 77% of companies have reported better than expected earnings, investors seem to believe that the combination of additional tariffs, a stronger dollar, and rising material costs may signal that corporate earnings have reached a peak.  We think worries over peak earnings are overblown because it  assumes that every company and sector are all the same and it fails to recognize that companies in various sectors of the market are at very different stages in their growth cycles.   There are a number of industries that have experienced very little growth over the past decade, such as energy, machinery, infrastructure, health care, biotechnology, transportation, robotics & artificial intelligence, etc. that are in the early stages of a long-term growth trend.  Companies are forecasting double digit earnings growth in 2019 and they do not expect any significant deterioration in profit margins.  As additional earnings reports come in this week, hopefully investors will stop reacting to the noise and focus on the data that shows corporate earnings are not going to fall off of a cliff anytime soon!

 

The Federal Reserve May Change its Plans for Raising Interest Rates:  In September the Federal Reserve raised rates by another .25% to 2.25% and they raised some concerns by removing the word “accommodative” from their comments describing their stance on monetary policy.   After the meeting, Chairman Powell tried to relieve these concerns by saying “the change does not signal any change in the likely path of policy” and he also said, “it is a sign that policy is proceeding in line with our expectations.”   In our opinion the Fed needs to reconsider their plans and postpone the December rate hike because inflation is well contained and higher interest rates will have a negative impact on home and auto sales.  The Federal Reserve has said repeatedly that they do not want to jeopardize the economic recovery by raising rates too aggressively.  A number of Federal Reserve officials will be giving speeches over the next few weeks and we expect to hear them start walking back their comments about the timing of raising interest rates prior to the next meeting of the Federal Reserve Board on December 18th & 19th.


Important announcements this week
:

 

  • Earnings: Apple, Facebook, Berkshire Hathaway, Coca-Cola (KO), General Electric (GE), Starbucks (SBUX) and Pfizer (PFE). Chevron (CVX) and Exxon Mobil (XOM) all release earnings this week.

 

  • The October jobs report will be released on Friday and it is expected to improve over September’s hurricane-dampened figure of 134,000 to 193,000. The unemployment rate is expected to remain at 3.7% and wage inflation as measured by average hourly earnings is expected to stabilize at 2.8% year-over-year.

 

Conclusion:  The market seems to be ignoring the fact that U.S. companies are posting fantastic earnings and their balance sheets are the strongest they have been in decades.  The investors that have sold equities during this recent volatility are making irrational investment decisions based on short term noise.  Disciplined investors focus on the data – not the noise and they take advantage of the buying opportunities that have been created by the short term selling.   We believe that the selling has been overdone and the market should get some support from the earnings reports and economic data over the next few weeks.

 

PFA’s Investment Committee:

Jim Reding                          Bob Spindel

Ryan Powers                     Brad Combs

Matt Schaller                    Matt Kellerman

 

 

 

Market Commentary: October 24, 2018


Paradigm Financial Advisors

Market Update

October 24, 2018

 

Global stock markets have experienced increased volatility over the past few weeks as a number of issues have combined to rattle investors.  Investors are concerned about corporate earnings and profit margins, a potential full-blown trade war with China, interest rate hikes by the Federal Reserve, European tensions regarding Brexit and the Italian budget negotiations, the implication of Saudi Arabia in the brutal murder of Jamal Khashoggi, and uncertainty surrounding the upcoming Mid-term elections.

 

A few market commentators have been stirring up fear by predicting that corporate earnings have peaked and that we could fall back into a recession in the U.S. as early as 2019.   Ratings go up when fear rises but the doom and gloom commentators are likely to be wrong again because the economic and earnings data do not indicate any risk of a recession any time soon.  The third quarter earnings reports are forecast to show double digit earnings growth and the most recent economic data indicate that the U.S. economy is the strongest it has been in many decades.  The tax cuts and decreased business regulations will help U.S. companies continue to produce strong earnings going forward.   We believe the recent sell-off has produced an excellent opportunity for investors to rebalance their portfolios to take advantage of very attractive prices.

 

While It is impossible to figure out the exact cause of these short-term market pullbacks, the following “fear factors” likely have contributed to the recent increase in volatility:

 

1) Will the Federal Reserve Raise Rates Too Quickly?

The Federal Reserve, under the new leadership of Jerome Powell, has been very hawkish in their recent outlook for future rate hikes.   They have implied that they will raise rates one more time this December, followed by 3 more rate hikes in 2019.   The problem with this guidance is how they have framed the statements as “tightening” monetary policy and they should change the terminology to “normalizing” monetary policy.  They need to explain that interest rates are still very low compared to historical standards and that if the robust economic conditions continue, they will continue to move rates higher to a more “normalized” level.

Home & Auto Sales:  Home and Auto sales have fallen over the past few months due to higher interest rates.  The Federal Reserve may have to walk back their most recent statements indicating more aggressive tightening after seeing the most recent Housing and Automobile sales data.  Rising interest rates may be hurting home and auto sales more than anyone expected.  If the threat of increased rate hikes continues to hurt the housing and automotive markets, we may see the Federal Reserve move to a more dovish stance on future rate hikes.

Inflation Concerns:   The Federal Reserve is also causing some fears in the market due to their 2% inflation target.  As the U.S. economy strengthens the Fed may face pressure to change its inflation target to a range of 2% to 3%, rather than boxing itself in with the 2% target.  Inflation is not currently an issue in the U.S. or across the globe and we have seen over the past two decades that the globalized economy and technological advances has helped keep inflation in check and we expect this trend to continue going forward.

 

2) Trade War with China:

We believe that the fears of a full-scale trade war with China are overblown and that these fears have created a fantastic opportunity for long term investors.  Most of the Chinese stock market is now trading in bear territory (down over 20%) and is very attractive from a valuation perspective.  We do not believe that our administration or their administration wants this to turn into a full-scale trade war, in that scenario, neither country wins.   We think a breakthrough could happen in the next few weeks which will hopefully set the stage for a meeting between President Trump and Chinese leader Xi Jinping at the multilateral summits which will be held in November.

 

3) Peak Earnings Fears

Many pundits continue to predict that U.S. companies’ profits and margins have peaked and its all downhill from here.  They have been saying this for several years and they continue to be wrong.   This is the second full week of this earnings season and approximately 20% of S&P 500 companies have reported earnings thus far, and we are still expecting total earnings growth of 20% for the quarter (year over year), which will mark the 3rd consecutive quarter of over 20% earnings growth.   The economic data has clearly indicated that the U.S. economy is still growing at a very solid pace at approximately 3%.  The third quarter GDP report will be released this Friday and we believe it may show higher growth than economists have forecasted.

 

4) Will the Tax Cuts Benefit Companies in 2019 and Beyond:

The benefits of the tax cuts have already surpassed what nearly all of the economic forecasters predicted.  However, there is still fear that the Tax Cuts will only benefit the earnings of U.S. companies in 2018.  We believe the tax cuts will continue to help U.S. companies be much more competitive globally and will save U.S. companies millions of dollars EVERY year.  The big surprise that commentators should be talking about is that the tax cuts and reduced business regulations could lead to stronger than expected economic growth in the years to come.

 

5)  European and other Geopolitical Fears:

European political uncertainty continues to weigh on European stocks.  The never-ending Brexit debate continues and the European Union is demanding that Italy change their budget to reduce entitlement spending further and a decision is supposed to be reached in Italy today.  If Italy refuses to change their budget the European Union may take the unprecedented step of demanding Italy take back, revise and resubmit its fiscal plan.

 

6) Midterm Elections: 

President Donald Trump is intensifying his campaign ahead of the midterm elections and is making promises in a bid to ward off Democratic control of Congress. He doubled down on his promise for further tax cuts, saying there would be an additional 10 percent reduction for middle-income families.   President Trump is also promising that the U.S. would outspend any other nation in building up its military defense to answer any challenge presented by Russia and China.  President Trump is also taking a hard line on immigration, saying the U.S. may close the border temporarily and the U.S. may cut off foreign aid to Guatemala, Honduras and El Salvador as thousands of people march north from the region in search of a better life in America.

 

7) Saudi Arabia’s Involvement with the Murder of Jamal Khashoggi:

The Saudi Government has denied involvement but Investors are concerned because their explanation does not seem credible.  The timing of this incident is terrible for Saudi Arabia because they are hosting the Saudi Arabia Future Investment Initiative conference which begins today.  Many countries have pulled out of the conference due to the murder of Khashoggi.  Turkey’s President Recep Tayyip Erdogan is laying the blame for the death squarely at the door of Saudi authorities, dubbing it a planned operation. The markets are concerned that the U.S. and other allies of Saudi Arabia may impose sanctions or take more serious action against them which could have a destabilizing impact on the middle east.  There is very little risk of a major conflict between the U.S. and Saudi Arabia over this but it is still weighing on the global markets because it creates uncertainty.

 

Conclusion:

This is a bump in the road and it has created some excellent buying opportunities.

The media has, and will likely, continue to question whether this is the end of the bull market.  It’s an easy story to push, as we are now in the longest economic recovery in history and the market is near all-time highs.  The odds of a recession are still very low over the next few years, so it is hard to buy into this thinking that we are due for a recession simply because we have not had one in a long time.  A recession is defined as two consecutive quarters of negative GDP growth.  U.S. GDP growth is accelerating not declining and it is forecast to be over 3% during the remainder of 2018.  We believe that many economists are underestimating the impact of the tax cuts and decreased business regulations and that we could see GDP growth in the U.S reach 4% in 2019.

Keep in mind that no bull market has ever died simply of old age. We believe that the recent sell-off has been irrational and it provides us with an opportunity to rebalance our portfolios to take advantage of mispricing in many asset classes.

 

PFA’s Investment Committee:

Jim Reding                        Bob Spindel

Ryan Powers                     Brad Combs

Matt Schaller                    Matt Kellerman

 

 

 

Market Week: October 22, 2018

The Markets (as of market close October 19, 2018)

After a sweat-inducing ride on Wall Street last week, several earnings reports helped ease some of the pain in domestic large caps by Friday’s close. The Dow managed to see a 0.41% rise for the week, while the S&P 500 was relatively unchanged. The Nasdaq, Russell 2000, and Global Dow all saw losses of less than 1%. Observers attributed ongoing volatility to concerns about interest rates and the global economy.

The price of crude oil (WTI) fell once again last week, closing at $69.37 per barrel by late Friday, down from the prior week’s closing price of $71.49 per barrel. The price of gold (COMEX) rose for the third week in a row, reaching $1,230.00 by Friday evening, up from the prior week’s price of $1,221.10. The national average retail regular gasoline price was $2.879 per gallon on October 15, 2018, $0.024 lower than the prior week’s price but $0.390 more than a year ago.

Market/Index 2017 Close Prior Week As of 10/19 Weekly Change YTD Change
DJIA 24719.22 25339.99 25444.34 0.41% 2.93%
Nasdaq 6903.39 7496.89 7449.03 -0.64% 7.90%
S&P 500 2673.61 2767.13 2767.78 0.02% 3.52%
Russell 2000 1535.51 1546.68 1542.04 -0.30% 0.43%
Global Dow 3085.41 2966.51 2965.49 -0.03% -3.89%
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% 3.16% 3.20% 4 bps 79 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

·         Total retail sales inched up 0.1% in September, the same increase as in August. Retail sales are 4.7% ahead of their September 2017 rate. Some retailers enjoyed a strong September, including motor vehicle and parts dealers (0.8%), furniture and home furnishings stores (1.1%), nonstore (online) retailers (1.1%), and electronics and appliance stores (0.9%). Retailers that saw a drop in sales include food services and bars (-1.8%), department stores (-0.8%), and health and personal care stores (-0.3%).

·         The federal budget posted a surplus of $119.1 billion in September — the last month of the fiscal year. For fiscal year 2018, the total deficit was $779 billion, 17% higher than the prior fiscal year deficit of $665.8 billion. For the year, government outlays totaled $4.1 trillion, $3.2 trillion above fiscal 2017. Compared to last year, Medicare spending increased 4.5%, defense spending was 5.3% higher, and net interest expense was 24% greater, reflecting the increased cost to fund the larger government deficit. On the other hand, government receipts for the fiscal year increased by 0.4%, as a 6.1% increase in individual tax receipts was partially offset by a 31% drop in corporate tax receipts.

·         September proved to be another weak month for new home construction. Impacted by Hurricane Florence, building permits (-0.6%), housing starts (-5.3%), and housing completions (-4.1%) each failed to reach their August levels.

·         According to the Federal Reserve, industrial production increased 0.3% in September, about the same rate of change as in the previous two months. In September, manufacturing increased 0.2% and mining advanced 0.5%. The output of utilities was unchanged from August.

·         According to the Job Openings and Labor Turnover Summary, the number of job openings reached a series high of 7.1 million on the last business day of August. The job openings rate was 4.6%. The number of hires in August soared to 5.8 million. The hires rate was 3.9%. Over the 12 months ended in August, hires totaled 67.0 million and separations totaled 64.7 million, yielding a net employment gain of 2.4 million.

·         Existing home sales declined in nearly every region of the country last month, according to the National Association of Realtors®. The Midwest, which reported no change from August to September, was the only region to avoid a drop. Total sales fell 3.4% in September to a seasonally adjusted rate of 5.15 million, representing a 4.1% drop from a year prior and the lowest sales rate since November 2015. Lawrence Yun, NAR’s chief economist, attributed the decline to higher mortgage interest rates and a low level of listings in the “affordable” range.

·         For the week ended October 13, the advance figure for seasonally adjusted initial claims for unemployment insurance was 210,000, a decrease of 5,000 from the previous week’s level. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2%. The advance number of those receiving unemployment insurance benefits during the week ended October 6 was 1,640,000, a decrease of 13,000 from the prior week’s level, which was revised down by 7,000.

Eye on the Week Ahead

The first estimate of the gross domestic product for the third quarter is out this week. Increasing imports, which are a subtraction in the calculation of the GDP, may pull the economic growth rate back from the second quarter’s 4.2%.

Data sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

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