What I’m Watching This Week – 14 October 2019

The Markets (as of market close October 11, 2019)

Last week, President Trump said the United States and China had reached a “substantial, phase-one” agreement to resolve the trade war between the economic giants. Essentially, the United States agreed to hold off on the imposition of additional tariffs on Chinese imports, while China agreed to ramp up the purchase of U.S. agricultural products. Buoyed by the prospects of a further trade accord, investors dove into the market, sending each of the indexes listed here higher by the close of trading last week. Both the Dow and Nasdaq rose by almost 1.0%, followed by the Russell 2000 and the S&P 500. However, the biggest mover was the Global Dow, which surged almost 2.0%. With money moving to stocks, gold and 10-year Treasuries saw their respective prices slip.

Oil prices climbed last week, closing at $54.77 per barrel by late Friday afternoon, up from the prior week’s price of $53.01. The price of gold (COMEX) fell last week, closing at $1,491.70 by late Friday afternoon, down from the prior week’s price of $1,510.30. The national average retail regular gasoline price was $2.645 per gallon on October 7, 2019, $0.003 more than the prior week’s price but $0.258 less than a year ago.

Market/Index 2018 Close Prior Week As of 10/11 Weekly Change YTD Change
DJIA 23327.46 26573.72 26816.59 0.91% 14.96%
Nasdaq 6635.28 7982.47 8057.04 0.93% 21.43%
S&P 500 2506.85 2952.01 2970.27 0.62% 18.49%
Russell 2000 1348.56 1500.70 1511.90 0.75% 12.11%
Global Dow 2736.74 2964.37 3021.17 1.92% 10.39%
Fed. Funds target rate 2.25%-2.50% 1.75%-2.00% 1.75%-2.00% 0 bps -50 bps
10-year Treasuries 2.68% 1.51% 1.75% 24 bps -93 bps

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

Last Week’s Economic News

  • Inflationary pressures remained subdued in September. The Consumer Price Index was unchanged last month after rising 0.1% in August. Over the last 12 months, the CPI has increased 1.7%. Prices less food and energy rose 0.1% in September after increasing 0.3% in each of the last 3 months. A closer look at consumer prices last month shows that energy prices fell 1.4% as gasoline prices sank 2.4%. Prices for used cars and trucks dropped 1.6%, apparel prices decreased 0.4%, and medical care commodities prices tumbled 0.6%. Offsetting those declines were increases in prices for food (0.1%), shelter (0.3%), transportation services (0.3%), and medical care services (0.4%).
  • Producers of goods and services at the wholesale level saw their prices drop by 0.3% in September following two consecutive monthly increases. Over the past 12 months, producer prices are up 1.4%. A closer look reveals that prices for services at the producer level dropped 0.2% in September after climbing 0.3% in August. Nearly half of the September decline in prices for services can be traced to machinery and vehicle wholesaling prices, which fell 2.7%. Producer prices for goods decreased 0.4% in September after a 0.5% drop in August. Three-fourths of the September decrease in goods prices can be traced to prices for gasoline, which fell 7.2%. This report, coupled with the CPI, supports expectations that the Federal Reserve will cut interest rates at least one more time this year.
  • Higher fuel prices drove import prices 0.2% higher in September following a 0.2% drop in August. Over the past 12 months, import prices are down 1.6%. Exports fell 0.2% last month after decreasing 0.6% in August. Since September 2018, export prices have also fallen 1.6%.
  • According to the Bureau of Labor Statistics Job Openings and Labor Turnover report (JOLTS), the number of job openings slipped by a little more than 100,000 from July. The number of hires also fell by about 200,000, as did the number of separations. In August, job openings rose in such industries as construction; trade; transportation and utilities; finance and insurance; and government. During the same period, job openings fell in education and health services; manufacturing; information; and leisure and hospitality. Over the 12 months ended in August, hires totaled 69.5 million and separations totaled 67.1 million, yielding a net employment gain of 2.4 million.
  • For the week ended October 5, there were 210,000 claims for unemployment insurance, a decrease of 10,000 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 inched up from 1.1% to 1.2% for the week ended September 28. The advance number of those receiving unemployment insurance benefits during the week ended September 28 was 1,684,000, an increase of 29,000 from the prior week’s level, which was revised up by 4,000.

Eye on the Week Ahead

A few economic reports worth reviewing are out this week. The retail sales report for September, which measures prices retailers of consumer goods and services receive, is another important indicator of inflationary pressures. August saw retail sales increase by 0.4%. Total sales for the June 2019 through August 2019 period were up 3.7% from the same period a year ago. Nonstore (online) retailers continue to see sales grow — up 1.6% for the month and 16.0% since August 2018. The report on new residential construction is also out this week. August showed strong growth in building permits and housing starts, which should add to needed inventory for new residential properties for the fall. Another report out this week is the Federal Reserve’s statement on industrial production. August saw industrial production rise 0.6% after falling 0.1% in July. Manufacturing also increased 0.5% for the month — both encouraging signs for the manufacturing sector.

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What I’m Watching This Week – 7 October 2019

The Markets (as of market close October 4, 2019)

Stocks and long-term bond yields fell again last week as fears of an economic slowdown, both here and abroad, worried investors. Despite a solid labor report, unfavorable reports from domestic and global manufacturers, and an expanding trade deficit apparently shook investors. Of the benchmark indexes listed here, only the tech-heavy Nasdaq posted a weekly gain, bolstered by gains in information technology shares. The Global Dow was hit the hardest, falling almost 2.0%, followed by the small caps of the Russell 2000, the Dow, and the S&P 500, each of which posted weekly losses for the third consecutive week.

Oil prices fell again last week, closing at $53.01 per barrel by late Friday afternoon, down from the prior week’s price of $56.00. The price of gold (COMEX) rose last week, closing at $1,510.30 by late Friday afternoon, up from the prior week’s price of $1,503.10. The national average retail regular gasoline price was $2.642 per gallon on September 30, 2019, $0.012 less than the prior week’s price and $0.224 less than a year ago.

Market/Index 2018 Close Prior Week As of 10/4 Weekly Change YTD Change
DJIA 23327.46 26820.25 26573.72 -0.92% 13.92%
Nasdaq 6635.28 7939.63 7982.47 0.54% 20.30%
S&P 500 2506.85 2961.79 2952.01 -0.33% 17.76%
Russell 2000 1348.56 1520.48 1500.70 -1.30% 11.28%
Global Dow 2736.74 3019.31 2964.37 -1.82% 8.32%
Fed. Funds target rate 2.25%-2.50% 1.75%-2.00% 1.75%-2.00% 0 bps -50 bps
10-year Treasuries 2.68% 1.67% 1.51% -16 bps -117 bps

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

Last Week’s Economic News

  • September saw 136,000 new jobs added while the unemployment rate fell 0.2 percentage point to 3.5% — its lowest rate since December 1969. Over the month, the number of unemployed persons decreased by 275,000 to 5.8 million. Job growth has averaged 161,000 per month thus far in 2019, compared with an average monthly gain of 223,000 in 2018. In September, new jobs were added in health care (39,000 jobs), professional and business services (34,000 jobs), government (22,000 jobs), and transportation and warehousing (16,000 jobs). The labor force participation rate held at 63.2% in September. The employment-population ratio, at 61.0%, inched up 0.1 percentage point over the month but was up by 0.6 percentage point over the year. Last month, average hourly earnings fell $0.01 to $28.09 after increasing $0.11 in August. Over the past 12 months ended in September, hourly earnings have increased 2.9%. The average workweek was unchanged at 34.4 hours in September.
  • The trade deficit increased by $0.9 billion in August to $54.9 billion. August exports were $207.9 billion, $0.5 billion more than July exports. August imports were $262.8 billion, $1.3 billion more than July imports. The August figures showed surpluses in goods trades with South and Central America ($5.0 billion), Hong Kong ($2.2 billion), and the United Kingdom ($0.6 billion). Deficits were recorded with China ($28.9 billion), the European Union ($15.6 billion), Mexico ($8.4 billion), and Japan ($6.1 billion).
  • Purchasing managers reported an uptick in production in September, but not enough to save the manufacturing sector from experiencing its worst quarter since 2009. The IHS Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posted 51.1 in September, slightly higher than 50.3 in August. According to the report, “Expansions in production and new orders remained only modest, meaning firms were encouraged to increase their workforce numbers only tentatively. Business confidence remained relatively gloomy due to muted demand conditions.”
  • Respondents in the Institute for Supply Management survey also saw a slowing manufacturing sector. The results from the latest report included a decrease in the purchasing managers index in September from the prior month. New orders rose slightly, while production, employment, deliveries, new export orders, and inventories each declined. Prices rose marginally. On the whole, respondents noted that demand and consumption contracted last month.
  • In the services sector, purchasing managers were dovish with respect to growth in September. According to the Non-Manufacturing ISM® Report On Business®, business activity, new orders, and employment fell in September from August. Prices increased in September for the 28th consecutive month. Some of the non-manufacturing (services) industries reporting include utilities, retail trade, construction, accommodation & food services, transportation & warehousing, and health care & social assistance.
  • For the week ended September 28, there were 219,000 claims for unemployment insurance, an increase of 4,000 from the previous week’s level, which was revised up by 2,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.1% for the week ended September 21. The advance number of those receiving unemployment insurance benefits during the week ended September 21 was 1,651,000, a decrease of 5,000 from the prior week’s level, which was revised up by 6,000.

Eye on the Week Ahead

This week, inflationary measures are in the news with reports on the costs of consumer goods and services in September. In August, both consumer prices and producer prices increased a scant 0.1%, respectively. For the year, the Consumer Price Index is up 1.7% — well below the Fed’s target of 2.0%.

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Quarterly Market Review: July – September 2019

The Markets (third quarter through September 30, 2019)

The third quarter was full of ups and downs for stocks, much like the second quarter. Stock values moved in response to the rhetoric from the participants in the trade war between the United States and China. The Federal Reserve lowered interest rates two times during the quarter. More new jobs were added, but at a reduced rate, while wage growth continued. Manufacturing and industrial production remain muted, influenced, in part, by the waning global economy. Nevertheless, consumers were undaunted by economic developments, spending at a steady rate throughout the quarter.

July kicked off the third quarter in a somewhat lackluster manner, as the benchmark indexes listed here posted gains over June’s respective closing values. The Nasdaq gained over 2.0% for the month, followed by the S&P 500, which rose 1.31%. The Dow and Russell 2000 inched ahead by less than one percent, while the Global Dow dipped by almost half a percent. The Federal Open Market Committee reduced short-term interest rates 25 basis points, which sent stocks reeling. However, strong corporate earnings reports, low unemployment, and higher wages helped ease investors’ concerns by the end of the month.

August started with President Trump’s threat to impose additional tariffs on Chinese imports, which sent stocks plummeting. Throughout the month, each of the benchmark indexes listed here continued to lose value. Even a final-week push couldn’t save stocks from posting month-over-month losses. The small caps of the Russell 2000 were hit particularly hard, falling over 5.0% in August. The Global Dow lost almost 3.5%, and the tech-heavy Nasdaq dropped more than 2.5%. The large caps of the Dow and S&P 500 also fell close to 2.0%. Oil and gas prices at the pump fell in August, while long-term bond yields plunged as prices soared.

September saw each of the benchmark indexes listed here post solid gains, led by the Global Dow, which rode a solid close to the month on encouraging economic data from China. The Russell 2000 climbed almost 2.0% ahead of its August closing total, while both the Dow and S&P 500 exceeded their respective August closing marks by respectable amounts. The Nasdaq gained about half a percent on the month. The Federal Open Market Committee once again lowered interest rates 25 basis points in September following July’s 25-basis-point cut (the FOMC did not meet in August). By the close of trading on September 30, the price of crude oil (WTI) was $54.37 per barrel, down from the August 30 price of $55.16 per barrel. The national average retail regular gasoline price was $2.654 per gallon on September 23, up from the August 26 selling price of $2.574 but $0.190 lower than a year ago. The price of gold dropped by the end of September, falling to $1,479.30 by close of business on the 30th, off from $1,529.20 at the end of August.

For the third quarter, large caps performed better than small caps. The Dow and the S&P 500 each finished 1.19% above their respective second-quarter closing values. The tech stocks of the Nasdaq broke about even for the quarter, while the Russell 2000 and the Global Dow lost value. For the quarter, the price of crude oil (WTI) was $3.79 per barrel lower than its June 28 price. Gold closed the third quarter $66.00 higher than its second-quarter closing price. And the national average retail regular gasoline price, at $2.654 per gallon on September 23, did not change from its average price at the end of the second quarter.

Market/Index 2018 Close As of September 30 Monthly Change Quarterly Change YTD Change
DJIA 23327.46 26916.83 1.95% 1.19% 15.39%
Nasdaq 6635.28 7999.34 0.46% -0.09% 20.56%
S&P 500 2506.85 2976.74 1.72% 1.19% 18.74%
Russell 2000 1348.56 1523.37 1.91% -2.76% 12.96%
Global Dow 2736.74 3021.34 2.31% -1.73% 10.40%
Fed. Funds 2.25%-2.50% 1.75%-2.00% -25 bps -50 bps -50 bps
10-year Treasuries 2.68% 1.67% 17 bps -33 bps -101 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.

Latest Economic Reports

  • Employment: Total employment increased by 130,000 in August after adding 159,000 (revised) new jobs in July. The average monthly job gain so far in 2019 fell to 158,000 per month (223,000 in 2018). Notable employment increases for August occurred in professional and business services (37,000), health care (24,000), financial activities (15,000), and social assistance (13,000). The unemployment rate remained at 3.7% in August. The number of unemployed persons fell slightly to 6.0 million (6.1 million in July). The labor participation rate edged up 0.2 percentage point to 63.2%, and the employment-population ratio was 60.9% (60.7% in July). The average workweek increased 0.1 hour to 34.4 hours for August. Average hourly earnings increased by $0.11 to $28.11. Over the last 12 months ended in August, average hourly earnings have risen 3.2%.
  • FOMC/interest rates: The Federal Open Market Committee followed July’s 25-basis-point cut by lowering interest rates another 25 basis points in September. The federal funds rate range has been decreased by 50 basis points so far this year. Interestingly, the Committee’s action was not unanimous. Of the 10 members voting, 1 voted for a 50-basis-point reduction, while 2 members opted for no rate reduction. Nevertheless, in support of its decision to reduce interest rates, the Committee noted that inflation continues to run below the Fed’s 2.0% target rate, business fixed investment and exports have weakened, and global economic developments are uncertain.
  • GDP/budget: Economic growth slowed in the second quarter but was still solid. According to the third and final estimate of the gross domestic product, the second quarter grew at an annualized rate of 2.0%. The first quarter saw an annualized growth of 3.1%. Consumer prices and spending increased in the second quarter, rising 2.4% and 4.6%, respectively. Pulling the GDP down in the second quarter were negative contributions from business fixed investment (equipment, software, structures, etc.) and exports. The federal budget deficit was $200 billion in August ($119.7 billion in July). Through the first 11 months of the fiscal year, the government deficit sits at $1,067 billion,18.8% more than the deficit over the same period last year.
  • Inflation/consumer spending: Inflationary pressures remain weak, as consumer prices showed no increase in August and are up 1.4% over the last 12 months. Consumer prices excluding food and energy inched up 0.1% in August (0.2% increase in July) and 1.8% since August 2018. In August, consumer spending rose 0.1% (0.5% in July). Personal income and disposable (after-tax) personal income climbed 0.4% and 0.5%, respectively, in August.
  • The Consumer Price Index increased 0.1% in August following a 0.3% advance in July. Over the 12 months ended in August, the CPI rose 1.7%. Energy prices fell 1.9% on the month with gasoline down 3.5%. Prices less food and energy rose 0.3% in August — the same increase as in July. Since last August, core prices (less food and energy) are up 2.4%.
  • According to the Producer Price Index, the prices companies received for goods and services rose 0.1% in August after increasing 0.2% in July. The index increased 1.8% for the 12 months ended in August. Prices for goods fell 0.5% in August, pulled down by falling energy prices. Prices for services increased 0.3% last month. However, the price index less foods, energy, and trade services jumped 0.4% in August after dropping 0.1% the prior month. The price index less foods, energy, and trade services increased 1.9% over the last 12 months.
  • Housing: Activity in the housing market can be described as erratic at best. Existing home sales jumped 1.3% in August after climbing 2.5% in July. Year-over-year, existing home sales are up 2.6%. Existing home prices fell in August, as the median price for existing homes was $278,200, down from July’s median price of $280,800. Nevertheless, existing home prices were up 4.7% from August 2018. Total housing inventory for existing homes for sale in August decreased to 1.86 million (1.89 million in July), representing a 4.1-month supply at the current sales pace. After falling close to 9.5% in July, sales of new single-family houses climbed 7.1% in August. New home sales are up 18.0% over their August 2018 estimate. The median sales price of new houses sold in August was $328,400 ($305,400 in July). The average sales price was $404,200 ($372,700 in July). Inventory at the end of August was at a supply of 5.5 months (5.9 months in July).
  • Manufacturing: According to the Federal Reserve, industrial production rose 0.6% in August after falling 0.1% July. Manufacturing output advanced 0.5% following a 0.4% drop in July. In August, mining output and utilities climbed 1.4% and 0.6%, respectively. Total industrial production was 0.4% higher in August than it was a year earlier. Orders for durable goods increased for the second month in a row in August, climbing 0.2% after increasing 2.0% in July. New orders for capital goods used by businesses to produce consumer goods fell 2.1% in August. New orders for capital goods excluding transportation increased 0.5% last month, while new orders for capital goods excluding defense fell 0.6%.
  • Imports and exports: Both import and export prices ebbed in August, falling 0.5% and 0.6%, respectively. For the year, import prices are down 2.0%, while export prices are off 1.4%. In August, a drop in fuel prices was the main drag on import prices, while falling agricultural and nonagricultural prices pulled export prices lower. The latest information on international trade in goods and services, out September 4, is for July and shows that the goods and services deficit was $54.0 billion, down from the revised $55.5 billion deficit in June. July exports were $207.4 billion, $1.2 billion more than June exports. July imports were $261.4 billion, $0.4 billion less than June imports. Year-to-date, the goods and services deficit increased $28.2 billion, or 8.2%. Exports decreased $3.4 billion, or 0.2%. Imports increased $24.9 billion, or 1.4%. The advance report on international trade in goods (excluding services) revealed the trade deficit rose to $72.8 billion in August, up from $72.5 billion in July. Exports of goods in August were $137.8 billion, $0.2 billion more than July exports, while imports of goods were $210.6 billion, $0.5 billion more than July imports.
  • International markets: British Prime Minister Boris Johnson attempted to shut down Parliament for several weeks as part of his effort to shunt opponents to his plan to push through a “no deal” Brexit by October 31. However, the UK Supreme Court ruled the move was unlawful. This decision will likely put pressure on Johnson to resign. How this affects Brexit moving forward remains unclear. Household spending helped push the eurozone gross domestic product ahead 0.2% in the second quarter. The eurozone economy has grown 1.2% year-over-year. In China, economic activity worsened in August as industrial production slowed to its weakest pace since 2012, most likely impacted by the trade war with the United States.
  • Consumer confidence: While consumer confidence has been relatively strong for much of the year, it did fall back in August. Consumers’ assessment of current business and labor market conditions decreased, as did consumers’ short-term outlook for income, business and labor market conditions.

Eye on the Month Ahead

Economic growth has slowed so far this year, as lagging export orders have quelled manufacturing output. Wages continued to grow, while consumers ratcheted up their spending. The fourth quarter will likely ride the ebb and flow of economic and world events, not the least of which is the ongoing trade war between the world’s two economic giants: China and the United States.

What I’m Watching This Week – 30 September 2019

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

Each of the benchmark indexes listed here lost value for the second consecutive week, with the S&P 500, the Dow, and the Nasdaq sinking to levels not seen since August. Investors were hit with potentially worsening trade tensions between the United States and China, along with political uncertainty following the House’s impeachment inquiry proceedings against President Trump. Small caps underperformed large-caps as the Nasdaq and Russell 2000 each fell more than 2.0% last week. Bond prices dropped, sending the yield on 10-year Treasuries over 100 basis points below its 2018 closing mark.

Oil prices fell last week, closing at $56.00 per barrel by late Friday afternoon, down from the prior week’s price of $58.09. The price of gold (COMEX) declined last week, closing at $1,503.10 by late Friday afternoon, off from the prior week’s price of $1,523.80. The national average retail regular gasoline price was $2.654 per gallon on September 23, 2019, $0.102 more than the prior week’s price but $0.190 less than a year ago.

Market/Index 2018 Close Prior Week As of 9/27 Weekly Change YTD Change
DJIA 23327.46 26935.07 26820.25 -0.43% 14.97%
Nasdaq 6635.28 8117.67 7939.63 -2.19% 19.66%
S&P 500 2506.85 2992.07 2961.79 -1.01% 18.15%
Russell 2000 1348.56 1559.76 1520.48 -2.52% 12.75%
Global Dow 2736.74 3065.59 3019.31 -1.51% 10.33%
Fed. Funds target rate 2.25%-2.50% 1.75%-2.00% 1.75%-2.00% 0 bps -50 bps
10-year Treasuries 2.68% 1.75% 1.67% -8 bps -101 bps

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

Last Week’s Economic News

  • The third and final estimate of the second-quarter gross domestic product showed the economy grew at an annual rate of 2.0%. The first-quarter GDP increased at a rate of 3.1%. Adding to economic growth in the second quarter was strong contributions from consumer spending, which grew at a rate of 4.6%. Government spending also enhanced economic growth, increasing by 4.8% last quarter. Business investment, as measured by nonresidential fixed investment, fell by a notable 1.0% in the second quarter. Gross domestic income, which measures the sum of incomes earned and costs incurred in the production of GDP, rose 1.8% in the second quarter.
  • Personal income rose 0.4% in August, and disposable (after-tax) income increased 0.5%. Consumer spending ratcheted back to a 0.1% increase last month after vaulting ahead 0.5% in July. Consumer prices, an indicator of inflationary trends, showed no movement in August after climbing 0.2% in July. Year-to-date, consumer prices are up 1.4% — well below the Fed’s 2.0% target rate.
  • Sales of new single-family homes jumped 7.1% in August after falling almost 9.5% in July. New home sales are up 18.0% over the last 12 months. The median sales price for new single-family homes in August is $328,400 ($305,400 in July), and the average sales price is $404,200 ($372,700 in July). The estimate of new houses for sale at the end of August was 326,000. This represents a supply of 5.5 months at the current sales rate.
  • New orders for manufactured durable goods in August increased $0.5 billion, or 0.2%, to $250.7 billion, according to the Census Bureau. This increase, up three consecutive months, followed a 2.0% July increase. Excluding transportation, new orders increased 0.5%. Excluding defense, new orders decreased 0.6%. While this report is a positive for manufacturing overall, new orders for nondefense capital goods actually fell 2.1% after increasing 5.0% or more in each of the prior two months.
  • According to the advance report on international trade in goods, the trade deficit was $72.9 billion in August, up $0.4 billion from July. Exports in August were $137.8 billion, $0.2 billion more than July exports. August imports were $210.6 billion, $0.5 billion more than July imports.
  • For the week ended September 21, there were 213,000 claims for unemployment insurance, an increase of 3,000 from the previous week’s level, which was revised up by 2,000. According to the Department of Labor, the advance rate for insured unemployment claims fell for the first time in several months, declining 0.1 percentage point to 1.1% for the week ended September 14. The advance number of those receiving unemployment insurance benefits during the week ended September 14 was 1,650,000, a decrease of 15,000 from the prior week’s level, which was revised up by 4,000.

Eye on the Week Ahead

The first week of October focuses on manufacturing, international trade, and employment. Last month, purchasing managers reported a drop in export orders and lagging manufacturing growth in August. Their sentiment should be slightly more encouraging for September. On the labor front, 130,000 new jobs were added in August and the unemployment rate remained at 3.7%. Wages inched up 0.4% in August, and are up 3.2% for the last 12 months. A shrinking labor pool may be the impetus for employers to increase wages.

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What I’m Watching This Week – 23 September 2019

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

Following three consecutive weekly gains, stocks closed down last week. Despite another drop in interest rates, news that a Chinese delegation involved in trade negotiations would be returning home earlier than expected worried investors and sent stocks spiraling downward. An attack on oil facilities in Saudi Arabia prompted a surge in crude oil prices, which had been falling over the past few weeks. By last week’s end, each of the benchmark indexes listed here lost value, led by the small caps of the Russell 2000 and the large caps of the Dow, each of which dropped over 1.0%. It looks like volatility will be the operative word moving into the fall, as investors’ predilections will be driven by trade rhetoric between the United States and China.

Oil prices jumped last week, closing at $58.09 per barrel by late Friday afternoon, up from the prior week’s price of $54.82. The price of gold (COMEX) climbed last week following three consecutive week-over-week losses, closing at $1,523.80 by late Friday afternoon, up from the prior week’s price of $1,495.70. The national average retail regular gasoline price was $2.552 per gallon on September 16, 2019, $0.002 more than the prior week’s price but $0.289 less than a year ago.

Market/Index 2018 Close Prior Week As of 9/20 Weekly Change YTD Change
DJIA 23327.46 27219.52 26935.07 -1.05% 15.47%
Nasdaq 6635.28 8176.71 8117.67 -0.72% 22.34%
S&P 500 2506.85 3007.39 2992.07 -0.51% 19.36%
Russell 2000 1348.56 1578.14 1559.76 -1.16% 15.66%
Global Dow 2736.74 3085.67 3065.59 -0.65% 12.02%
Fed. Funds target rate 2.25%-2.50% 2.00%-2.25% 1.75%-2.00% 25 bps -50 bps
10-year Treasuries 2.68% 1.90% 1.75% -15 bps -93 bps

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

Last Week’s Economic News

  • The Federal Open Market Committee voted to reduce the federal funds rate range by 25 basis points to 1.75%-2.00%. The Committee has reduced the interest rate range by 50 basis points this year. There is some division within the Committee, however, as the vote at last week’s meeting was split 7 in favor of the rate reduction applied, 1 in favor of a 50 basis-point reduction, and 2 voting for no reduction. Nevertheless, the FOMC statement indicated that consumer spending was rising at a strong pace and job gains have been solid, but business spending and exports have weakened, while inflation continues to run below the Fed’s target rate of 2.00%. Whether the Committee adjusts rates again this year is up to conjecture. According to the latest published FOMC forecasts, of the 17 members of the Federal Reserve, 7 expect at least one more 25 basis-point cut, 5 would opt for no additional cuts, and 5 prefer to push rates back to 2.00%. It is also unclear to what degree pressure from President Trump to lower interest rates is impacting the Committee.
  • Manufacturing may be picking up steam heading into the fall months. Industrial production rose 0.6% in August after declining 0.1% in July. Manufacturing production increased 0.5%, more than reversing its decrease in July. Factory output has increased 0.2% per month over the past four months after having decreased 0.5% per month during the first four months of the year. In August, the indexes for utilities and mining moved up 0.6% and 1.4%, respectively. Total industrial production was 0.4% higher in August than it was a year earlier.
  • Sales of existing homes advanced in August for the second consecutive month. Total existing home sales rose 1.3% in August after climbing 2.5% in July. Sales are up 2.6% from a year ago. The median existing home price in August was $278,200, down 0.9% from July’s median price of $280,800, but up 4.7% from August 2018 ($265,600). Total housing inventory at the end of August decreased to 1.86 million, down from 1.90 million existing homes available for sale in July, and marking a 2.6% decrease from 1.91 million one year ago. Single-family home sales sat at an annual rate of 4.90 million in August, up from 4.84 million in July and up 2.9% from a year ago. The median existing single-family home price was $280,700 in August 2019, up 4.7% from August 2018.
  • New home construction geared up in August. Building permits increased 7.7% over July, housing starts advanced 12.3%, and new home completions increased 2.4%, with single-family home completions up 3.7%.
  • For the week ended September 14, there were 208,000 claims for unemployment insurance, an increase of 2,000 from the previous week’s level, which was revised up by 2,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended September 7. The advance number of those receiving unemployment insurance benefits during the week ended September 7 was 1,661,000, a decrease of 13,000 from the prior week’s level, which was revised up by 4,000.

Eye on the Week Ahead

The third and final rendering of the gross domestic product for the second quarter is out this week. The second reading last month showed the economy grew at a rate of 2.0%. Also out this week is the August report on personal income and outlays, the Fed’s preferred indicator of consumer spending and inflationary trends. In July, consumer spending (+0.6%) exceeded price growth of consumer goods and services (+0.2%).

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What I’m Watching This Week – 16 September 2019

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

Stocks continue to rebound from their August declines, posting gains for the third week in a row. Each of the benchmark indexes listed here increased in value, led by the small caps of the Russell 2000, which climbed close to 5.0%. Trade tensions appeared to wane, at least for now, after China said that it wouldn’t impose tariffs on imports of certain U.S. agricultural goods. The European Central Bank initiated several stimulus measures, including an interest rate cut. Buoyed by these events, investors moved to stocks. Long-term bond yields soared as prices plummeted. The yield on 10-year Treasuries closed the week up 35 basis points. Year-to-date, the benchmark indexes are all well above their 2018 closing values.

Oil prices fell last week, closing at $54.82 per barrel by late Friday afternoon, down from the prior week’s price of $56.60. The price of gold (COMEX) fell for the third consecutive week, closing at $1,495.70 by late Friday afternoon, down from the prior week’s price of $1,514.70. The national average retail regular gasoline price was $2.550 per gallon on September 9, 2019, $0.013 lower than the prior week’s price and $0.283 less than a year ago.

Market/Index 2018 Close Prior Week As of 9/13 Weekly Change YTD Change
DJIA 23327.46 26797.46 27219.52 1.58% 16.68%
Nasdaq 6635.28 8103.07 8176.71 0.91% 23.23%
S&P 500 2506.85 2978.71 3007.39 0.96% 19.97%
Russell 2000 1348.56 1505.17 1578.14 4.85% 17.02%
Global Dow 2736.74 3014.51 3085.67 2.36% 12.75%
Fed. Funds target rate 2.25%-2.50% 2.00%-2.25% 2.00%-2.25% 0 bps -25 bps
10-year Treasuries 2.68% 1.55% 1.90% 35 bps -78 bps

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

Last Week’s Economic News

  • Inflationary pressures remain muted as the Consumer Price Index inched up 0.1% in August following a 0.3% bump in July. Over the last 12 months ended in August, the CPI has increased 1.7%. Energy prices fell 1.9%, pulled down by gasoline prices, which dropped 3.5%. The index less food and energy rose 0.3% in August, the same increase as in the previous two months. The index less food and energy rose 2.4% over the last 12 months, its largest 12-month increase since July 2018. Two of the biggest movers last month were prices for used cars and trucks, which increased 1.1%, and prices for medical care services, which jumped 0.9%.
  • Producers of goods and services saw prices creep up 0.1% in August, following a 0.2% increase in July and a 0.1% advance in June. For the 12 months ended in August, producer prices have risen 1.8%. Last month, goods prices actually fell 0.5%, the largest decrease since falling 0.6% in January. Falling energy prices accounted for over 80% of the drop. Prices for services climbed 0.3% last month, due in large part to a broad-based increase in prices for services less trade, transportation, and warehousing, which climbed 0.5%.
  • The August federal government budget deficit was $200 billion, up from the July deficit of $120 billion. Year-to-date, the deficit sits at $1,067 billion — $170 billion ahead of the deficit over the same period last year. Comparatively, total receipts ($3.088 billion) are ahead of total receipts last year ($2.985 billion). Total outlays ($4.155 billion) are above last year’s outlays ($3.883 billion).
  • Consumers upped their purchases of goods and services in August, according to the Census Bureau’s report on retail sales. A big increase in auto sales helped drive overall retail sales up 0.4% in August from the previous month, and 4.1% above August 2018. Retail sales excluding motor vehicles and parts showed no gain in August from July. Online retailers’ sales increased by 1.6% in August and are up 16% over a year ago.
  • A drop in fuel prices (-4.3%) sent import prices down 0.5% in August, according to the latest figures from the Bureau of Labor Statistics. In a sign of global inflationary weakness, import prices declined 2.0% from August 2018. Prices for exports decreased 0.6% last month after increasing 0.2% in July. The August decline was driven by price decreases in both agricultural (foods, feeds, and beverages) and nonagricultural exports (industrial supplies and materials).
  • According to the Job Openings and Labor Turnover Summary, there were 7.2 million job openings at the end of July, little changed from June’s figures. The number of hires edged up to 6.0 million (5.7 million in June), and separations also increased to 5.8 million (5.5 million in June). The job openings level decreased in wholesale trade (-55,000) and in federal government (-11,000). The job openings level increased in information (+42,000) and in mining and logging (+11,000). Over the 12 months ended in July, hires totaled 69.6 million and separations totaled 67.0 million, yielding a net employment gain of 2.6 million.
  • For the week ended September 7, there were 204,000 claims for unemployment insurance, a decrease of 15,000 from the previous week’s level, which was revised up by 2,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended August 31. The advance number of those receiving unemployment insurance benefits during the week ended August 31 was 1,670,000, a decrease of 4,000 from the prior week’s level, which was revised up by 12,000.

Eye on the Week Ahead

All eyes will be on the midweek meeting of the Federal Open Market Committee. Following its last meeting in July, interest rates were lowered 25 basis points. Economic conditions haven’t changed much over the summer. President Trump is demanding that the Committee lower rates again. With the stock market rebounding over the last two weeks, it’s possible the Committee holds course until it meets again at the end of October.

What I’m Watching This Week – 9 September 2019

The Markets (as of market close September 6, 2019)

Stocks climbed last week following positive rhetoric from high-ranking Chinese officials who plan to meet for another round of trade discussions in Washington next month. This is welcome news for investors who saw the United States and China impose additional tariffs on September 1, with the plan for more of the same in December if negotiations prove fruitless. Optimistic investors pushed stock prices higher as each of the benchmark indexes listed here posted solid gains. Only the small caps of the Russell 2000 failed to gain at least 1.0% for the week. The large caps of the S&P 500 gained over 1.75%, as did the Nasdaq. The Global Dow enjoyed the highest weekly gain, climbing over 2.0%. Year-to-date, these last two weeks have pushed the indexes listed here notably higher, with each posting gains in excess of 10.0%. On the other hand, long-term bond yields jumped last week as bond sell-offs pulled prices lower.

Oil prices advanced last week, closing at $56.60 per barrel by late Friday afternoon, up from the prior week’s price of $55.16. The price of gold (COMEX) fell for the second consecutive week, closing at $1,514.70 by late Friday afternoon, down from the prior week’s price of $1,529.20. The national average retail regular gasoline price was $2.563 per gallon on September 2, 2019, $0.011 lower than the prior week’s price and $0.261 less than a year ago.

Market/Index 2018 Close Prior Week As of 9/6 Weekly Change YTD Change
DJIA 23327.46 26403.28 26797.46 1.49% 14.88%
Nasdaq 6635.28 7962.88 8103.07 1.76% 22.12%
S&P 500 2506.85 2926.46 2978.71 1.79% 18.82%
Russell 2000 1348.56 1494.84 1505.17 0.69% 11.61%
Global Dow 2736.74 2953.12 3014.51 2.08% 10.15%
Fed. Funds target rate 2.25%-2.50% 2.00%-2.25% 2.00%-2.25% 0 bps -25 bps
10-year Treasuries 2.68% 1.50% 1.55% 5 bps -113 bps

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

Last Week’s Economic News

  • There were 130,000 new jobs added in August and the unemployment rate remained unchanged at 3.7%, according to the latest figures from the Bureau of Labor Statistics. The number of unemployed persons remained relatively the same at 6.0 million. The labor force participation rate edged up 0.2 percentage point to 63.2%, and the employment-population ratio, at 60.9%, also edged up 0.2 percentage point from July’s figure. Job growth has averaged 158,000 per month thus far this year, below the average monthly gain of 223,000 in 2018. In August, employment in federal government increased by 28,000, mostly due to the hiring of 25,000 temporary workers to prepare for the 2020 Census. Job gains were also seen in health care (+24,000), financial activities (+15,000), professional and business services (+37,000), and social assistance (+13,000). In August, average hourly earnings rose by $0.11 to $28.11, following $0.09 gains in both June and July. Over the past 12 months, average hourly earnings have increased by 3.2%. Last month, the average workweek increased by 0.1 hour to 34.4 hours.
  • The international goods and services trade deficit was $54.0 billion in July, down $1.5 billion from the revised June total. July exports were $207.4 billion, $1.2 billion more than June exports. July imports were $261.4 billion, $0.4 billion less than June imports. Year-to-date, the goods and services deficit increased $28.2 billion, or 8.2%, from the same period in 2018. Exports decreased $3.4 billion, or 0.2%. Imports increased $24.9 billion, or 1.4%. Of note, the deficit with China decreased $0.5 billion to $29.6 billion in July. Exports decreased $0.3 billion to $9.3 billion, and imports decreased $0.8 billion to $39.0 billion.
  • According to the Markit survey of purchasing managers, manufacturers saw a further slowdown in growth in August. The IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ posted 50.3 in August, its lowest reading since September 2009. According to the report, new orders for exports fell at the quickest pace since August 2009, which many firms linked to the trade war and tariffs.
  • The Manufacturing ISM® Report On Business® followed the Markit survey, with respondents indicating that growth in manufacturing slowed significantly. New orders, production, employment, and deliveries each fell in August, while inventories and prices rose. With inflation remaining soft, this report, along with the Markit survey, may be enough to push the Fed to lower interest rates later this month.
  • Unlike the manufacturing sector, services expanded in August, according to the Non-Manufacturing ISM® Report On Business®. Non-manufacturing business activity, new orders, and prices increased last month. Only employment fell in August.
  • For the week ended August 31, there were 217,000 claims for unemployment insurance, an increase 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 1.2% for the week ended August 24. The advance number of those receiving unemployment insurance benefits during the week ended August 24 was 1,662,000, a decrease of 39,000 from the prior week’s level, which was revised up by 3,000.

Eye on the Week Ahead

Inflationary readings are on tap this week with reports on the August Consumer Price Index, Producer Price Index, retail sales, and import and export prices. The ongoing U.S.-China trade war hasn’t had an apparent impact on prices for consumer goods and services, which have remained soft for much of the year.