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GWA presents the Commonwealth Financial Monthly Market Update

Market Update

December 17, 2018

Presented by Kris Maksimovich:

General market news

  • The 10-year U.S. Treasury opened at 2.87 percent early Monday, while the 30-year opened at 3.13 percent. The 2- to 5-year part of the curve remains slightly inverted, with the 2-year yielding about 0.08 percent more than the 5-year. The 3-year currently has the lowest yield of all three Treasuries, at 2.715 percent, and has the deepest inversion with a yield of 0.1 percent below the 2-year. The market will be paying close attention to the Federal Reserve (Fed) on Wednesday, which seems to be set on raising rates.
  • Domestic and global markets continued their pullback last week, as Chinese-led global growth concerns and risk-off sentiment remained. Softer November activity data in China also continued concerns surrounding global growth. November industrial output reached a level of just 5.4 percent, below that of the 5.9 percent expected. Among the top underperformers were financials and energy, as oil weakness and the inverted yield curve between the 2- and 5-year Treasuries continue to weigh on the sectors.
  • Other political concerns did not help the cause, as the Brexit picture remains murky and President Trump feuded with Nancy Pelosi and Chuck Schumer on immigration policy. This conflict could lead to yet another government shutdown. The U.S.-China trade truce story continues to be positive, but there are more details to be hashed out.
  • There were several data points released last week. On Tuesday, the Producer Price Index showed year-over-year inflation of 2.5 percent for producers, which was in line with expectations and below October’s figure of 2.9 percent. On Wednesday, the Consumer Price Index also showed slowing inflation, with 2.2-percent annual growth in November, compared with 2.5-percent growth in October. The current downward trend in these two popular measures of inflation is an encouraging sign for the economy.
  • On Friday, retail sales came in slightly better than expected with 0.2-percent monthly growth, against expectations for a modest 0.1-percent bump. This result follows strong 1.1-percent growth in October.
Equity Index Week-to-Date Month-to-Date Year-to-Date 12-Month
S&P 500 –1.22% –5.72% –0.90% –0.04%
Nasdaq Composite –0.82% –5.67% 1.15% 1.87%
DJIA –1.17% –5.56% –0.28% 0.58%
MSCI EAFE –0.89% –3.12% –11.80% –10.23%
MSCI Emerging Markets –0.95% –2.26% –13.95% –10.87%
Russell 2000 –2.52% –7.92% –7.01% –5.16%

Source: Bloomberg

Fixed Income Index Month-to-Date Year-to-Date 12-Month
U.S. Broad Market 0.91% –0.90% –1.01%
U.S. Treasury 0.94% –0.34% –0.55%
U.S. Mortgages 0.75% –0.06% –0.15%
Municipal Bond 0.48% 0.57% 0.64%

Source: Morningstar Direct 

What to look forward to

This week is a busy one on the economic front, with several reports on housing, a look at durable goods demand, and the consumer income and spending report.

On Monday, the National Association of Home Builders survey showed another unexpected drop, going to 56 for December. This result was worse than a small expected increase to 61 and down from 60 in November, which itself was a surprise drop from 68 in October. This suggests that the housing market may well continue to weaken.

The housing starts report will be released on Tuesday. It is expected to stay steady at 1.23 million annualized, after a small increase last month. A decline in building permit data, however, suggests the final result might be somewhat worse than expected.

On Wednesday, the existing home sales report is also expected to show sales decreasing slightly. They should go from 5.22 million in October to 5.20 million in November. Housing in general appears to be in a slowing trend, but this data would suggest that slowing is steady rather than accelerating.

Also on Wednesday, the Federal Reserve Open Market Committee will conclude its regular meeting with a press conference. Markets expect the Fed to raise its baseline rate by 25 basis points once more. But the real focus will be on what Chair Powell indicates about the pace of rate increases in 2019. With recent assumptions that the Fed is becoming more dovish, markets will be watching closely.

On Friday, we’ll see the durable goods orders report. The headline index is expected to rebound substantially from last month, from a 4.3-percent decline in October to a gain of 2 percent in November, on an increase in aircraft orders. This headline index is notoriously volatile, as we can see. The core index, which excludes transportation and is a much better economic indicator, is expected to improve from 0.2-percent growth in October to 0.3-percent growth in November, on steady growth in business investment. This would be a healthy level of growth, although there may be some upside risk here as industry surveys improved in November.

Finally, also on Friday, the personal income and spending report will be released. It is expected to show that personal income rose by 0.3 percent in November, down from 0.5-percent growth in October, on slower job and labor demand growth. Personal spending growth is expected to decline from 0.6 percent in October to 0.3 percent in November, on a decline in gasoline prices that will offset rising retail sales. This would remain a healthy level of spending growth and would be well supported by the income growth.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays U.S. Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays U.S. Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.

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Kris Maksimovich is a financial advisor located at Global Wealth Advisors 18170 Dallas Parkway, Suite 103, Dallas, TX 75287. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (972) 931-3818 or at info@gwadvisors.net.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2018 Commonwealth Financial Network®

 

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GWA presents the most recent market update from Commonwealth Financial Network

Market Update

December 10, 2018

Presented by Kris Maksimovich:

General market news

  • Interest rates for U.S. Treasuries have been moving lower for a while now, but last week’s declines came at a faster pace. The 10-year Treasury moved from 3.05 percent to as low as 2.82 percent early Monday morning. Of potentially greater significance, however, is that the 2- and 5-year Treasury notes inverted last week. The 2-year Treasury now yields 2.72 percent, while the 5-year Treasury is at 2.70 percent. Moreover, the spread between the 2- and 10-year Treasuries fell to 10 basis points (bps). Historically, the inversion of the spread between the 2- and the 10-year Treasuries has been a leading indicator of an economic downturn. Meanwhile, the Federal Reserve (Fed) seems likely to raise rates on December 19.
  • Last week, domestic and global markets were down across the board. The week began with news of a proposed 90-day trade truce between the U.S. and China. As the days went on, however, details surrounding the deal became less clear.
  • In other news, the financial sector was down more than 7 percent on the week, as the inverted spread between the 2- and 5-year Treasuries weighed on banks. Industrials, another cyclical sector, was down more than 6.2 percent, on investor concerns about the broad economic cycle.
  • The Institute for Supply Management (ISM) Manufacturing index increased to 59.3 from 57.7, well above the survey estimate of 57.5. This result was helped by a decline in the ISM Prices Paid index, which came in well below expectations. The ISM Nonmanufacturing index rose to 60.7 from 60.3, against expectations. Both reports indicate continued strength in the U.S. economy.
  • November’s employment report was released on Friday. It came in weaker than expected, with 155,000 jobs added against an expectation for 198,000. But the unemployment rate and the participation rate remained unchanged. Wage growth was unchanged as well, holding steady at 3.1 percent year-over-year.
Equity Index Week-to-Date Month-to-Date Year-to-Date 12-Month
S&P 500 –4.55% –4.55% 0.32% 1.81%
Nasdaq Composite –4.90% –4.90% 1.98% 3.38%
DJIA –4.44% –4.44% 0.90% 3.08%
MSCI EAFE –2.25% –2.25% –11.01% –8.56%
MSCI Emerging Markets –1.33% –1.33% –13.13% –8.32%
Russell 2000 –5.53% –5.53% –4.60% –3.53%

Source: Bloomberg

Fixed Income Index Month-to-Date Year-to-Date 12-Month
U.S. Broad Market 0.85% –0.95% –0.77%
U.S. Treasury 0.98% –0.30% –0.22%
U.S. Mortgages 0.81% 0.00% 0.06%
Municipal Bond 0.73% 0.81% 0.54%

Source: Morningstar Direct

What to look forward to 

This week’s data starts with prices and whether they indicate that inflation is picking up.

On Tuesday, the producer price report will be released. The headline index, which includes energy and food, should stay flat for November, down from a 0.6-percent increase in October, on declines in gasoline and commodity prices. The annual change is also expected to drop, to 2.5 percent from 2.9 percent, indicating that longer-term inflation pressures remain above the Fed’s target range, though they may be moderating. The core index, which excludes energy and food, is expected to show slower growth as well. It should come in at 0.1 percent for November, down from 0.5 percent for October. Analysts anticipate that the annual figure, however, will stay steady at 2.6 percent.

On Wednesday, the consumer price reports are expected to show moderating inflation at the headline level. The headline index, which includes food and energy, should stay flat for November, down from October’s 0.3-percent uptick, on decreasing gasoline costs. The annual figure is expected to drop to 2.2 percent in November from 2.5 percent in October. The core index will likely remain steady, showing a 0.2-percent increase for November, the same as October. The annual figure is expected to rise slightly, from 2.1 percent to 2.2 percent. These numbers indicate that inflation is still running somewhat above the Fed’s target levels, which should support continued interest rate increases.

On Friday, the U.S. retail sales report is expected to show slower growth—0.2 percent for November. A decline from October’s substantial 0.8-percent rebound, the number may be attributed to lower gas prices and a slowdown in hurricane-driven replacement auto sales. Core retail sales, which exclude autos, are expected to do well, with expected growth in November of 0.3 percent, down from October’s 0.7-percent rise. But there may be some downside risk to these numbers, with the fading of the tax cut boost and recent turbulence in the financial markets. If the numbers come in as expected, they would be at healthy levels and positive for the economy.

Also on Friday, the industrial production report is expected to tick up a bit. It should go from a 0.1-percent gain in October to a 0.3-percent rise for November. There may be some upside risk here, on a weather-related increase in utility production and a rebound in oil production after a hit from Hurricane Michael. Manufacturing is also expected to do well, with growth steady at 0.3 percent for November, the same as October. There may, however, be some downside risk, as the dollar continues to rise. Again, the expected numbers would indicate continued growth and be positive for the economy.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays U.S. Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays U.S. Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.

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Kris Maksimovich is a financial advisor located at Global Wealth Advisors 18170 Dallas Parkway, Suite 103, Dallas, TX 75287. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (972) 931-3818 or at info@gwadvisors.net.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2018 Commonwealth Financial Network®

 

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Market Update and Financial Market News

Market Update

December 3, 2018

Presented by Kris Maksimovich:

General market news

  • Rates moved lower last week, breaking some support levels. The 10-year Treasury dropped below 3.05 percent and opened Monday morning at 3.03 percent. The short end of the curve has tightened, with the difference between the 2- and 5-year Treasuries only 3.5 basis points (bps). The spread had been as low as 2.5 bps last Friday. The 30-year Treasury stands at 3.32 percent. The difference between the 2- and 30-year Treasuries is now back down to only 48 bps.
  • All three major U.S. markets were up last week, as the market waited for the G20 meeting. West Texas Intermediate crude oil dropped below $50 on continued global supply-demand concerns. Russia and Saudi Arabia opened discussions relating to the oil trade to extend the OPEC accord. Tailwinds are expected to come from U.S.-China trade talks, which can reduce the pressures that U.S. businesses face. Overall, the macro news for U.S. markets was positive.
  • Several important economic updates were released last week. On Tuesday, the Conference Board Consumer Confidence Index declined slightly, as expected. This result was in line with a similar decline in the University of Michigan consumer sentiment survey released the week before.
  • On Wednesday, the second estimate of third-quarter gross domestic product growth remained unchanged, at 3.5 percent on an annualized basis. Also on Wednesday, new home sales came in much worse than expected, falling 8.9 percent against expectations for a gain of 4 percent.
  • On Thursday, October’s personal spending and personal income figures were released. Both reports beat expectations, growing 0.6 percent and 0.5 percent, respectively.
Equity Index Week-to-Date Month-to-Date Year-to-Date 12-Month
S&P 500 4.91% 2.04% 5.11% 6.27%
Nasdaq Composite 5.66% 0.50% 7.24% 7.75%
DJIA 5.32% 2.11% 5.59% 7.62%
MSCI EAFE 0.97% –0.01% –8.96% –7.48%
MSCI Emerging Markets 2.65% 4.13% –11.96% –8.75%
Russell 2000 3.04% 1.58% 0.98% 0.57%

Source: Bloomberg

Fixed Income Index Month-to-Date Year-to-Date 12-Month
U.S. Broad Market 0.60% –1.79% –1.34%
U.S. Treasury 0.89% –1.27% –0.96%
U.S. Mortgages 0.90% –0.81% –0.49%
Municipal Bond 1.11% 0.08% 1.13%

Source: Morningstar Direct 

What to look forward to

This week is a busy one, with several key reports scheduled for release. The data flow started Monday, when the Institute for Supply Management (ISM) Manufacturing index surprised to the upside. It rose from 57.7 to 59.3, above the expected 57.5. This is a diffusion index, where values above 50 indicate expansion and below 50 indicate contraction. So, this metric remains quite strong. The increase came despite slowing global growth and the recent appreciation in the dollar, which has been increasing the costs of U.S. products to foreign buyers. Uncertainty over trade policy remains a headwind as well. Despite these concerns, the increase suggests that the damage has not yet been significant, and manufacturing will remain positive for the overall economy.

On Wednesday, the ISM Nonmanufacturing index is expected to pull back a bit further, from 60.3 to 59.5, after a surprise increase in September to a 21-year high. This is a diffusion index, too, where values above 50 indicate expansion and below 50 indicate contraction. The pullback is expected to come from slowing growth in services. With some surveys indicating more of a slowdown in this sector, there is likely some downside risk here. But even with a larger pullback than the decline expected, this would remain very positive for the overall economy.

On Thursday, the international trade report is expected to show that the U.S. trade deficit widened further in November, from $54 billion to $54.9 billion. We already know from the advance report that the trade deficit in goods widened because export growth has dropped back—even as imports have remained steady. Consequently, there may be some additional downside risk to this report. Overall, if the numbers come in as expected, trade will likely be a drag on fourth-quarter growth.

The University of Michigan consumer confidence survey, to be released on Friday, is expected to show confidence pulling back further from 97.5 for November to 97 for December. This would remain a high level, historically. It suggests that consumers are not yet worried about the effects of a trade war, given the continued strong labor market and decline in gas prices. These factors should continue to support consumer spending and economic growth.

Finally, Friday’s employment report is expected to show that job growth continued to be strong in November, with a gain of 205,000, after an October surge of 250,000. The unemployment rate is expected to stay at a very low 3.7 percent. In addition, wage growth is expected to tick up a bit, from 0.2 percent in October to 0.3 percent for November. Wage growth on an annual basis is also expected to rise, from 3.1 percent to 3.2 percent, on base effects. There is some downside risk here, depending on the impact of the California fires. But if the numbers come in as expected, this would be another healthy report and signal continued economic growth. It would also likely support another rate hike from the Federal Reserve in December.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays U.S. Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.

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Kris Maksimovich is a financial advisor located at Global Wealth Advisors 18170 Dallas Parkway, Suite 103, Dallas, TX 75287. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (972) 931-3818 or at info@gwadvisors.net.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2018 Commonwealth Financial Network®

 

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November 2018 market update graph

Market Update

Month Ending November 30, 2018

Presented by Kris Maksimovich:

Markets ride a roller coaster

After a tough October, November looked to be more of the same. Indeed, markets dropped further down into correction territory at midmonth. But they rebounded and closed higher by month-end. The S&P 500 and Dow Jones Industrial Average rose by 2.04 percent and 2.11 percent, respectively, while the Nasdaq Composite gained 0.49 percent. 

Strong fundamentals for U.S. companies drove this rebound. According to FactSet, with 96 percent of the companies in the S&P 500 reporting (as of November 23, 2018), the blended earnings growth rate was 25.9 percent. This result would be an improvement from an estimate of 19.3 percent at the beginning of the quarter and would represent the highest quarterly growth rate in eight years.

So, what’s the problem?

The problem was confidence, which took a hit in October and early November. That weakness was evident in the technical factors. All three indices spent most of the month below their 200-day moving averages. But recovery above that trend line at month-end may reflect returning confidence and be a positive signal going forward.

The international story was much the same. Developed markets, represented by the MSCI EAFE Index, fell during the month. Still, they finished close to even, down by 0.13 percent. Emerging markets did better, with a gain of 4.13 percent. Both indices are well below their 200-day moving averages, where they have been since the summer.

Investment-grade fixed income was the big winner for the month, as rates declined during November’s turbulence. The 10-year U.S. Treasury yield rose to a high of 3.24 percent before falling to an even 3 percent by month-end. This increase caused the Bloomberg Barclays Aggregate Bond Index to gain 0.60 percent during the month. The high-yield index, which typically moves in line with equities, fell by 0.86 percent on rising concerns about debt.

Housing sector disappoints

One of the factors that rattled confidence was the housing sector, which has been in a rut for most of 2018. Low supply, rising mortgage rates, and increasing prices have slowed sales dramatically. New home sales—expected to rise by 4 percent in October following a disappointing September—instead fell by 8.9 percent. All in, new home sales are down more than 23 percent from highs seen last November. 

One of the only bright spots in the face of slowing sales has been the high confidence levels for home builders. Unfortunately, home builder confidence fell from 68 to 60 in November. For context, home builder confidence has not been this low since 2016. In fact, we spent most of the year in the 68–70 range. But this decline, combined with the large drop-off in new home sales, indicates that the housing slowdown may be here to stay for some time. 

Economy slowing but still growing

Despite the housing worries, the economic updates released in November were positive. A slowdown in September’s spending data was largely offset in October, as effects from Hurricane Florence started to unwind. Plus, October’s retail sales data came in with a strong 0.8-percent monthly gain, following 0.1-percent growth in September. This rebound helped to calm fears about a broader slowdown in spending.

Gains in personal income and spending data from October echoed the growth in retail sales. Spending rose by 0.6 percent, while income rose by 0.5 percent. These results beat expectations and suggested that September’s slowdown was not permanent. The growth in income was especially encouraging given the slowdown in wage growth we saw in September.

But the news was not all positive. Although consumers were willing to spend their extra cash, businesses were not as quick to do so. Durable goods orders for October fell by 4.4 percent compared with September. This drop was below expectations for a more modest decline of 2.6 percent. As you can see in Figure 1, we have seen declines in the past two months that are worth watching. Nonetheless, the growth in the beginning of the year indicates overall investment remains high.

See Figure 1 Above: Durable Goods Orders, November 2013–Present

The core durable goods figure, which strips out volatile transportation orders, also declined by more than expected. This decline indicates that overall business investment growth may be slowing as we head into the end of the year. Again, previous gains mean the level remains healthy.

Both businesses and consumers saw a small drop in overall confidence. But the major indicators are still close to all-time highs and show continued growth. There may even be some upside risk here. As gas prices continue to fall and with the jobs market healthy, consumer confidence may be set to increase. In fact, 250,000 new jobs were added in October. This result made up for the modest gain of 118,000 we saw in September (likely due in part to the effect of Hurricane Florence). So, the rebound is encouraging. Unemployment remained at 3.7 percent, and wages grew by a strong 3.1 percent on an annual basis. More jobs and higher wages should help keep the largest sector of the economy solid.

Although growth appears to be slowing in some areas, most of the economy continues to be healthy and growing. Strong employment and high confidence levels should continue to support consumer spending as we head into the important holiday shopping season. Of course, the slowdown in business investment is worth watching. But the large levels of investment we saw early in the year following last year’s tax reform indicate that we are not at worrisome levels yet.

Politics continue to affect markets

The big news in November was the midterm elections—once again showing us how politics can have both negative and positive effects on the markets. On the positive side, as the uncertainty from the elections disappeared once they were over, we saw a rally in equities. Unfortunately, this rally was not long lived. On the negative side, concerns surrounding global growth and continued talk of trade war escalation caused global market turbulence midmonth. But at month-end, we had another rally after the postponement of the U.S.-China trade war at the G20 meeting. Politics giveth, and politics taketh away.

Looking forward, politics will continue to create volatility. But absent a change in the fundamentals, the turbulence should be short lived. With a potential government shutdown pending here in the U.S., ongoing concerns in Europe about Italy, and the Brexit negotiations, we need to pay attention but also be mindful that political volatility usually passes quickly.

Markets volatile, but fundamentals remain solid

Political risks will likely continue to affect markets. But the good news is that on the whole, the economy appears to be strong enough to weather the storm. The economy continues to expand at a healthy clip, driven by strong consumer spending. Plus, the rebound from the September slowdown is encouraging for fourth-quarter growth. Confidence has declined, but it remains near multiyear highs and appears to be resilient.

As we’ve seen, although the economy is doing well, markets can experience bouts of turbulence. The correction we saw in November is a perfect example of this short-term volatility. Of course, these periods can be painful for investors in the moment. Over the long term, however, they are a healthy and expected function of the market. As always, a well-diversified portfolio matched with an investor’s time horizon is the best way to ride out any volatility and reach financial goals.

All information according to Bloomberg, unless stated otherwise. 

Disclosure: Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners. The Bloomberg Barclays Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Bloomberg Barclays government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities. The Bloomberg Barclays U.S. Corporate High Yield Index covers the USD-denominated, non-investment-grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.

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Kris Maksimovich is a financial advisor located at Global Wealth Advisors 18170 Dallas Parkway, Suite 103, Dallas, TX 75287. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (972) 931-3818 or at info@gwadvisors.net.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2018 Commonwealth Financial Network®

 

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