Monthly Economic Update November 2019
Another rate cut from the Federal Reserve, a strong hint of a partial U.S.-China trade deal, and stocks reach record heights again.
Provided by: Paul Lewis, CFP®,CWS®
THE MONTH IN BRIEF
Investors and traders found much to like in October. The S&P 500 gained 2.04% during the month, topping 3,000 again. The Federal Reserve made its third interest rate cut of the year. Word came that the U.S. and China could be headed toward the first phase of a new, bilateral trade agreement. The United Kingdom failed to meet its extended Brexit deadline, but the European Union granted it more time. While some fundamental U.S. economic indicators were underwhelming, Wall Street got a lift from the latest earnings season.1
DOMESTIC ECONOMIC HEALTH
On October 30, the Federal Reserve made its third interest rate cut in three meetings. The Federal Open Market Committee voted 8-2 to cut the federal funds rate by another 0.25%, taking its range to 1.50-1.75%. Earlier in October, the Fed announced that it would soon start buying about $60 billion in Treasuries per month and continue doing so for at least the first half of 2020. The central bank’s latest monetary policy statement noted that exports and business investment “remain weak.”2
Certainly, the ongoing Sino-American tariff dispute has affected both exports and business investment. Last month, it looked like there was some progress toward a resolution: following an October 11 meeting at the Oval Office between top-level U.S. and Chinese negotiators, President Trump announced that both sides were close to approving “phase one” of a new U.S.-China trade pact. President Trump and Chinese President Xi Jinping planned to sign off on this initial installment of a trade deal during a November 16-17 economic conference in Chile, but that summit was canceled by the Chilean government in view of that country’s current social unrest. The White House believes an accord can still be signed “within the same time frame.”3,4
The jobless rate fell 0.2% in September, according to the Department of Labor’s latest employment report. It hit a 50-year low of 3.5%. The U-6 rate, which counts both the unemployed and underemployed, declined 0.3% to 6.9% (the all-time low is 6.8%). Even so, the economy generated 136,000 net new jobs in September; economists polled by Dow Jones forecast 145,000 new hires.5
Consumer spending rose 0.2% in September, by the estimation of the Department of Commerce. Speaking of shopping and buying, retail sales were down 0.3% in that month. The Conference Board’s Consumer Confidence Index came in at 125.9, a slight decline from its September level. The other closely watched gauge of household outlooks, the University of Michigan’s Consumer Sentiment Index, rose to 95.5.6
On the factory front, the data could have been better. U.S. industrial production fell 0.4% in September, while manufacturing output slipped 0.5%; meanwhile, hard goods orders weakened 1.1%. The Institute for Supply Management’s manufacturing Purchasing Managers Index (PMI) spent another month below 50, falling 1.3 points to 47.8; a number below 50 means activity in the sector is slowing. (ISM’s PMI for the much larger U.S. service sector was in better shape at 52.6, though it dropped 3.8 points in September.)6,7
In other news, the Bureau of Economic Analysis estimated third-quarter gross domestic product at 1.9%, and the Department of Labor said that the Consumer Price Index was flat for September, leaving its yearly advance at just 1.7%.6,8
GLOBAL ECONOMIC HEALTH
The United Kingdom missed its Halloween deadline for a Brexit. Prime Minister Boris Johnson and representatives of the European Union crafted a revised Brexit agreement during the month, yet while Parliament voted in favor of the deal, lawmakers requested more time to review all its details. Per the U.K.’s request, the E.U. pushed the Brexit deadline ahead to January 31, while stating that this extension would be the last.9
The World Bank sees China’s gross domestic product (GDP) at just 6.1% for 2019; that would be a slip of 0.5% from 2018. It estimates that economic growth in the Asia-Pacific region will weaken to 5.8% for 2019, with trade tensions being the prime factor, and dip further to 5.7% for 2020 and 5.6% in 2021. The region grew 6.3% last year.10
Some foreign economies seem to be losing momentum. The U.K.’s economy just contracted for the first time in seven years. Germany, Mexico, and Brazil are on the cusp of recessions, and the economies of Italy and Hong Kong have both entered recessionary phases. The International Monetary Fund sees the global economy expanding just 3.0% this year, and that would make 2019 the poorest year for world GDP since 2008.11
MSCI’s EAFE index, a benchmark for stocks in developed markets around the world, rose 3.50% during October. MSCI’s All-Cap Asia-Pacific index added 3.80%. Many other indices posted large gains as well, and October brought just three notable monthly losses.1,12
The Nikkei 225 had another great month, climbing 5.38%. Germany’s DAX improved 3.53%; Hong Kong’s Hang Seng, 3.12%. China’s CSI 300 rose 1.89%. The multi-country Euro Stoxx 50 index rose 0.98%, and France’s CAC 40 index added 0.92%. Spain’s IBEX 35 ended the month 0.14% higher. Canada’s equity market benchmark, the TSX Composite, settled 1.05% lower for the month, and Australia’s ASX 200 fell 1.18%. The United Kingdom’s FTSE 100 fell 2.16%.12
Natural gas took a big leap in October, gaining 7.47%. Unleaded gasoline gained 5.80%, and West Texas Intermediate crude oil rose 2.00%, ending the month at $55.06 a barrel on the New York Mercantile Exchange (NYMEX).13
Turning to crops and other soft commodities, lumber gained 9.35%; cotton, 8.01%; wheat, 2.72%; cocoa, 1.63%; soybeans, 1.20%. October losers included coffee, down 1.78%, and orange juice, down 4.14%.13
All major metals advanced in October. Palladium added 8.78% (and ended the month up 56.16% on the year). Silver gained 5.11%; platinum, 4.66%; copper, 4.17%. Gold rose 1.62%. At the October 31 close, an ounce of gold was worth $1,496.70 on the NYMEX; an ounce of silver, $17.87. The U.S. Dollar Index gained 3.45% last month.12,13
Home sales retreated in September: the National Association of Realtors said that residential resales were down 2.2% for the month, and the Census Bureau announced a dip of 0.7% for new home buying. In better news, existing home sales were up 3.9% year-over-year through September, and the NAR’s pending home sales index rose 1.5% during that month.6,14
The median sale price of an existing home was $272,100 in September. According to the NAR, that represents a 5.9% YTD gain. A 7.9% September drop left the median sale price for a new home at $299,400; the median sale price had declined 8.8% through three quarters of the year.14
Turning to home loans, an examination of Freddie Mac’s October 3 and October 31 Primary Mortgage Market Surveys reveals increases for mortgage rates. The average interest for the 30-year, fixed-rate home loan went from 3.65% to 3.78% between October 3 and 31, and mean interest for the 15-year, fixed-rate mortgage rose to 3.19% from 3.14%.15
30-year and 15-year fixed rate mortgages are conventional home loans generally featuring a limit of $484,350 ($726,525 in high-cost areas) that meet the lending requirements of Fannie Mae and Freddie Mac, but they are not mortgages guaranteed or insured by any government agency. Private mortgage insurance, or PMI, is required for any conventional loan with less than a 20% down payment.
T I P O F T H E M O N T H
As the year ends, fraudsters may approach older, high-net-worth households, pretending to be representatives of credit card issuers, banks, charities, and even federal agencies. If a stranger calls or emails you and asks you for your money or financial information, hang up or disregard the message, and report it to organizations, such as Consumer Financial Protection Bureau or AARP ElderWatch.
LOOKING BACK, LOOKING FORWARD
As the table below shows, the Nasdaq Composite outgained the S&P 500 and Dow Jones Industrial Average last month. The same thing has happened across the past 12 months. In the year ending in October, the Nasdaq gained 13.50%, the S&P, 12.02%; the Dow, 7.69%. The S&P recorded a new record close on October 30: 3,046.77.1,16
1 MO AGO
1 YR AGO
10 YR TREASURY
Sources: bloomberg.com, wsj.com, treasury.gov – October 31, 20191,16,17,18
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year Treasury yield = projected return on investment, expressed as a percentage, on the U.S. government’s 10-year bond.
Recently, stocks have advanced back into record territory with help from earnings beats, descending interest rates, and anticipation of some type of near-term trade deal with China. This relatively bullish mood may or may not persist through the end of the year. Stocks have advanced despite concerns about the U.S.-China trade dispute, a slowing economy, and geopolitical issues. Trade, earnings, and economic indicators may be closely watched this month, and investors may be anxiously awaiting two key developments. The first is a “phase one” trade deal with China. Markets surged on talk of a trade truce, and a signed deal could help reassure investors even more. The second is a potential budget battle in Washington. Investors will be hoping that a government shutdown can be avoided. While the ideal scenario is a budget passed by Congress and signed by the President, a short-term resolution may keep investors satisfied for now.
Q U O T E O F T H E M O N T H
“Those who travel with the current will always feel they are good swimmers; those who swim against the current may never realize they are better swimmers than they imagine.”
What will investors and traders be paying attention to this month, besides earnings announcements and any breaking news? The roll call of upcoming economic releases includes the latest ISM non-manufacturing index (11/5), the initial November Consumer Sentiment Index from the University of Michigan (11/8), October’s Consumer Price Index (11/13), October’s Producer Price Index (11/14), October retail sales (11/15), a new Census Bureau snapshot of monthly U.S. residential construction activity (11/19), the minutes from the October Federal Reserve meeting (11/20), October existing home sales (11/21), November’s final University of Michigan Consumer Sentiment index (11/22), a new Conference Board Consumer Confidence Index, the latest S&P/CoreLogic Case-Shiller home price index, and October new home sales (11/26), and to conclude the month, the October consumer spending report, data on October hard goods orders, October pending home sales numbers, the third estimate of Q3 economic expansion from the federal government, and a new Federal Reserve Beige Book (11/27).
T H E M O N T H L Y R I D D L E
I have numbers on my face, but cannot find 13 in any place. What am I?
LAST MONTH’S RIDDLE: I am the beginning of the end, the end of every place. I am the beginning of eternity, the end of time and space. What am I?
ANSWER: The letter E.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs, or expenses. Investors cannot invest directly in indices. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (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. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada. It is maintained by MSCI Inc., a provider of investment decision support tools; the EAFE acronym stands for Europe, Australasia and Far East. The MSCI AC Asia Pacific Index captures large and mid-cap representation across 5 developed markets countries and 9 emerging markets countries in the Asia Pacific region. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The Hang Seng Index is a free float-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The CSI 300 is a capitalization-weighted stock market index designed to replicate the performance of top 300 stocks traded in the Shanghai and Shenzhen stock exchanges. The EURO STOXX 50 Index, Europe’s leading blue-chip index for the Eurozone, provides a blue-chip representation of super-sector leaders in the region. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The IBEX 35 is the benchmark stock market index of the Bolsa de Madrid, Spain’s principal stock exchange. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. The S&P/ASX 200 is recognized as the institutional investable benchmark in Australia. Index constituents are drawn from eligible companies listed on the Australian Securities Exchange. The U.S. Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.
1 – bloomberg.com/markets/stocks [10/31/19]
2 – tinyurl.com/y6rlmswd [10/30/19]
3 – bloomberg.com/news/articles/2019-10-30/trump-xi-trade-meeting-in-doubt-after-chile-cancels-apec-summit [10/30/19]
4 – bloomberg.com/news/articles/2019-10-31/china-said-to-doubt-long-term-trade-deal-possible-with-trump [10/31/19]
5 – cnbc.com/2019/10/04/jobs-report—september-2019.html [10/4/19]
6 – investing.com/economic-calendar [10/31/19]
7 – instituteforsupplymanagement.org/ISMReport/NonMfgROB.cfm?SSO=1 [10/3/19]
8 – reuters.com/article/us-usa-economy-inflation/u-s-consumer-inflation-muted-labor-market-tightening-idUSKBN1WP1TW [10/10/19]
9 – cnbc.com/2019/10/28/the-eu-discusses-three-month-brexit-extension.html [10/28/19]
10 – reuters.com/article/us-asia-economy/asia-pacific-2019-growth-to-slow-to-5-8-on-trade-tensions-world-bank-idUSKBN1WP0DS [10/9/19]
11 – forbes.com/sites/sergeiklebnikov/2019/10/28/here-are-the-countries-on-the-brink-of-recession-going-into-2020 [10/28/19]
12 – msci.com/end-of-day-data-search [10/31/19]
13 – barchart.com/futures/major-commodities?viewName=performance [10/31/19]
14 – quickenloans.com/blog/durable-goods-orders-disappoint-market-update [10/30/19]
15 – freddiemac.com/pmms/archive.html [10/31/19]
16 – wsj.com/market-data [10/31/19]
17 – markets.wsj.com/us [12/31/18]
18 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldAll [10/31/19]