THE MONTH IN BRIEF
DOMESTIC ECONOMIC HEALTH
The Conference Board’s consumer confidence index hit a spectacularly high 125.9 last month. Economists surveyed by MarketWatch expected a 121.3 reading; in September, the index was at 119.8. The University of Michigan household sentiment index ended the month at 100.7. 3,4
Manufacturing and service industries were expanding at a torrid pace. The Institute for Supply Management’s factory purchasing manager index reached a 15-year peak in September, rising 2.0 points to 60.8. Its October mark was 58.7. ISM’s service sector PMI soared 4.5 points to 59.8 in September, a 12-year high..4,5.
October ended with the Bureau of Economic Analysis issuing its first snapshot of third-quarter growth: 3.0%, rivaling the 3.1% Q2 expansion. Orders for durable goods improved 2.2% in September; the increase was 2.0% minus defense orders. September had also brought gains of 0.3% for industrial output and 0.1% for manufacturing output..3,4.
Consumer and producer prices rose appreciably in September as well. The Consumer Price Index moved north by a half-point; the core CPI ticked up just 0.1%. On an annualized basis, that meant consumer prices were up 2.2%, core prices 1.7%. Wholesale inflation was up 0.4% in September, taking the yearly advance of the Producer Price Index to 2.6% (the core PPI had gained 2.2% in 12 months). How about the Federal Reserve’s gauge, the Personal Consumption Expenditures (PCE) Price Index? It rose 0.1% for the fifth straight month in September, showing a puny 1.3% annual advance. (The PCE has been beneath the Fed’s 2.0% inflation target since mid-2012.)2,3
Severe hurricanes and floods impacted hiring in September. Payrolls slimmed by 33,000 workers, according to the Department of Labor’s monthly jobs report. Bizarrely, the unemployment rate fell 0.2% to 4.2% anyway. The U-6 rate, including underemployed persons, declined 0.3% to 8.3%. At a glance, a 2.9% year-over-year gain in hourly wages looked like a bright spot, but a net loss of 105,000 low-paying bar and restaurant jobs may have skewed that number upwards. 6
Lastly, the Social Security Administration announced a 2.0% cost-of-living adjustment for retirement benefits in 2018, the largest COLA since the 3.6% increase in 2012. This will mean about $25 more per month for the average Social Security recipient next year. 7.
GLOBAL ECONOMIC HEALTH
In the Asia-Pacific region, the Bank of Japan left interest rates unchanged in October on assumptions of continuing tame inflation, which was forecast at 1.4% for 2018. China’s official factory PMI declined 0.8 points to 51.6 in October, while its service sector PMI fell 1.1 points to 54.3. Breaking form, President Xi Jinping said nothing last month about China’s previously stated objective to double its 2010 economic growth pace by 2020.10,11
The above October advances paled in comparison to some of the moves made in the Asia-Pacific region. Take, for example, the 8.13% gain achieved by the Nikkei 225. Not far behind Japan’s key index, India’s Sensex ascended 6.34%, while its Nifty 50 rose 5.59%. The Taiwan 50 gained 5.73% last month, South Korea’s KOSPI added 5.39%, and Argentina’s ever-volatile MERVAL vaulted 5.37%. Singapore’s Straits Times improved 4.79%, while Australia’s All Ordinaries gained 4.03%. MSCI’s Emerging Markets index rose 3.45% in October. Hong Kong’s Hang Seng gained 2.51%. To our north in Toronto, the TSX Composite increased 2.50% in value. October also brought gains of 1.81% for the MSCI World, 1.36% for China’s Shanghai Composite, and 0.68% for Brazil’s Bovespa. Mexico’s Bolsa lost 3.42%.12,13
Elsewhere, minor gains and assorted losses could be glimpsed. Many of the key crop futures suffered October setbacks, as did some metals. Cotton retreated just 0.37%, but coffee fell 1.37%, corn declined 3.02%, and wheat sank 6.57%. Ag winners included cocoa, which rose 2.92%, and soybeans, up 0.70%. Natural gas took a 3.74% fall. Platinum futures added 1.13% for the month, but silver retreated 0.39% to a Halloween COMEX settlement of $16.72. Gold ended October at $1,271.80, losing 0.86% across the month. The U.S. Dollar Index recovered 1.60%..1,14.
Groundbreaking declined 4.7% in September, while building permits fell 4.5%. Storms and floods likely affected housing starts in the South and along the Gulf Coast. 3
Last month, upward pressure on mortgage rates was conspicuous. In Freddie Mac’s October 26 Primary Mortgage Market Survey, interest on the 30-year FRM averaged 3.94%; interest on the 15-year FRM; 3.25%. That compares with a rate of 3.83% for the 30-year fixed and 3.13% for the 15-year fixed in the September 28 PMMS. Between those two dates, the average interest rate on the 5/1-year ARM rose but 0.01% to 3.21%. 15
LOOKING BACK…LOOKING FORWARD
Sources: online.wsj.com, bigcharts.com, treasury.gov – 10/31/17,16,17,18
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do
not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.
October offered plenty of drama, but Wall Street remained calm. When the month ended, the Dow had gone 52 straight trading sessions without a 1% intraday move. That had not happened since 1930 (and such streaks were unrecorded before 1930). Will November be just as serene with stocks making more solid gains? That is a distinct possibility, but some factors may shake up that serenity. Promises of tax cuts could fade, and the market may or may not applaud if a new Federal Reserve chair is named. The October jobs report will also be scrutinized; if it falls short of expectations, some analysts may question whether the current business cycle is peaking.19
UPCOMING ECONOMIC RELEASES:
The roll call of key news items across the balance of November includes the month’s initial University of Michigan consumer sentiment index (11/10), October wholesale inflation (11/14), October retail sales and consumer inflation (11/15), October industrial production (11/16), October housing starts and building permits (11/17), the NAR’s latest look at existing home sales (11/21), October durable goods orders and the final November University of Michigan consumer sentiment index (11/22), October new home sales (11/27), the November consumer confidence index from the Conference Board (11/28), the second estimate of Q2 growth, the latest pending home sales report from the NAR, and a new Federal Reserve Beige Book (11/29), and finally, the October personal spending snapshot from the Department of Commerce and the latest PCE price index from the Bureau of Economic Analysis (11/30).
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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. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. 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). 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The IBEX 35 is the benchmark stock market index of the Bolsa de Madrid, Spain’s principal stock exchange. The MICEX 10 Index is an unweighted price index that tracks the ten most liquid Russian stocks listed on MICEX-RTS in Moscow. 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 BSE SENSEX (Bombay Stock Exchange Sensitive Index), also-called the BSE 30 (BOMBAY STOCK EXCHANGE) or simply the SENSEX, is a free-float market capitalization-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE). The Nifty 50 (NTFE 50) is a well-diversified 50-stock index accounting for 13 sectors of the Indian economy. It is used for a variety of purposes such as benchmarking fund portfolios, index-based derivatives and index funds. The FTSE TWSE Taiwan 50 Index consists of the largest 50 companies by full market value, and is also the first narrow-based index published in Taiwan. The Korea Composite Stock Price Index or KOSPI is the major stock market index of South Korea, representing all common stocks traded on the Korea Exchange. The MERVAL Index (MERcado de VALores, literally Stock Exchange) is the most important index of the Buenos Aires Stock Exchange. The Straits Times Index (STI), maintained & calculated by FTSE, is the most globally recognized benchmark index and market barometer for Singapore. The All Ordinaries (XAO) is considered a total market barometer for the Australian stock market and contains the 500 largest ASX-listed companies by way of market capitalization. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. 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 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 MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The Mexican Stock Exchange, commonly known as Mexican Bolsa, Mexbol, or BMV, is the only stock exchange in Mexico. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. 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2 – cnbc.com/2017/10/30/us-personal-income-sept-2017.html [10/30/17]
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6 – bloomberg.com/news/articles/2017-10-06/u-s-payrolls-fall-33-000-on-storms-jobless-rate-drops-to-4-2 [10/6/17]
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17 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [10/31/17]
18 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [10/31/17]
19 – marketwatch.com/story/the-dow-just-logged-its-longest-period-without-a-1-drop-in-nearly-40-years-2017-10-30/ [10/31/17]