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Weekly Market Commentary

November 4, 2019

The Markets

They did it.

The Federal Reserve lowered interest rates last week, as expected. There were no enthusiastic fans singing the Baby Shark song, but the Federal Open Market Committee’s decision was well received.

Reuters reported, “Gaps between market expectations and the Fed’s own outlook have been wide at times this year, a source of concern for policymakers who don’t want to kowtow to markets, but also don’t want to surprise or disrupt them. But, the two are now roughly in line with the idea that the Fed is on hold and the economy continuing to chug along, a fact highlighted by data showing 128,000 jobs were created in October…”

Last week’s unemployment report was full of good news. It reported job gains and moderate pay increases, according to Barron’s, but there was a counterintuitive twist. The unemployment rate increased even though the economy added new jobs. That was good news, too, because it meant more people are returning to the workforce.

The only bad news was found in manufacturing. The October ISM manufacturing index ticked higher, but remains in contraction territory. CNBC reported, “Manufacturing has been at the heart of the economy’s sluggishness, with a drop in business investment a big reason for the third quarter’s sluggish 1.9 percent [economic] growth pace.”

Barron’s attributed softness in manufacturing to the ongoing U.S.-China trade war.

By the end of the day on Friday, the Standard & Poor’s 500 Index had closed at a record high three times in five days. The Nasdaq Composite also reached a record high.

How is it that time of year already?! Time goes by fast, and so can your money during this time of year! The holiday season always makes me think of the classic movie “Home Alone.” Kevin McCallister was accidently left behind while his entire family went to Paris on a Christmas vacation.

Weekly Market Commentary

October 28, 2019

The Markets

More money managers are feeling less bullish, but you sure couldn’t tell by the performance of U.S. stock markets last week.

So far, 2019 has been a tremendous year for U.S. stocks. Through the end of last week, the Standard & Poor’s 500 Index had gained more than 20 percent year-to-date, the Dow Jones Industrial Index was up more than 15 percent, and the Nasdaq Composite had risen more than 24 percent.

All three indices finished last week in positive territory. Lawrence Strauss of Barron’s reported signs that global markets are stabilizing supported investors’ optimism. In addition, yields on 10-year U.S. Treasury notes increased, which suggested “investors are more optimistic about growth and overall economic prospects.”

Despite strength in U.S. markets year-to-date, Barron’s most recent Big Money Poll found fewer money managers are bullish than just one year ago when 56 percent anticipated gains in the months ahead. When 134 money managers across the United States were asked about their outlook for the next 12 months:

27 percent were bullish

42 percent were neutral

31 percent were bearish

That’s the lowest level of bullishness in 20 years and the highest level of bearishness since the mid-1990s.

Barron’s reported there could be a variety of reasons for the change in attitude, including high valuations, an uncertain economic outlook, or the divisive political environment.

One money manager commented, “There are so many different headlines to watch right now…Brexit, trade, the economy, elections. Trying to predict them all correctly is like trying to predict what the weather will be like in November 2020. We might get things directionally correct, but getting them exactly right is a matter of luck more than skill.”

Weekly Market Commentary

October 21, 2019

The Markets

Last week was like an overstuffed suitcase that busts open on the baggage carousel. A lot was unpacked in a surprising and disorderly fashion.

There was some positive news for investors who prioritize fundamentals. Third quarter’s earnings season – the period of time when companies let investors know how they performed during the previous quarter – got off to a strong start.

Fifteen percent of companies in the Standard & Poor’s 500 Index have reported so far and 84 percent had earnings that beat analysts’ expectations. FactSet said better than expected earnings from companies in the Healthcare and Financials sectors balanced the weaker performance of companies in the Energy sector.

There was some negative economic news, too.

In the United States, retail sales declined in September. It was the first monthly decline since February, reported MarketWatch, and analysts had expected an increase.

In China, gross domestic product growth was 6 percent year-over-year, the slowest growth rate since the 1990s, reported Reuters.

On the geopolitical front, The Wall Street Journal reported U.S. and European investors were cheered by news that Britain and the European Union (EU) had reached an agreement under which Britain could amicably exit the EU. That optimism was dashed on Saturday when Parliament withheld approval of the deal until all supporting legislation has been passed, reported The Washington Post.

Weekly Market Commentary

October 14, 2019

The Markets

The world breathed a sigh of relief last week when the United States and China took a step toward a trade-war truce.

Financial Times reported the United States agreed to not increase tariffs from 25 percent to 30 percent on $250 billion of Chinese imports next week. (Current tariffs remain in place, and it is possible new tariffs will be imposed on additional Chinese goods – electronics, apparel, and other consumer items – in mid-December.)

In return, China agreed to purchase $40 to $50 billion of agricultural goods, including soybeans and pork, although no time frame was established for the purchases. It remained unclear what progress was made on intellectual-property protection and rules to prevent currency manipulation, reported The Wall Street Journal (WSJ).

U.S. stock markets responded enthusiastically to news about one of the great uncertainties hanging over economic growth, namely the trade war between the United States and China, might be resolved. However, after the details of the deal were announced, markets gave back some gains.

The Markets

From trade wars to impeachment inquiries, investors had a lot to ponder during the third quarter. Toward the end of September, they appeared to become more cautious, although it’s difficult to say which issues weighed most heavily. Here are a few questions they may have been asking:

Is recession looming closer?

While there are signs of slower economic growth – including last week’s weakening economic data – the chance of the economy moving into a recession during the next 12 months remained relatively low, according to the New York Federal Reserve. It put the probability of recession by August 2020 at 38 percent. In other words, the likelihood there would not be a recession was 62 percent.

“We would recommend a little less focus on the ‘recession on/off’ debate and position on a slowdown thesis,” suggested a research director cited by Barron’s.

Will the United States-China trade war end?

Your Credit Score and the SAT’s

Your credit score is kind of like taking the SAT’s (something I never want to think about again). They are both important numbers that help others make decisions about your future and most of us have very little knowledge about how exactly they are calculated.

The Markets

There’s a new theory in town.

Renowned economist Robert Shiller’s new book suggests investors may be able to predict and prepare for economic events by tracking popular stories.

Applying the theory might have been a challenge last week. There were so many stories with potential to move markets and affect the economy it was difficult to guess which would be the most influential.

In the end, on-again-off-again trade negotiations provided the spark that drove markets lower. Barron’s explained:

“The S&P 500 would have finished flat for the week – except it decided to drop 0.5 percent after reports that China had canceled a visit to Montana hit the newswires…That’s not what we would have expected, given all of the week’s excitement. Saudi Arabia’s oil infrastructure was attacked. The Federal Reserve cut interest rates by a quarter-point. U.S. money markets went crazy and forced the Fed to intervene, setting off comparisons to the collapse of Lehman Brothers in 2008. And, yet, a Montana junket was the ultimate determinant of whether the market finished up or down.”

The Markets

Where’s inflation?

If you enjoy searching for Waldo, the visual nemesis in a red-striped sweater and cap, you may appreciate the quandary of central bankers in many wealthy nations. For almost a decade, they’ve been they’ve been trying to find inflation.

Last week, there were reports of a sighting in the United States.

The core U.S. Consumer Price Index (CPI) measures changes in the prices Americans pay for goods. The Index rose 0.3 percent from July to August. It was up 2.4 percent year-to-year, reflecting the fastest annual growth rate since July 2018, reported The Wall Street Journal.

Rising healthcare costs were one reason for inflation gains, reported CNBC. In addition, Axios reported:

“The costs of the U.S. tariffs on Chinese imports clearly made an impact on the [inflation] reading, but wages also picked up notably last month as seen in the government's jobs report. The reading may indicate that inflation is making a sustained comeback.”

Weekly Market Commentary

August 26, 2019

The Markets

Have you ever watched a lake in a thunderstorm?

Heavy rain pummels the surface. Dark clouds drop the sky closer to the water. Gusty winds crash waves ashore. Up top, on land, damage may occur. Underneath, in the deeper water, things often remain pretty much the same.

Last week’s stock market volatility was like a thunderstorm on a lake. Markets were doing well until the squall brewed up on Friday. Ben Levisohn of Barron’s described it like this:

“The fun started on Friday morning, when China announced new tariffs on $75 billion of U.S. goods and a resumption of penalties on U.S. cars. Surprisingly, the market handled it pretty well. U.S. futures markets dipped into the red, but only a bit, and the market appeared ready to shrug off the news, particularly after [Federal Reserve Chair] Powell stuck to his message: The Fed will ‘act as appropriate to sustain the expansion’…That wasn’t enough for the president…he turned his wrath on China and ‘ordered’ U.S. companies to ‘immediately start looking for an alternative to China.’ Now that’s escalation – even if it’s unclear whether the president can legally do that.”