The Markets in November

The Markets in November

November was a very volatile month for stocks. By the third week of the month, benchmarks had given back nearly all of the gains from the year. However, a jump during the last week of November pushed stocks higher, and all major indexes outperformed their October end-of-the-month closing values – led by the large caps of the S&P 500 and the Dow, followed by the Global Dow and the small caps of the Russell 2000. The tech stocks of the Nasdaq were also higher, and that index maintained its lead year-to-date over the other major indexes.

Despite the positive news at month-end, fears of a slowing economy and international trade tensions will likely temper expectations for December and possibly the year ahead. Energy stocks have been hit by falling oil prices, and the yield on 10-year Treasuries fell below 3.0% after the Federal Reserve chair intimated that interest rates may not increase as aggressively as previously thought.

By the close of trading on November 30, the price of crude oil was $50.72 per barrel, down from the October 31 price of $64.95 per barrel. The national average retail regular gasoline price was $2.54 per gallon on November 26, down from the October 29 selling price of $2.81 and only $0.006 more than a year ago. The price of gold rose in November, closing at $1,227.80 on the last trading day, up from its price of $1,220.80 at the end of October.

Economic News

  • Employment: Total employment rose by 250,000 in October after adding 180,000 (revised) new jobs in September. The average monthly employment gain over the last 12 months was 211,000. Notable employment increases for the month occurred in leisure and hospitality (42,000), professional and business services (35,000), manufacturing (32,000), health care (36,000), transportation and warehousing (25,000), and construction (30,000). The unemployment rate remained at 3.7% in October. The number of unemployed persons was little changed at 6.1 million. Over the year, the unemployment rate and the number of unemployed persons declined by 0.4 percentage point and 449,000, respectively. The labor participation rate rose 0.2 percentage point to 62.9%. The employment-population ratio increased 0.2 percentage point to 60.6%. Average hourly earnings increased by $0.05 to $27.30.
  • FOMC/Interest rates: The Federal Open Market Committee met in November but did not raise interest rates, which remain at their 2.00-2.25% range. The next meeting is scheduled for December 18-19. The Fed forecast one more rate hike this year; however, it may push that into 2019, unless it determines that economic expansion and/or inflation are ratcheting up too fast.
  • GDP/Budget: The Q3 gross domestic product increased at an annual rate of 3.5%, according to the second estimates. The Q2 GDP grew at an annualized rate of 4.2%. The economy has expanded for nine consecutive years, the second-longest such streak on record. Spending by consumers and state and local governments receded in Q3. Business investment and inventories were up, likely because companies were trying to stockpile in anticipation of tariffs driving import prices higher. October was the first month of fiscal 2019 for the federal government. There was a $100.5 billion deficit in October, with government receipts totaling $252.7 billion offset by $353.2 billion in expenses. The biggest expenditures in October were Social Security ($84 billion), national defense ($69 billion), and Medicare ($53 billion). In October the government collected $129 billion in individual income taxes, but only $8 billion in corporate income taxes.
  • Inflation/Consumer spending: Inflationary pressures were subdued in October, and consumer spending was strong. According to the Personal Income and Outlays report, prices for consumer goods and services rose only 0.2% in October following a 0.1% increase in September. Core consumer prices (excluding food and energy), a tracker of inflationary trends, increased 0.1%. Core prices have increased 1.8% over the 12 months ended in October — just 0.2 percentage point below the Federal Reserve’s target for inflation. Consumer spending climbed 0.6% in October after jumping 0.2% (revised) in September. Consumer income (both pre-tax and after-tax) rose 0.5%, respectively, for the month. The Consumer Price Index rose 0.3% in October after increasing 0.1% in September. Over the 12 months ended in October, consumer prices were up 2.5%. Core prices, which exclude food and energy, climbed 0.2% for the month and are up 2.1% over the last 12 months.
  • Housing: New home sales fell 8.9% in October after declining 1.0% in September (revised) and are down 12.0% from the October 2017 estimate. The median sales price of new houses sold in October was $309,700 ($321,300 in September). The October average sales price was $395,000 ($379,000 in September). Inventory rose to an estimated 7.4-month supply, slightly ahead of September’s 7.1 months. Following six straight months of decreases, sales of existing homes increased 1.4% in October. Year-over-year, existing home sales are down 5.1%. The October median price for existing homes was $255,400, down from $258,100 in September. However, existing home prices are up 3.8% from October 2017. Total housing inventory for existing homes for sale fell from 1.88 million in September to 1.85 million in October, rendering a 4.3-month supply at the current sales pace.
  • Manufacturing: The manufacturing sector slowed in October. Industrial production edged up 0.1% following a 0.3% advance in September. For the 12 months ended in October, industrial production advanced 4.1% — down from the 5.1% annual gain in September. Manufacturing output increased 0.3% following a 0.2% increase in September. The indexes for mining and for utilities declined 0.3% and 0.5%, respectively. New orders for long-lasting durable goods fell 4.4% in October following a revised September report. Durable goods orders excluding transportation inched up 0.1%.
  • Imports and exports: The advance report on international trade in goods revealed that the trade gap expanded in October to $77.2 billion — up from $76.3 billion in September. Compared to the prior month, October exports of goods decreased $0.8 billion to $140.5 billion, while imports rose $0.2 billion to $217.8 billion. Prices for imported goods grew by 0.5% in October after climbing 0.2% (revised) in September. Export prices increased 0.4% in October following no price change in September. Over the last 12 months ended in October, import prices are up 3.5%, while export prices have advanced 3.1%.
  • International markets:The British pound remained at historically weak levels, influenced by the ongoing Brexit ordeal. The next major action in the ongoing drama involving the United Kingdom’s withdrawal from the European Union occurs on December 11, when the UK Parliament is set to vote on the proposed agreement to leave the EU. Analysts suggest that parliamentary approval of the deal is tenuous at best. A “no” vote could lead to several possible outcomes. On the trade front, heading into a meeting between President Trump with President Xi Jinping of China at the Group of 20 (G20) summit, President Trump threatened additional tariffs on Chinese imports if the meeting did not produce a favorable outcome for the United States.
  • Consumer confidence: The Conference Board Consumer Confidence Index® declined in November, following an improvement in October. While consumers’ sentiment on current business and labor market conditions improved slightly, their short-term outlook for income, business, and labor market conditions waned.

Eye on the Month Ahead

December will close out a tumultuous year for the stock market and the economy. Manufacturing, durable goods orders, and real estate are sectors that could see a push as 2018 closes. The employment sector could add more new jobs in December, although wage inflation isn’t expected to surge. Entering the holiday season, we could see already-strong consumer spending advance even further, and prices are expected to remain stable.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/ Market Data (oil spot price, WTI Cushing, OK); (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The 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 NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indices listed are unmanaged and are not available for direct investment.


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