The Markets in November

The Dow rose more than 300 points on the last day of November, closing above 24000 for the first time in its history. Hopes for the tax overhaul bill likely supported this. Each of the benchmark indexes listed here posted favorable gains for the month. The Nasdaq continued strong performance in 2017, gaining over 2.0% in November, while the small caps of the Russell 2000 climbed nearly 3.0%. The S&P 500 gained 2.8% for the month, and joined the Dow in posting eight consecutive monthly positive returns. With stocks up, it is no surprise that long-term bond prices fell, with the yield on 10-year Treasuries up 4 basis points over October.

By the close of trading on November 30, the price of crude oil (WTI) was $57.39 per barrel, up from the October 31 price of $54.54 per barrel. The national average retail regular gasoline price was $2.533 per gallon on November 27, up from the October 30 selling price of $2.488 and $0.379 more than a year ago. The price of gold increased by the end of November, closing at $1,277.40 on the last trading day of the month, up $5.60 from its price of $1,271.80 on October 31.

This chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Economic News

Employment. Total employment rose by 261,000 in October. The unemployment rate edged down to 4.1%. The number of unemployed persons declined by 281,000 to 6.5 million. Since January, the unemployment rate has declined by 0.7 percentage point, and the number of unemployed persons has decreased by 1.1 million. The labor participation rate decreased by 0.4 percentage point to 62.7%. The average workweek for all employees remained 34.4 hours in October.

FOMC/interest rates. The Federal Open Market Committee met in late October and left the target federal funds rate range at 1.00-1.25%. However, some economic indicators show mild inflationary pressures, which when coupled with a labor market near full employment could lead to another interest rate hike when the Committee next meets this month. The FOMC will likely be under new leadership, as Jerome Powell was nominated to succeed Janet Yellen as Fed chair.

GDP/budget. The second estimate of the 3Q gross domestic product showed expansion at an annual rate of 3.3%, according to the Bureau of Economic Analysis. The 2Q GDP grew at an annualized rate of 3.1%. Gross domestic income, which includes all income earned while producing goods and services, increased 2.5% in 3Q compared to an increase of 0.9% in 2Q. The budget deficit for October was $63.24 billion (versus $45.83 billion in October 2016). The federal deficit for fiscal 2017 was $665.7 billion, 13.7% higher than the 2016 deficit.

Inflation/consumer spending. Inflationary pressures continued in October. The personal consumption expenditures (PCE) price index (a measure of what consumers pay for goods and services) was up 0.3% for the month. The core PCE price index (excluding energy and food) inched ahead 0.2% in October. Personal (pre-tax) income increased 0.4% and disposable personal (after-tax) income gained 0.5% from the prior month. Personal consumption expenditures (the value of the goods and services purchased by consumers) climbed 0.3% in October after jumping a robust 1.0% the prior month.

The Consumer Price Index edged up only 0.1% in October. For the 12 months ended in October, consumer prices are up 2.0%, a mark that approaches the Fed’s 2.0% target for inflation. Core prices, which exclude food and energy, increased 0.2% in October, and are up 1.8% over the prior 12 months.

The Producer Price Index showed the prices companies receive for goods and services grew 0.4% in October, the same as September. Year-over-year, producer prices have increased 2.8%. Prices less food and energy increased 0.4% for the month and are up 2.3% over the past 12 months.

Housing. The housing sector continued to gain momentum. Total existing-home sales increased 2.0% in October. For the last 12 months, sales of existing homes were down 0.9%. Inventory for existing homes fell 3.2% for the month, a 3.9-month supply. The Census Bureau’s latest report shows sales of new single-family homes were up 6.2%. The number of houses for sale at the end of October was 282,000 (279,000 in September), which represents a supply of 4.9 months at the current sales rate.

Manufacturing.  Industrial production increased 0.9% in October; it is up 2.9% over the last 12 months. Capacity utilization increased slightly from 76.0% in September to 77.0% in October. Manufacturing output climbed 1.3%; mining output fell 1.3% in the month. The index for utilities jumped 2.0%. New orders for manufactured durable goods fell 1.2% in October following monthly increases of 2.2% and 1.7%. Shipments of manufactured goods, up five of the last five months, increased 0.1.

Imports and exports.  An advance report on international goods trade showed that the trade gap for October was $68.3 billion, up from $64.14 in September. Exports of goods for October were $129.1 billion, $1.0 billion less than September exports. Imports of goods for October were $197.4 billion, $1.5 billion more than September imports.

International markets. In a sign that the European economy is strengthening, the Bank of England raised its benchmark interest rate by 25 basis points in November. Germany, Italy, and Finland saw their 3Q GDPs expand beyond expectations, while economic growth slowed in France, Spain, and the Netherlands. Japan’s GDP expanded at an annualized rate of 1.4% in 3Q, largely driven by exports.

Consumer sentiment.  Consumer confidence remains at a 17-year high, as measured by The Conference Board Consumer Confidence Index®, increasing in November to 129.5.

The Month Ahead

All indications are that the Federal Reserve will relax economic stimulus by increasing the federal funds interest rate when the Committee meets this month. December should be a good month for consumer spending after robust consumer sales on Black Friday and Cyber Monday. Although trading usually slows during December, stocks are expected to close the year ahead of their 2016 values.

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.


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