Weekly Market Update, November 11, 2019

Presented by Mark Gallagher

General Market News
• The 10-year Treasury yield closed last Friday at 1.94 percent, its highest level since early August. The 30-year closed at 2.42 percent, and the 2-year stood at 1.67 percent. One year ago today, the 10-year stood at 3.14 percent.
• Global equity markets rallied for much of the week, as expectations rose for a “phase one” trade deal between the U.S. and China. That was until Friday, when President Trump stated he had not yet agreed on rolling back tariffs. This news came just one day after China announced that both sides had agreed to roll back tariffs.
• Last week marked the fifth straight week of gains for the S&P 500, with the more cyclical sectors—financials, energy, and materials, and industrials—leading the way. The bond proxies in REITs, utilities, and consumer staples were among the worst-performing sectors.
• On Tuesday, the Institute for Supply Management Nonmanufacturing index was released. This measure of confidence for the service sector increased by more than expected, from a three-year low of 52.6 in September to 54.7 in October. Economists had predicted a more modest increase to 53.5. This is a diffusion index, where values greater than 50 indicate expansion, so this result may help calm fears of a potential recession in the service sector.
• On Friday, the University of Michigan consumer sentiment survey was released. Consumer confidence rose from 95.5 in October to 95.7 in November, against expectations to remain flat. A stronger-than-expected October jobs report, combined with equity markets near all-time highs early in the month, helped support higher confidence levels. High consumer confidence has supported the strong consumer spending growth we’ve experienced throughout most of the year, so this result was welcome, even if it was only a modest increase in absolute terms.

Equity Index Week-to-Date Month-to-Date Year-to-Date 12-Month
S&P 500 0.93% 1.91% 25.52% 12.48%
Nasdaq Composite 1.11% 2.26% 28.91% 13.79%
DJIA 1.37% 2.50% 21.15% 8.29%
MSCI EAFE 0.54% 1.11% 18.74% 10.28%
MSCI Emerging Markets 1.50% 2.21% 13.15% 10.40%
Russell 2000 0.63% 2.37% 19.96% 2.81%

Source: Bloomberg


Fixed Income Index Month-to-Date Year-to-Date 12-Month
U.S. Broad Market –1.02% 7.74% 10.60%
U.S. Treasury –1.41% 6.26% 9.84%
U.S. Mortgages –0.26% 5.70% 8.95%
Municipal Bond –0.55% 6.36% 9.01%

Source: Morningstar Direct

What to Look Forward To
On Wednesday, the Consumer Price Index (CPI) for October is scheduled to be released. Headline inflation is set to increase by 0.3 percent during the month, following a flat September. On a year-over-year basis, economists expect headline inflation to remain steady at 1.7 percent. One of the major drivers of low headline inflation is the low gas prices we’ve seen this year. Core CPI, which strips out the impact of volatile food and energy prices, is set to show 2.4 percent annual growth.

Speaking of inflation, on Thursday, the Producer Price Index for October will be released. As was the case with consumer prices, economists expect to see headline inflation increase by 0.3 percent during the month. Core producer inflation is expected to grow at a faster rate than the headline figure. The forecast for core prices is a 1.5 percent increase on a year-over-year basis, compared to 0.9 percent annual headline inflation growth. Despite the expected uptick in both consumer and producer prices for October, inflation remains largely subdued and below the Federal Reserve’s 2 percent target.

On Friday, the October retail sales report is set to be released. Economists expect a rebound in retail sales of 0.2 percent following the 0.3 percent decline in September. September marked the first time in seven months that sales declined, so a return to growth in October would be quite welcome. Consumer spending growth powered much of the economic expansion in the second and third quarters, so continued sales growth to start the fourth quarter would bode well for overall economic growth.

Finally, we’ll finish out the week with the release of the October industrial production report. Economists are predicting another down month for industrials, with a 0.3 percent decline expected to follow the 0.4 percent drop in September. Manufacturing output is expected to fall 0.5 percent in October, matching a similar decline in September. For the second month in a row, the GM strike is partially to blame for the anticipated decline. Even before the strike, however, manufacturer confidence had dropped to recessionary levels due to the uncertainty caused by the trade war. Going forward, there may be some room for industrial production growth in November. The end of the GM strike, combined with the potential de-escalation of the trade war, could help spur manufacturer confidence and output.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.

Authored by the Investment Research team at Commonwealth Financial Network.

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