Weekly Market Update October 16, 2017

Presented by Mark Gallagher

General market news
• The yield on the 10-year Treasury was back down to 2.27 percent Monday morning after topping 2.40 percent a little more than a week ago. The 30-year, which had reached 2.93 percent (its highest point since July) opened at 2.81 percent Monday. The 2-year stood relatively steady at 1.50 percent.
• The three major U.S. indices were up modestly last week. The Dow Jones Industrial Average posted the largest gain, moving up by 0.43 percent. The Nasdaq Composite and S&P 500 followed, with gains of 0.24 percent and 0.17 percent, respectively. The international arena posted solid gains last week, with both the MSCI EAFE and MSCI Emerging Markets indices up more than 1.6 percent.
• Economists from the International Monetary Fund (IMF) revised their global growth projections, bumping them up to a rate of 3.6 percent for this year and 3.7 percent for 2018. This represents a 0.1-percent increase from the previous projection in July. IMF Chief Economist Maurice Obstfeld said that global acceleration has been more broad based than it was at the start of the decade.
• In domestic news this week, President Donald Trump issued an executive order to allow employers to pool their health insurance coverage in order to lower costs. Insurers now can offer coverage across state lines. This week also saw the release of the minutes from the Federal Reserve’s (Fed’s) September meeting. The minutes indicated that many members favor a rate hike later this year, barring any changes in the economic outlook.
• The economic data released last week was mainly positive, as the effects of the hurricanes were starting to diminish. With the release of both the Producer Price Index (PPI) and Consumer Price Index (CPI) last week, inflation was the major focus. Both figures were above the Fed’s 2-percent inflation target rate, with the PPI coming in at 2.2 percent year-over-year and the CPI increasing 2.2 percent year-over-year.
• Retail sales for September also showed a rebound from hurricane-related weakness, as a big bump in auto sales helped push this figure up to 1.6-percent growth month-over-month. This rebound is encouraging, as consumer spending is the backbone of the U.S. economy.
• Finally, on Friday, the University of Michigan Consumer Sentiment survey increased by more than expected in September. This measure now sits at a 13-year high; given the strength of the economy, a large decline is not expected next month.


Equity Index Week-to-Date Month-to-Date Year-to-Date 12-Month
S&P 500 0.17% 1.42% 15.86% 22.20%
Nasdaq Composite 0.24% 1.72% 23.82% 28.24%
DJIA 0.43% 2.14% 17.92% 29.54%
MSCI EAFE 1.63% 1.57% 22.36% 25.05%
MSCI Emerging Markets 2.08% 4.12% 33.36% 29.71%
Russell 2000 –0.49% 0.82% 11.84% 25.25%

Source: Bloomberg


Fixed Income Index Month-to-Date Year-to-Date 12-Month
U.S. Broad Market 0.33% 3.48% 1.08%
U.S. Treasury 0.27% 2.53% –0.36%
U.S. Mortgages 0.22% 2.55% 0.79%
Municipal Bond 0.41% 5.10% 2.34%

Source: Morningstar Direct

What to look forward to
This will be a relatively subdued week for economic news; however, we’ll see the release of a number of important housing data points.

On Tuesday, industrial production is expected to rise modestly following a 0.9-percent decline in August. We anticipate some lingering hurricane-related effects on this figure, as oil production was hit particularly hard by the first hurricane in August. If this measure disappoints, it would not be worrisome, as it’s likely to rebound significantly next month.

Also on Tuesday, the National Association of Home Builders survey will be released. This measure of home builder confidence is expected to decline slightly, largely due to labor and material shortages. This index remains near multi-year highs, however; any reading near current levels would indicate continued confidence.

On Wednesday, the release of September housing starts data will show if home builders are translating this confidence into new construction. While the expectation is for housing starts to remain flat, low levels of supply and rising prices may influence some growth in this figure.

Finally, on Friday, existing home sales data for September is also expected to remain flat. Supply continues to be a major concern for existing home sales, as August marked the seventh month in a row where the supply of existing homes dropped. Existing home supply now sits at lows that haven’t been seen since 1994. Demand remains strong, however, so this figure may also improve.

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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