Presented by Mark Gallagher
General Market News
• After two weeks of volatility, rates were relatively flat last week. The 10-year Treasury yield opened at 1.77 percent on Monday, and the 30-year and the 2-year opened at 2.27 percent and 1.59 percent, respectively.
• The S&P 500 and Nasdaq Composite indices both moved higher last week, while the Dow Jones Industrial Average ticked down slightly. The best-performing sectors were health care, REITs, and financial services. Health care moved higher on a strong beat from managed care provider UnitedHealth. The worst-performing sectors were energy, technology, and consumer staples, with oil (West Texas Intermediate) dropping by 1.7 percent for the week.
• One focus of the past week was the bank earnings of JPMorgan Chase, Bank of America, and Citigroup. Despite pressure on net-interest income, all three banks beat expectations, as fee income helped offset weakness in income on deposits.
• On Wednesday, September’s retail sales report was released. Headline sales disappointed, falling 0.3 percent against expectations for a 0.3 percent gain. Part of this decline can be attributed to falling gas prices. But even the core retail sales figure, which strips out the impact of gasoline and vehicle prices, disappointed by remaining flat for the month.
• On Thursday, September’s building permits and housing starts were released. Permits fell by 2.7 percent against expectations for a 5.3 percent drop. Housing starts fell by 9.4 percent during the month, against expectations for a 3.2 percent decline. Despite the decline in September, housing starts remain near post-recession highs.
|MSCI Emerging Markets||1.27%||2.41%||8.77%||8.66%|
|Fixed Income Index||Month-to-Date||Year-to-Date||12-Month|
|U.S. Broad Market||–0.17%||8.34%||10.89%|
Source: Morningstar Direct
What to Look Forward To
On Tuesday, September’s existing home sales report is set to show a modest 0.5 percent decline for the month. Despite the anticipated decline in monthly sales, however, existing home sales are expected to show strong year-over-year growth. Such a result would mark the third straight month of year-over-year growth in existing home sales. This trend is encouraging given the weakness we saw in 2018 and the beginning of this year.
On Thursday, September’s durable goods orders report will be released. Economists expect orders to decline by 0.6 percent during the month, believing that uncertainty regarding trade will slow business investment. As forecasted for the industrial production figures, the General Motors strike is likely to play a part in the predicted slowdown. Core durable goods orders, which strip out the impact of volatile transportation orders, are expected to decline by 0.3 percent.
Also on Thursday, September’s new home sales are scheduled to be released. As with sales of existing homes, new home sales are expected to show a modest 0.4 percent monthly decline, with strong year-over-year growth. Compared with existing home sales, new home sales represent a smaller and more volatile portion of the market. If new home sales decline, the broader housing market is unlikely to be affected.
Finally, we’ll finish the week with the second and final reading of the University of Michigan consumer confidence survey for October. The index is not expected to change from the preliminary reading of 96 earlier this month. If confidence remains unchanged from the start of October, this result would represent a healthy recovery from the drop to 89.8 that we saw in August and would mark the second straight month of increasing confidence. Given the slowdown we saw in September’s retail sales, continued improvements to consumer confidence would go a long way to calm concerns about a potential slowdown in the fourth quarter.
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 firstname.lastname@example.org.
Authored by the Investment Research team at Commonwealth Financial Network.
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