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Stocks Back in Record Territory For the week of November 4, 2019

Key Market Data

10/25/2019 11/01/2019 One Week Change YTD One Year
S&P 500 Index 3,022.55 3,066.91 +1.47% +24.36% +14.23%
MSCI EAFE Index 1,944.22 1,966.70 +1.16% +18.17% +11.67%
Barclays Capital U.S. Aggregate Bond Index 2,213.86 2,224.32 +0.47% +8.68% +11.25%
10-year Treasury Note Rate 1.796% 1.711% -8.5 basis points -97.4 basis points -142.0 basis points

With assists from the Federal Reserve and the Labor Department, November began with a bang, as both the S&P 500 and the Nasdaq hit new highs, while the Dow moved to within a mere 12 points of its record close back in July. Investors also cheered the fact that 80 percent of the S&P 500 companies that have reported third quarter earnings, have beat expectations. On Friday, Richard Clarida, the Fed’s Vice Chairman, said, “The U.S. economy is in a good place,” and, as of now, most investors seem to concur.

The Fed

On Wednesday, as widely expected, the Fed lowered its benchmark rate for the third time this year, cutting it to a range of 1.5 percent to 1.75 percent, which makes it cheaper for businesses and consumers to borrow, and hopefully spend, money. As for the prospect of more cuts, the Fed indicated that it was unlikely to reduce its rate again in 2019. Chairman Jerome Powell said that while the third cut would provide “some insurance against ongoing risk,” the “current stance” was “likely to remain appropriate” as long as the economy continued to expand, and the jobless rate remained low. Regarding the longer-term prospects for a rate hike, Mr. Powell said, “I think we would need to see a really significant move up in inflation that’s persistent before we would consider raising rates to address inflation concerns.”

Jobs

Investors got more good news on Friday when the Labor Department said companies added 128,000 jobs in October, well above the forecast of 95,000. The number was even more impressive after factoring in the impact of the GM strike, which idled some 46,000 workers last month, and the 20,000 temporary census takers who were laid off in October. Better still, another 95,000 jobs were added to the estimates for August and September. The unemployment rate rose to 3.6 percent from September’s 3.5 percent, but it remains near a 50-year low. Wages were up 3 percent from a year earlier. The labor force participation rate climbed to 63.3 percent and the percentage of prime-age workers, 25 to 54, who had jobs increased to 80.3 percent, the highest level since 2007. In addition to driving the S&P 500 and the Nasdaq to record highs, the good news about jobs and the economy also boosted the price of oil, with Brent crude moving back about the $60-a-barrel mark at week’s end.

The trade talks

Not all of last week’s reports were quite as upbeat. For instance, there was conflicting news about the status of phase one of the trade deal between the U.S. and China. The plan was to sign the deal at an economic conference in Chile later this month, but Chile cancelled that conference amid riots and protests there. President Trump said that a new site would be announced soon and that phase one represented “a very big portion of the China deal.” Stocks sagged on Thursday after Bloomberg reported that a Chinese official said a more comprehensive deal between the two countries was unlikely anytime soon, but on Friday the Chinese Ministry of Commerce said that a consensus in principle had been reached on “core” trade issues.

In addition, the government’s first estimate for third-quarter growth came in at 1.9 percent, better than expected but still below the second quarter’s pace of 2 percent. On the plus side of the ledger, consumer spending rose at an annual rate of 2.9 percent, while government spending advanced at a 2 percent clip. Business spending, however, continued its recent decline, off 3 percent. The Federal Reserve Bank of Atlanta has now lowered its forecast for fourth-quarter GDP down to 1.1 percent. And while it was up from last month’s figure, the Institute for Supply Management’s manufacturing purchasing managers’ index was 48.3 in October after 47.8 in September, which had been a 10-year low; any reading below 50 indicates contraction.

Brexit

The ongoing Brexit drama took a new turn last week when Parliament, which had at first rejected Prime Minister Boris Johnson’s request for a “snap” election on Dec. 12, moved to approve it, setting the stage for yet another showdown in Britain’s ongoing divorce from the European Union. Mr. Johnson said the election will allow Britain to “break free from this impasse, and to allow us all to submit, as we must in humility, to the judgment of the electorate.”

A merger, an acquisition, and an IPO

There were several major moves in the corporate world last week. For instance, Fiat-Chrysler and Peugeot announced a $50-billion merger that will make the new company the fourth largest auto manufacturer in the world, ahead of GM. Google said it was going to expand its business footprint by buying Fitbit for $2.1 billion. And on Sunday, Aramco, Saudi Arabia’s oil company, announced its much delayed IPO which is expected to feature the largest valuation ever, coming in at around $1.6 trillion.

In other news, personal income rose 0.3 percent in September from August, while personal consumption expenditures were up 0.2 percent. The PCE price index fell less than 0.1 percent. For the year, the PCE inflation index rose 1.3 percent; core PCE, less food and energy, was unchanged month over month but up 1.7 percent year over year. Construction spending advanced 0.5 percent in September from August. The S&P CoreLogic Case-Shiller home price index was up 3.2 percent in August from a year earlier. The National Association of Realtors said that pending home sales increased 1.5 percent in September from August and were up 6.3 percent from September of 2018, the biggest year-over-year gain since 2015. The Conference Board’s reading for consumer confidence dipped to 125.9 in October from 126.3 in September, while the Bloomberg consumer confidence had its biggest week-over-week drop in eight years, falling from 63.5 to 61. And first-time jobless claims for the week ending Oct. 26 rose 5,000 to 218,000; the four-week moving average was 214,750, down 500 from the week before.

A look ahead

This week’s updates will include the latest on factory orders, the trade balance, job openings, the ISM’s nonmanufacturing index, and consumer sentiment.

Commentary is written to give you an overview of recent market and economic conditions, but it is only our opinion at a point in time and shouldn’t be used as a source to make investment decisions or to try to predict future market performance. To learn more, click here.