Presented by Mark Gallagher

General market news
• The 10-year Treasury yield reached 2.45 percent twice last week before retreating on Friday and opening lower on Monday at 2.38 percent. Similarly, the 30-year Treasury was as high as 2.97 percent last week before pulling back on Friday and opening at 2.90 percent on Monday.
• The three major U.S. indices continued higher last week. The Nasdaq posted the largest gain of 1.09 percent, prompted by the earnings of Alphabet and Microsoft, which pushed the heavily tech-weighted Nasdaq higher. The Dow Jones Industrial Average posted a gain of 0.45 percent, followed by the S&P 500’s gain of 0.23 percent.
• President Mario Draghi of the European Central Bank (ECB) announced that the ECB would begin to taper its quantitative easing (QE) program in January. The taper will halve its QE bond buying from €60 billion per month to €30 billion per month until the end of September 2018. The ECB reaffirmed that rates would remain at current levels past the end of the QE program.
• In domestic news this week, the House of Representatives passed the Senate’s budget bill, making the passage of a tax reform package without Democratic support a possibility.
• U.S. technology led the gains last week, which was followed by consumer discretionary and materials. The lagging sectors were telecom, health care, and real estate. Health care was hit by a sales miss from Celgene and added pressure, as Donald Trump declared a public health emergency over the opioid crisis.
• The economic data released last week came in better than expected, as the economy remains healthy in the face of external pressures. On Wednesday, durable goods orders rose 2.2 percent against expectations of a modest 1-percent gain. The September growth helps assuage concerns around the potential effect of the hurricanes on business confidence.
• Also on Wednesday, new home sales outperformed by growing an eye-popping 18.9 percent in September. After a slowdown in August and expectations for a 1.1-percent decline, this increase was particularly notable.
• On Friday, the University of Michigan Consumer Sentiment Survey declined slightly, but consumer confidence remains very strong.
• Finally, the first estimate for third-quarter GDP also surprised to the upside, with 3-percent annualized growth. Given the negative effects of the storms and the uncertainty surrounding tax and health care reform during the quarter, this better-than-expected growth is certainly welcome.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to
It will be a busy week on the data front, and we’ll get a wide-ranging look at the economy.

On Monday, personal income came in with 0.4-percent growth for September, up from 0.2 percent in August, which was expected. Personal spending was up by 1 percent, which was slightly above expectations of 0.9-percent growth and well above the August level of 0.1 percent. Both of these numbers were affected by the hurricanes, with spending particularly inflated as new autos replaced those destroyed by the storms and gasoline prices rose. These are solid numbers and suggest continued growth.

On Tuesday, the consumer confidence survey will be released and is expected to increase from 119.8 to 121. This remains at a very strong level historically, and the improvement would be due to lower gas prices from the post-hurricane spike and a strong job market. Strong consumer confidence is likely to keep spending growing, which would be a boon for the economy.

The regular meeting of the Federal Open Market Committee will conclude on Wednesday. There is hope for the possible announcement of President Trump’s selection for the next chair of the Federal Reserve, which would be big news.

Also on Wednesday, the Institute for Supply Management (ISM) Manufacturing Index is expected to pull back slightly from 60.8 to a very strong 59. Last month’s spike was largely due to technical adjustments after the hurricanes, so a small reduction was expected. Similar to the ISM Manufacturing Index, the ISM Non-Manufacturing Index is expected to decline slightly from 59.8 to 58 on Friday. Both of these indices indicate solid growth.

The international trade report, which will be released on Friday, is expected to pull back a bit, from a deficit of $42.4 billion in August to $43.5 billion in September. This is also due to hurricane effects, as petroleum exports were shut down during the storms. Preliminary data shows that the trend has reversed, so the pullback is of little concern, as export growth continues.

Finally, on Friday, the employment report is expected to show a major reversal of the hurricane-induced job loss seen last month. Job growth is expected to swing from a loss of 33,000 in September to a gain of 310,000 in October. Wage growth is expected to drop back from 0.5-percent growth to 0.2-percent growth, as overtime pay due to the storms drops out of the data. Other indicators are expected to remain steady, with unemployment at a very low 4.2 percent and the average workweek remaining at 34.4 hours. If the numbers come in as expected, this would be another strong report.

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.

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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.

© 2017 Commonwealth Financial Network®

Presented by Mark Gallagher

General market news
• The yield on the 10-year Treasury opened this Monday at 2.34 percent, up from last week’s low of 2.27 percent. The 30-year yield opened at 2.89 percent, which was also up slightly from last week’s 2.80-percent low. This move may be attributed to the optimism surrounding possible tax reform. As the 10-year Treasury has remained fairly range bound, the 2.45-percent level will be a strong technical level to keep watching.
• The S&P 500 posted its sixth consecutive week of gains, rising 0.88 percent, as a resolution on the 2018 fiscal budget saw domestic markets react favorably. The budget resolution paves the way for tax reform plans. The Nasdaq Composite also saw an increase of 0.36 percent. But it was the Dow Jones Industrial Average that led domestic markets last week with a gain of 2.04 percent, as Johnson & Johnson (JNJ), UnitedHealth (UNH), Goldman Sachs (GS), and IBM (IBM) all surprised to the upside on Tuesday. Later in the week, though, General Electric (GE) missed big on earnings as both its power and oil and gas business weighed on results. GE is the Dow’s worst-performing stock year-to-date.
• Last week’s top-performing sectors were financials, health care, and utilities, while consumer staples, real estate, and energy were among the laggards.
• International markets were down slightly last week, as uncertainty over the details of Brexit and Catalonia independence lingered.
• The economic data released last week focused primarily on the housing market. The numbers were mixed; builder confidence improved, but construction-related activity decreased slightly. Last Tuesday, the National Association of Home Builders Housing Market Index came in better than expected, increasing from 64 to 68 against expectations that it would remain flat. Despite the increase in confidence, housing starts and building permits declined slightly on Wednesday. Given the low levels of supply and high builder confidence, these measures may improve next month.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to

This week will be a relatively slow one, but it still will give us a look at the economy as a whole.

On Wednesday, the durable goods orders data will indicate how business investment is doing. The headline number is expected to rise by 1.3 percent in September, down from a 2-percent gain in August. While this still would be a solid number, it would have some downside risk, as commercial aircraft orders are extremely volatile. The core index, which excludes transportation and is a better economic indicator, is expected to grow by 0.4 percent in September. This would be down from 0.5-percent growth in August, but it would indicate continued healthy business investment growth.

Also on Wednesday, the new home sales report is expected to tick down slightly from 560,000 in August to 550,000 in September. August’s number was a surprise drop to its lowest level since the end of 2016, so there may be some upside risk of a bounce back. If the number comes in as expected, it would suggest a continued moderation in housing demand.

Finally, on Friday, the first estimate of economic growth for the third quarter will be released in the gross domestic product report. Expectations are for growth to drop from 3.1 percent in the second quarter to 2.5 percent, which still would be reasonably healthy. The slowdown is expected to come from slower consumption growth and lower government spending, although those would be partially offset by faster business investment growth. Overall, if the numbers come in as expected, they would indicate continued but moderate growth. This would be considered a positive sign going forward.

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 7^th 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.

© 2017 Commonwealth Financial Network^®

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.

Source: Bloomberg

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.

© 2017 Commonwealth Financial Network®

Presented by Mark Gallagher

General market news
• Treasury yields were flat last week after selling off the week before on renewed optimism regarding tax reform. The 10-year Treasury ended the week where it started, at 2.35 percent. The 30-year bond was also flat, remaining at 2.89 percent. The bond market is closed on Columbus Day, but the equity markets are open.
• All of the major U.S. indices were up by more than 1 percent last week. The Dow Jones Industrial Average led the way with a gain of 1.70 percent. This was followed by the Nasdaq Composite’s 1.48-percent move. The S&P 500 brought up the rear with a 1.25-percent increase.
• Equity markets shook off the first decline in U.S. payrolls in seven years as they continued to focus on positive moves toward U.S. tax reform. On Thursday, the U.S. House of Representatives approved a 2018 fiscal year budget blueprint. Congress must pass the 2018 budget before introducing a tax bill.
• In other news last week, Bloomberg News released a short-list of potential candidates for the next chair of the Federal Reserve (Fed). The potential candidates included Jerome Powell, Kevin Warsh, Gary Cohn, and John Taylor. Warsh and Taylor are more hawkish.
• Lastly, the top-performing sectors of the week included financials, materials, and consumer discretionary. The worst performers were consumer staples, telecom, and energy, as oil prices retreated.
• Last week’s economic data was mainly positive, with a slight weather-related weakness in employment. The week began with the release of the Institute for Supply Management (ISM) Manufacturing Index, which rose more than expected. In fact, this measure of manufacturers’ confidence now sits at a 13-year high.
• Business confidence translated into hard spending as well. On Thursday, durable goods orders, factory orders, and capital goods orders all came in higher than expected. This is a very positive development for fourth-quarter growth.
• Finally, on Friday, the employment report came in below expectations, with a loss of 33,000 jobs. This was due primarily to the effects of the recent hurricanes and is expected to be transitory. The underlying data was more positive than the headline figure, as unemployment and underemployment dropped and average hourly earnings increased.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to
We’ll see a wide range of economic news toward the end of this week, including consumer prices, retail sales, and national sentiment.

On Wednesday, the Fed will release the minutes of its last meeting. The Fed already announced its plan to reduce the balance sheet. So what markets will be looking for is information on how the Fed feels about low inflation—and what that means for interest rates. Markets currently expect another rate increase in December, and the minutes could reveal whether the Fed is as hawkish as the markets think it is.

On Friday, the Fed will get some more data to chew on with the release of consumer prices. The headline Consumer Price Index is expected to rise by 0.6 percent on the month and 2.3 percent on the year. This would be up from increases of 0.4 percent and 1.9 percent, respectively, in the last report. This uptick reflects a post-hurricane surge in gasoline prices, due to a 10-percent decline in U.S. refining capacity. As such, the Fed will likely deem the data as temporary and not worrisome. Core prices, which exclude food and energy, are expected to increase by a modest 0.2 percent on the month (the same as last month) and 1.8 percent on the year, which is up slightly from a 1.7-percent increase in the last report. These numbers are more relevant for the economy, and they suggest that inflation continues to run low. The Fed may be more cautious about raising rates as a result.

Also on Friday, the retail sales report is expected to show substantial hurricane-related distortions. A gain of 1.6 percent is expected for the headline index, which includes transportation. This is a significant improvement from last month’s 0.2-percent drop and can be attributed largely to an increase in auto sales to replace those destroyed in the storms. The core index, which excludes auto sales, is also expected to rise—up 0.9 percent, compared with just 0.2 percent last month. This likely will be due in part to the higher gas prices that also drove up inflation. If sales in other areas have increased, the hurricanes probably make this month’s data too noisy to draw broad conclusions. A strong result, however, would be interpreted as positive overall.

Finally, on Friday, the University of Michigan consumer sentiment survey is expected to drop slightly from 95.1 to 95.0. This would indicate that the hurricanes have had almost no effect on national sentiment—despite disruptions in the job market and a rise in gas prices. That resilience is a reflection of solid fundamentals, which is a good sign going forward. Despite stressful events, overall confidence is likely to remain strong.

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.

© 2017 Commonwealth Financial Network®