Weekly Market Update, January 14, 2019

Posted on January 14, 2019 by Neal Gallagher

Presented by Mark Gallagher

General market news
• After several weeks of rates moving lower across the curve—with the 10-year U.S. Treasury reaching a low of 2.54 percent a little more than a week ago—rates were back up last week. The 10-year opened at 2.68 percent early Monday, while the 30-year opened just above 3 percent and the 2-year opened at 2.52 percent. Some parts of the curve remain inverted and, in some cases, are slightly deeper than in weeks past. Once the inversion process begins, the curve typically becomes fully inverted within months, which has historically indicated oncoming recessions.
• The three major U.S. markets all finished the week higher, as Chinese economic stimulus and stronger-than-expected employment data eased fears of a deceleration in global growth. After extending talks for an additional day, Chinese and U.S. negotiators came away with positive sentiment following their discussions.
• The top-performing sectors were industrials, REITs, consumer discretionary, and technology. These cyclical sectors continued their rebound from December’s sell-off as trade talks and strong employment sparked an uptick in investor confidence.
• Last week saw the release of a handful of important economic updates; however, the ongoing government shutdown has delayed some data releases. On Monday, the Institute for Supply Management Nonmanufacturing index declined to 57.6, down from the previous reading of 60.7.
• On Friday, the Consumer Price Index showed annual consumer inflation of 1.9 percent, which is down from the previous level of 2.2 percent. Inflation at these levels is largely in line with Federal Reserve (Fed) targets.

Equity Index	Week-to-Date	Month-to-Date	Year-to-Date	12-Month
S&P 500	2.58%	3.63%	3.63%	–4.34%
Nasdaq Composite	3.45%	5.09%	5.09%	–2.29%
DJIA	2.42%	2.93%	2.93%	–4.02%
MSCI EAFE	2.89%	3.90%	3.90%	–12.64%
MSCI Emerging Markets	3.77%	3.70%	3.70%	–13.96%
Russell 2000	4.84%	7.36%	7.36%	–7.57%

Source: Bloomberg

Fixed Income Index	Month-to-Date	Year-to-Date	12-Month
U.S. Broad Market	0.18%	0.18%	0.66%
U.S. Treasury	–0.02%	–0.02%	1.46%
U.S. Mortgages	0.17%	0.17%	1.52%
Municipal Bond	0.32%	0.32%	2.03%

Source: Morningstar Direct

What to look forward to
This week’s data starts with prices and whether inflation is picking up. On Tuesday, the producer prices report will be released. The headline index, which includes energy and food, is expected to drop by 0.1 percent for December, down from a 0.1-percent increase in November, on declines in gasoline and commodity prices. The annual change is expected to stay steady at 2.5 percent, on base effects, indicating that longer-term inflation pressures remain elevated above the Fed’s target range but may be moderating. The core index, which excludes energy and food, is also expected to show slower growth, at 0.2 percent for December, down from 0.3 percent for November. Here, the annual figure is expected to rise from 2.7 percent to 3 percent, also on base effects. This increase will keep some pressure on the Fed to raise rates.

Also on Tuesday, the retail sales report is due, but it will not be released until the end of the federal government shutdown. If it is released, it is expected to show faster growth, rising from 0.2 percent in November to 0.3 percent in December. Core retail sales, which exclude autos, are expected to be steady, with December growth of 0.2 percent. There may be some downside risk to these numbers, with the fading of the tax cut boost and recent turbulence in the financial markets.

The National Association of Home Builders survey will also be released on Tuesday. It is expected to bounce back slightly, rising from 56 in December to 57 for January, after a large drop over previous months. On Thursday, the housing starts report will be released if the government reopens. It is expected to drop slightly, from 1.256 million to 1.253 million annualized, although the survey results and building permit data suggest the final result might be better than expected. Overall, these figures would suggest the housing slowdown may be moderating if they come in as expected.

On Friday, the industrial production report is expected to pull back from a surprise gain of 0.6 percent for November to a still healthy gain of 0.3 percent for December. There may be some downside risk here, on a weather-related decrease in utility production. Manufacturing is expected to do well, with growth rising from flat in November to growth of 0.3 percent for December. There may be some downside risk here, as surveys have weakened recently.

Finally, the University of Michigan consumer confidence survey, also released on Friday, is expected to show confidence pulling back further from 98.3 for December to 96.4 for January. This would remain a high level, historically, and suggests that consumers are not significantly worried about the recent stock market turbulence or the trade war, given the continued strong labor market and decline in gas prices. This level should continue to support consumer spending and economic growth.

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 U.S. 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 U.S. 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 U.S. 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.

Weekly Market Update, December 17, 2018

Posted on January 3, 2019 by Neal Gallagher

Presented by Mark Gallagher

General market news
• The 10-year U.S. Treasury opened at 2.87 percent early Monday, while the 30-year opened at 3.13 percent. The 2- to 5-year part of the curve remains slightly inverted, with the 2-year yielding about 0.08 percent more than the 5-year. The 3-year currently has the lowest yield of all three Treasuries, at 2.715 percent, and has the deepest inversion with a yield of 0.1 percent below the 2-year. The market will be paying close attention to the Federal Reserve (Fed) on Wednesday, which seems to be set on raising rates.
• Domestic and global markets continued their pullback last week, as Chinese-led global growth concerns and risk-off sentiment remained. Softer November activity data in China also continued concerns surrounding global growth. November industrial output reached a level of just 5.4 percent, below that of the 5.9 percent expected. Among the top underperformers were financials and energy, as oil weakness and the inverted yield curve between the 2- and 5-year Treasuries continue to weigh on the sectors.
• Other political concerns did not help the cause, as the Brexit picture remains murky and President Trump feuded with Nancy Pelosi and Chuck Schumer on immigration policy. This conflict could lead to yet another government shutdown. The U.S.-China trade truce story continues to be positive, but there are more details to be hashed out.
• There were several data points released last week. On Tuesday, the Producer Price Index showed year-over-year inflation of 2.5 percent for producers, which was in line with expectations and below October’s figure of 2.9 percent. On Wednesday, the Consumer Price Index also showed slowing inflation, with 2.2-percent annual growth in November, compared with 2.5-percent growth in October. The current downward trend in these two popular measures of inflation is an encouraging sign for the economy.
• On Friday, retail sales came in slightly better than expected with 0.2-percent monthly growth, against expectations for a modest 0.1-percent bump. This result follows strong 1.1-percent growth in October.

Equity Index	Week-to-Date	Month-to-Date	Year-to-Date	12-Month
S&P 500	–1.22%	–5.72%	–0.90%	–0.04%
Nasdaq Composite	–0.82%	–5.67%	1.15%	1.87%
DJIA	–1.17%	–5.56%	–0.28%	0.58%
MSCI EAFE	–0.89%	–3.12%	–11.80%	–10.23%
MSCI Emerging Markets	–0.95%	–2.26%	–13.95%	–10.87%
Russell 2000	–2.52%	–7.92%	–7.01%	–5.16%

Source: Bloomberg

Fixed Income Index	Month-to-Date	Year-to-Date	12-Month
U.S. Broad Market	0.91%	–0.90%	–1.01%
U.S. Treasury	0.94%	–0.34%	–0.55%
U.S. Mortgages	0.75%	–0.06%	–0.15%
Municipal Bond	0.48%	0.57%	0.64%

Source: Morningstar Direct

What to look forward to
This week is a busy one on the economic front, with several reports on housing, a look at durable goods demand, and the consumer income and spending report.

On Monday, the National Association of Home Builders survey showed another unexpected drop, going to 56 for December. This result was worse than a small expected increase to 61 and down from 60 in November, which itself was a surprise drop from 68 in October. This suggests that the housing market may well continue to weaken.

The housing starts report will be released on Tuesday. It is expected to stay steady at 1.23 million annualized, after a small increase last month. A decline in building permit data, however, suggests the final result might be somewhat worse than expected.

On Wednesday, the existing home sales report is also expected to show sales decreasing slightly. They should go from 5.22 million in October to 5.20 million in November. Housing in general appears to be in a slowing trend, but this data would suggest that slowing is steady rather than accelerating.

Also on Wednesday, the Federal Reserve Open Market Committee will conclude its regular meeting with a press conference. Markets expect the Fed to raise its baseline rate by 25 basis points once more. But the real focus will be on what Chair Powell indicates about the pace of rate increases in 2019. With recent assumptions that the Fed is becoming more dovish, markets will be watching closely.

On Friday, we’ll see the durable goods orders report. The headline index is expected to rebound substantially from last month, from a 4.3-percent decline in October to a gain of 2 percent in November, on an increase in aircraft orders. This headline index is notoriously volatile, as we can see. The core index, which excludes transportation and is a much better economic indicator, is expected to improve from 0.2-percent growth in October to 0.3-percent growth in November, on steady growth in business investment. This would be a healthy level of growth, although there may be some upside risk here as industry surveys improved in November.

Finally, also on Friday, the personal income and spending report will be released. It is expected to show that personal income rose by 0.3 percent in November, down from 0.5-percent growth in October, on slower job and labor demand growth. Personal spending growth is expected to decline from 0.6 percent in October to 0.3 percent in November, on a decline in gasoline prices that will offset rising retail sales. This would remain a healthy level of spending growth and would be well supported by the income growth.

Authored by the Investment Research team at Commonwealth Financial Network.

Weekly Market Update, November 26, 2018

Posted on November 27, 2018 by Neal Gallagher

Presented by Mark Gallagher

General market news
• Rates were flat or slightly down during the shortened Thanksgiving week. On Monday morning, the 10-year Treasury opened at 3.05 percent, the 2-year opened at 2.84 percent, and the 30-year opened at 3.32 percent. During the previous week, rates dropped by as much as 20 basis points.
• All three major U.S. markets were down last week, as oil and technology stocks continued to decline. West Texas Intermediate crude oil dropped more than 9 percent to $51.28 due to ongoing supply concerns and decreasing demand. Oil also faced pressure on news that Saudi Arabia may not force an oil production cut.
• Apple (AAPL) and Facebook (FB) both faced their own issues last week. Apple shares came under pressure after the Wall Street Journal reported that the company had cut its production of all three versions of its new phones launched in September. Facebook CEO and founder Mark Zuckerberg is reportedly unhappy with the way Sheryl Sandberg, chief operating officer, handled the Cambridge Analytical scandal, leading to concerns over a change of key personnel at the company.
• Last week was relatively busy, even with the Thanksgiving holiday. On Tuesday, October’s housing starts and building permits reports came in. These were a mixed bag, as housing starts rose slightly while permits declined slightly.
• On Wednesday, October’s durable goods orders fell by 4.4 percent, against expectations for a more modest 2.6-percent loss. This miss was largely due to a decline in volatile aircraft purchases. The core figure, which strips out transportation, rose by 0.1 percent.
• Finally, also on Wednesday, the University of Michigan consumer sentiment survey declined slightly from 98.3 to 97.5. This still represents a very healthy level of consumer optimism heading into the important holiday shopping season.

Equity Index	Week-to-Date	Month-to-Date	Year-to-Date	12-Month
S&P 500	–3.77%	–2.74%	0.18%	3.11%
Nasdaq Composite	–4.25%	–4.89%	1.51%	1.82%
DJIA	–4.40%	–3.05%	0.26%	5.42%
MSCI EAFE	–1.08%	–1.05%	–9.79%	–8.44%
MSCI Emerging Markets	–1.72%	1.43%	–14.30%	–13.69%
Russell 2000	–2.53%	–1.41%	–2.00%	–0.76%

Source: Bloomberg

Fixed Income Index	Month-to-Date	Year-to-Date	12-Month
U.S. Broad Market	0.46%	–1.92%	–1.86%
U.S. Treasury	0.74%	–1.41%	–1.57%
U.S. Mortgages	0.51%	–1.19%	–1.18%
Municipal Bond	0.56%	–0.45%	0.14%

Source: Morningstar Direct

What to look forward to
This week is a busy one on the economic front, giving us a wide range of information on where the economy is going.

On Tuesday, the Conference Board Consumer Confidence Index is expected to pull back slightly, from an almost two-decade high of 137.9 to a still very high 136.2. This pullback would be due to rising gas prices and recent stock market turbulence. Even with the pullback, confidence would remain close to its highest level in the past 20 years and would be supportive of continued growth.

On Wednesday, the second estimate of third-quarter gross domestic product growth is expected to be slightly better than the previous estimate, coming in at 3.6 percent. This number would indicate continued healthy growth, but it would also suggest that growth at the level of the first quarter may not be sustainable.

Also on Wednesday, the new home sales report is expected to improve, from 553,000 to 583,000, after a disappointing result last month. If the number comes in as expected, it will signal that while housing growth continues to slow, the downtrend may not be quite as bad as last month’s data suggested.

On Thursday, the personal income and spending report will be released. It is likely to show that personal income rose by 0.4 percent in October, up from 0.2 percent in September, due to faster job and wage growth. There may be some upside risk here, as hours worked also likely rose last month. Personal spending is expected to stay steady at 0.4 percent in October, the same as in September, due to a rebound in services spending. This result would indicate that spending growth remains at a healthy level and would be well supported by income growth.

Finally, on Friday, the minutes from the November Federal Reserve (Fed) meeting will be released. Markets are looking for confirmation that a rate hike is on the way in December and for the Fed’s reaction to weaker business investment. They will also be looking, probably in vain, for any hints that the Fed may slow or delay the rate increase process.

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.

Authored by the Investment Research team at Commonwealth Financial Network.

Weekly Market Update, November 19, 2018

Posted on November 19, 2018 by Neal Gallagher

Presented by Mark Gallagher

General market news
• Yields fell across the curve last week, with the largest declines on the short end of the curve. The 10-year Treasury opened the week at 3.08 percent, while the 30-year fell to 3.34 percent.
• All three major U.S. markets were down on the week. The consumer discretionary, technology, and energy sectors were among the worst performers. Despite a solid October retail sales print, the earnings within that sector displayed signs of challenges. Macy’s (M) missed expectations and saw an increase in capital expenditures. Nordstrom (JWN) also missed on comparable sales and inventory levels. Dillard’s (DDS) and JCPenney (JCP) both had to increase promotional activity to drive sales, which hurt margins. Nvidia (NVDA) fell by more than 20 percent, as it lowered guidance following a softer cryptocurrency sales demand. Finally, we saw West Texas Intermediate fall by another 6 percent, moving it into bear market territory.
• On Wednesday, the Consumer Price Index showed year-over-year consumer inflation of 2.5 percent, which was in line with expectations and supports another Federal Reserve rate hike in December.
• On Thursday, October’s retail sales data showed stronger-than-expected growth of 0.8 percent on a month-over-month basis. The core figure that strips out volatile auto sales was also up a strong 0.7 percent.

Equity Index	Week-to-Date	Month-to-Date	Year-to-Date	12-Month
S&P 500	–1.54%	1.07%	4.11%	7.88%
Nasdaq Composite	–2.09%	–0.67%	6.00%	7.81%
DJIA	–2.15%	1.41%	4.87%	10.78%
MSCI EAFE	–1.42%	0.03%	–8.85%	–5.72%
MSCI Emerging Markets	1.05%	3.21%	–12.73%	–9.89%
Russell 2000	–1.37%	1.15%	0.55%	4.06%

Source: Bloomberg

Fixed Income Index	Month-to-Date	Year-to-Date	12-Month
U.S. Broad Market	0.43%	–1.95%	–1.59%
U.S. Treasury	0.60%	–1.55%	–1.48%
U.S. Mortgages	0.58%	–1.13%	–0.96%
Municipal Bond	0.35%	–0.67%	–0.40%

Source: Morningstar Direct

What to look forward to
This week is a short but busy one on the economic front, with several reports on housing and a look at durable goods demand.

On Monday, the National Association of Home Builders (NAHB) Housing Market Index was released. This report came in well below expectations, down from 68 for October to 60 for November. This decline came despite reports of strong prospective buyer numbers and low lumber prices, suggesting that the housing slowdown will continue.

This result also calls into question the expectations around other housing reports. For example, on Tuesday, the housing starts report is expected to show a small increase after a decline last month, rising from 1.20 million in September to 1.23 million (annualized) in October. Building permit data suggests, however, that the final number might be even better than expected. On Wednesday, the existing home sales report is expected to show sales increasing slightly, from 5.15 million in September to 5.20 million in October. Housing in general appears to be in a slowing trend, but this data would suggest that the slowdown may be moderating, which would contradict the NAHB survey results.

Also on Wednesday, the headline index of the durable goods orders report is likely to show a substantial pullback. It is expected to fall from a 0.7-percent gain in September to a 2.1-percent decline in October due to a decrease in aircraft orders. The core index, which excludes transportation and is a much better economic indicator, is expected to improve from flat growth in September to 0.4-percent growth in October due to growing business investment. This would be a healthy level of growth. There may be some downside risk here, however, as the Institute for Supply Management Manufacturing index remained weak in October.

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.

Authored by the Investment Research team at Commonwealth Financial Network.