Monthly Economic Update for October, 2017
Submitted by Kaizen Financial Advisors, LLC on November 10th, 2017
For those of you interested in the details of the economy for the last month, here's October’s detailed report.
THE MONTH IN BRIEF
October saw the S&P 500 rise 2.22% in response to results from the fall earnings season, encouraging fundamental indicators, and anticipation of tax reforms. An impressive jump in personal spending complemented excellent readings on consumer confidence and purchasing manager indices; although, hiring suffered a setback. As the European Union contended with disunity in Spain, the European Central Bank revealed its exit strategy for its bond-buying campaign. Asian and European stock exchanges witnessed major gains. Home sales numbers improved, and sugar, unleaded gasoline, and oil made major advances in the commodities sector. Investors, traders, and consumers maintained a bullish view.1
DOMESTIC ECONOMIC HEALTH
As summer ended, household spending was boosted by the need to replace cars, SUVs, and trucks damaged by floods and hurricanes. Personal spending rose 1.0% in September, the largest monthly gain since August 2009. Household incomes rose a sizable 0.4% in the ninth month of the year. Retail sales, correspondingly, soared as well: for September, the increase was 1.6%.2,3
The Conference Board’s consumer confidence index hit a spectacularly high 125.9 last month. Economists surveyed by MarketWatch expected a 121.3 reading; in September, the index was at 119.8. The University of Michigan household sentiment index ended the month at 100.7.3,4
Manufacturing and service industries were expanding at a torrid pace. The Institute for Supply Management’s factory purchasing manager index reached a 15-year peak in September, rising 2.0 points to 60.8. Its October mark was 58.7. ISM’s service sector PMI soared 4.5 points to 59.8 in September, a 12-year high.4,5
COMMODITIES MARKETS
Last month, upward pressure on mortgage rates was conspicuous. In Freddie Mac’s October 26 Primary Mortgage Market Survey, interest on the 30-year FRM averaged 3.94%; interest on the 15-year FRM; 3.25%. That compares with a rate of 3.83% for the 30-year fixed and 3.13% for the 15-year fixed in the September 28 PMMS. Between those two dates, the average interest rate on the 5/1-year ARM rose but 0.01% to 3.21%.15
LOOKING BACK…LOOKING FORWARD
October was certainly great for the blue chips. The Dow Jones Industrial Average advanced 4.34% for the month to 23,377.24, nearly doubling the S&P 500’s gain (the S&P settled at 2,575.26 on October 31). The Nasdaq Composite rose 3.57% to 6,727.67; the Russell 2000, 0.81% to 1,502.87. Even the CBOE VIX recorded an October advance, improving 7.05% to 10.18. The PHLX Semiconductor index ended the month up 40.72% YTD.1
% CHANGE |
Y-T-D |
1-YR CHG |
5-YR AVG |
10-YR AVG |
DJIA |
+18.29 |
+28.85 |
+15.70 |
+6.78 |
NASDAQ |
+24.98 |
+29.65 |
+25.19 |
+13.53 |
S&P 500 |
+15.03 |
+21.12 |
+16.47 |
+6.62 |
REAL YIELD |
10/31 RATE |
1 YR AGO |
5 YRS AGO |
10 YRS AGO |
10 YR TIPS |
0.50% |
0.11% |
-0.78% |
2.14% |
Sources: barchart.com, bigcharts.com, treasury.gov – 10/31/1716,17,18
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.
October offered plenty of drama, but Wall Street remained calm. When the month ended, the Dow had gone 52 straight trading sessions without a 1% intraday move. That had not happened since 1930 (and such streaks were unrecorded before 1930). Will November be just as serene with stocks making more solid gains? That is a distinct possibility, but some factors may shake up that serenity. Promises of tax cuts could fade, and the market may or may not applaud if a new Federal Reserve chair is named. The October jobs report will also be scrutinized; if it falls short of expectations, some analysts may question whether the current business cycle is peaking.19
UPCOMING ECONOMIC RELEASES: The roll call of key news items across the balance of November includes the month’s initial University of Michigan consumer sentiment index (11/10), October wholesale inflation (11/14), October retail sales and consumer inflation (11/15), October industrial production (11/16), October housing starts and building permits (11/17), the NAR’s latest look at existing home sales (11/21), October durable goods orders and the final November University of Michigan consumer sentiment index (11/22), October new home sales (11/27), the November consumer confidence index from the Conference Board (11/28), the second estimate of Q2 growth, the latest pending home sales report from the NAR, and a new Federal Reserve Beige Book (11/29), and finally, the October personal spending snapshot from the Department of Commerce and the latest PCE price index from the Bureau of Economic Analysis (11/30).
Sources:
1 - barchart.com/stocks/indices?viewName=performance [10/31/17]
2 - cnbc.com/2017/10/30/us-personal-income-sept-2017.html [10/30/17]
3 - investing.com/economic-calendar/ [10/31/17]
4 - marketwatch.com/economy-politics/calendars/economic [11/1/17]
5 - foxbusiness.com/features/2017/10/04/u-s-service-sector-activity-accelerated-in-september-ism-says-2nd-update.html [10/4/17]
6 - bloomberg.com/news/articles/2017-10-06/u-s-payrolls-fall-33-000-on-storms-jobless-rate-drops-to-4-2 [10/6/17]
7 - cnbc.com/2017/10/13/medicare-premiums-may-devour-increased-2018-social-security-benefit.html [10/13/17]
8 - tinyurl.com/yat43jas [10/26/17]
9 - ec.europa.eu/eurostat [10/31/17]
10 - tinyurl.com/yabdeh42 [10/31/17]
11 - nasdaq.com/article/monthend-leaves-market-at-crossroads-cm868477 [10/31/17]
12 - markets.on.nytimes.com/research/markets/worldmarkets/worldmarkets.asp [10/31/17]
13 - msci.com/end-of-day-data-search [10/31/17]
14 - money.cnn.com/data/commodities/ [10/31/17]
15 - freddiemac.com/pmms/archive.html?year=2017 [10/31/17]
16 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=10%2F31%2F16&x=0&y=0 [10/31/17]
16 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=10%2F31%2F16&x=0&y=0 [10/31/17]
16 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=10%2F31%2F16&x=0&y=0 [10/31/17]
16 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=10%2F31%2F12&x=0&y=0 [10/31/17]
16 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=10%2F31%2F12&x=0&y=0 [10/31/17]
16 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=10%2F31%2F12&x=0&y=0 [10/31/17]
16 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=10%2F31%2F07&x=0&y=0 [10/31/17]
16 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=10%2F31%2F07&x=0&y=0 [10/31/17]
16 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=10%2F31%2F07&x=0&y=0 [10/31/17]
17 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [10/31/17]
18 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [10/31/17]
19 - marketwatch.com/story/the-dow-just-logged-its-longest-period-without-a-1-drop-in-nearly-40-years-2017-10-30/ [10/31/17]