MONTHLY QUOTE “The more I want to get something done, the less I call it work.” – Richard Bach
MONTHLY TIP There are four instances when using a credit card may be preferable to using a debit card. One, when you buy something online. Two, when you are in a rewards program. Three, when you pay for lodging or fuel. Four, when any point of purchase appears sketchy.
MONTHLY RIDDLE Which side of an ocelot has the most fur?
Last month’s riddle: I occasionally run, but I never walk. Everywhere I go, thoughts are close behind me. What am I?
Last month’s answer: A nose.
THE MONTH IN BRIEF
While the Russell 2000 and Nasdaq Composite advanced significantly in November, the S&P 500 did not – the broad U.S. benchmark rose a mere 0.05%. Terrorists took hundreds of lives in France, Lebanon, Nigeria, Mali and Tunisia during the month, and the fear in the wake of those attacks was felt in the investment markets. Federal Reserve policy minutes contained strong hints that the central bank could raise interest rates in December, a signal investors accepted without disillusionment. Oil, gold and many other major commodities retreated. Key consumer confidence, consumer spending and manufacturing indicators disappointed, but reports on the job market and real estate market offered better news.(1)
DOMESTIC ECONOMIC HEALTH
The Federal Open Market Committee’s October policy minutes, released on November 18, noted that “most” FOMC members believed that conditions for a rate hike “could well be met” by December. Another passage noted that “it may well become appropriate to initiate the normalization process” at that time. Tightening could be very gradual, the minutes elaborated, as Federal Reserve officials felt that “economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”(2)
If the Fed does raise rates in December, the upward move would come at a time of decidedly mixed economic signals. Hiring was solid in October – the economy added 271,000 new jobs, far more than the 182,000 economists surveyed by Bloomberg projected. Annualized wage growth reached 2.5%, the best since 2009. The headline jobless rate was at 5.0%, and the U-6 rate (underemployed + unemployed) sank to 9.8%. Manufacturing, on the other hand, was flagging: the Institute for Supply Management’s factory PMI fell to 48.6 in November, a recessionary reading that was the lowest seen since June 2009.(3,4)
Consumer confidence dipped as well in November. The Conference Board’s respected index dropped nearly nine points to a mark of 90.4, its weakest showing since September 2014. One key reason? Consumers polled thought there would be fewer jobs available by spring 2016. The University of Michigan’s household sentiment index finished November at 91.3; its preliminary reading had been 93.1.(5)
Consumer spending and retail sales had each improved just 0.1% in October. Black Friday weekend may or may not have been great this year, with ShopperTrak reporting a drop of about 11% for brick-and-mortar store sales and Adobe measuring an 18% year-over-year leap in online Thanksgiving and Black Friday sales to a record level.(6,7)
The Bureau of Economic Analysis revised Q3 GDP up to 2.1% from its first estimate of 1.5%, yet the prime reason for that increase was underestimation of inventories. Hard goods orders rose 3.0% in October, buoyed by a 200% rise in airplane orders. The gain was 0.5% with the transportation sector factored out.(5)
Consumer inflation was evident in October – the core Consumer Price Index rose 0.2% for a second straight month. The core CPI had not posted such notable monthly advances since April and May. The headline CPI rose 0.2% as well, its first gain since July. That still meant it had advanced only 0.2% in a year. Core CPI was up 1.9% in the 12 months ending in October.(8)
GLOBAL ECONOMIC HEALTH
Did the world’s biggest economy cool off further in November? By the looks of the official China factory PMI, the answer seemed to be yes. It settled in contraction territory for a third straight month at 49.6, the lowest mark since August 2012. The private-sector Caixin manufacturing PMI stayed below 50 for a ninth consecutive month, though it rose 0.3 points to a mark of 48.6. While China has set a 7.0% GDP target for 2015 (its lowest growth target since 1990), its economy officially expanded 6.9% in Q3. An economic transition is occurring in the country: the service sector accounted for 51.4% of its economy in Q1-Q3, as opposed to 49.1% during Q1-Q3 2014. Markit manufacturing PMIs in other Asia Pacific nations were mostly in the 40s last month – 49.1 in South Korea, 49.5 in Taiwan, 47.0 in Malaysia, 46.9 in Indonesia, 49.4 in Vietnam. India was a notable exception at 50.3%.(9,10)
Many analysts assumed the European Central Bank would make a rate cut as December started, or at least institute additional stimulus measures to try and boost the euro area economy, which was projected to grow but 0.4% in Q4. The eurozone unemployment rate ticked down to a 3-year low of 10.7% in October; Germany’s jobless rate was just 4.5%. The Markit euro area manufacturing PMI reached 52.8 in November for its best reading since April 2014. Markit factory PMIs were at 52.9 in Germany, 50.6 in France, 54.9 in Italy and 53.0 in Spain.(11)
Asia Pacific indices were mixed in November. The month saw losses of 1.92% for the Sensex, 2.84% for the Hang Seng, 4.24% for the Asia Dow, 1.85% for the Kospi, 1.39% for the S&P/ASX 200, and 5.36% for the KSE 100 ... but the Nikkei 225 rose 3.48% and the Shanghai Composite 1.86%. In the Americas, the Dow Jones Americas index was basically flat (-0.08%) while the S&P/TSX Composite fell 0.44%, the Bovespa 1.63%, and the IPC All-Share 2.52%. The MSCI World index retreated 0.67% in November; its sibling, the MSCI Emerging Markets index, had a much deeper loss of 3.96%. November also saw the Global Dow decline 1.96%.(1,12)
While the Europe Dow slipped 2.86% last month, other European indices performed better. The DAX advanced 4.90%, in fact, and Ireland’s ISEQ rose 6.38%. Other gains and losses from around the continent: IBEX 35, +0.25%; CAC 40, +1.22%; STOXX 600, +2.65%; RTS, +0.18%; FTSE MIB, +1.23%; FTSE 100, -0.08%.(1)
In November, the U.S. Dollar Index advanced 3.37%. Dollar strength and slow growth in emerging markets held many futures in check. WTI crude lost 10.09% last month, winding up November at $41.71 on the NYMEX. Unleaded gasoline descended 5.92%, natural gas 3.82%, and heating oil 8.88%. Select ag futures did see values rise: sugar improved 2.61%, cotton 0.39% and cocoa 1.60%. Corn futures lost 5.89%, coffee futures 2.82%, soybean futures 1.02%; wheat slipped 10.90% for the month.(13,14)
Gold lost 6.73% in November to conclude the month at $1,065.00 on the COMEX. Silver went south as well, ending November at $14.14 due to a 9.59% drop. Platinum and copper stumbled last month: the former fell 15.97%, the latter 11.57%.(14)
Fall brought a surge in new home sales. They improved 10.7% in October, recovering from a surprise September dip. The Census Bureau also reported that the pace of new home buying was up 15.7% YTD. Existing home sales, on the other hand, fell 3.4% in October, though the National Association of Realtors did note an 0.2% gain for its pending home sales index in the tenth month of the year after August and September declines.(15,16)
September saw a gain for the S&P/Case-Shiller 20-city home price index, which was up 5.5% in a year (compared to 5.1% in the August edition). NAR said the median existing home sale price was $219,900 in October, representing an 0.9% monthly decline.(5,17)
Housing starts and building permits went in opposite directions in October. While permits increased 4.1%, starts fell 11.0% to a low unseen since March. Even with that descent, the annual pace of housing starts stayed above the 1 million mark for a seventh consecutive month. That had not happened since 2007.(18)
The prospect of a higher federal funds rate sent mortgage rates upward last month. In the October 29 Freddie Mac Primary Mortgage Market Survey, the interest rate averages were as follows: 30-year FRM, 3.76%; 15-year FRM, 2.98%; 5/1-year ARM, 2.89%; 1-year ARM, 2.54%. In the November 25 edition of the survey, the numbers were notably different: 30-year FRM, 3.95%; 15-year FRM, 3.18%; 5/1-year ARM, 3.01%; 1-year ARM, 2.59%.(19)
LOOKING BACK…LOOKING FORWARD
Rather quietly, the Russell 2000 gained 3.12% last month. The small-cap benchmark ended November at 1,198.11, improving to -0.55% YTD. The CBOE VIX ended November at 16.13, rising 7.03% for the month yet still ending up -15.99% YTD. As for the three major U.S. stock indices, the Nasdaq led the way in November with a 1.09% gain to 5,108.67. The Dow rose 0.32% to end November at a close of 17,719.92; the S&P 500 settled at 2,080.41 after its 0.05% advance. Topping all U.S. indices in November, the NYSE Arca Biotechnology index rose 7.69%.(1)
A correction: in last month’s Update, it was noted that monthly Medicare Part B premiums would rise 15% in 2016 for all Medicare recipients. They will actually increase 16% for about 30% of Medicare recipients (to $121.80). The majority of Medicare beneficiaries will continue to pay monthly Part B premiums of $104.90 in 2016. The 5% of beneficiaries paying high-income surcharges will see those surcharges rise 16% next year, in addition to a 16% base premium increase.(23)
UPCOMING ECONOMIC RELEASES: The list of key December news items includes the federal government’s November employment report (12/4), October wholesale inventories (12/9), the preliminary December University of Michigan household sentiment index, the November PPI, November retail sales and October business inventories (12/11), the November CPI (12/15), November housing starts, building permits and industrial output and the Federal Reserve’s much-awaited interest rate decision (12/16), the November Conference Board index of leading indicators (12/17), November existing home sales and the last estimate of Q3 GDP (12/22), the University of Michigan’s final December household sentiment index and November durable goods orders, consumer spending and new home sales (12/23), the October S&P/Case-Shiller home price index and the Conference Board’s December consumer confidence index (12/29), and finally NAR’s November pending home sales index (12/30).
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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. MarketingPro, Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world's largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The BSE SENSEX (Bombay Stock Exchange Sensitive Index), also-called the BSE 30 (BOMBAY STOCK EXCHANGE) or simply the SENSEX, is a free-float market capitalization-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE). The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The Asia Dow measures the Asia equity markets by tracking 30 leading blue-chip companies in the region. The Korea Composite Stock Price Index or KOSPI is the major stock market index of South Korea, representing all common stocks traded on the Korea Exchange. The S&P/ASX 200 index is a market-capitalization weighted and float-adjusted stock market index of Australian stocks listed on the Australian Securities Exchange from Standard & Poor’s. Karachi Stock Exchange 100 Index (KSE-100 Index) is a stock index acting as a benchmark to compare prices on the Karachi Stock Exchange (KSE) over a period. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The Dow Jones Americas Index measures the Latin American equity markets by tracking 30 leading blue-chip companies in the region. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The Mexican IPC index (Indice de Precios y Cotizaciones) is a major stock market index which tracks the performance of leading companies listed on the Mexican Stock Exchange. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The Global Dow is a 150-stock index of corporations from around the world created by Dow Jones & Company. The Europe Dow measures the European equity markets by tracking 30 leading blue-chip companies in the region. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The ISEQ Overall Index is a capitalization-weighted index of all official list equities in the Irish Stock Exchange, excluding U.K.-registered companies. The IBEX 35 is the benchmark stock market index of the Bolsa de Madrid, Spain's principal stock exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. The RTS Index (abbreviated: RTSI, Russian: Индекс РТС) is a free-float capitalization-weighted index of 50 Russian stocks traded on the Moscow Exchange. The FTSE MIB (Milano Italia Borsa) is the benchmark stock market index for the Borsa Italiana, the Italian national stock exchange. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.
1 - wsj.com/mdc/public/page/2_3023-monthly_gblstkidx.html [11/30/15]
2 - foxbusiness.com/economy-policy/2015/11/18/federal-reserve-minutes/ [11/18/15]
3 - usatoday.com/story/money/2015/11/06/october-jobs-report/75247628/ [11/6/15]
4 - marketwatch.com/story/ism-manufacturing-index-drops-to-lowest-level-since-mid-2009-2015-12-01 [12/1/15]
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6 - foxnews.com/us/2015/11/25/consumer-spending-weak-for-second-month-rising-01-percent-incomes-post-strong/ [11/25/15]
7 - northjersey.com/news/preliminary-figures-show-black-friday-weekend-store-sales-down-online-spending-up-1.1464472 [11/29/15]
8 - chicagotribune.com/news/sns-wp-blm-prices-6be9a58c-8d36-11e5-934c-a369c80822c2-20151117-story.html [11/17/15]
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16 - cnbc.com/2015/11/30/pending-home-sales-up-just-02-in-october.html [11/30/15]
17 - tradingeconomics.com/united-states/case-shiller-home-price-index [12/1/15]
18 - dailyfinance.com/2015/11/18/housing-starts-fall-october-permits-rise/ [11/18/15]
19 - freddiemac.com/pmms/archive.html [12/1/15]
20 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=12%2F1%2F14&x=0&y=0 [11/30/15]
20 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=12%2F1%2F14&x=0&y=0 [11/30/15]
20 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=12%2F1%2F14&x=0&y=0 [11/30/15]
20 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F30%2F10&x=0&y=0 [11/30/15]
20 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F30%2F10&x=0&y=0 [11/30/15]
20 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F30%2F10&x=0&y=0 [11/30/15]
20 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F30%2F05&x=0&y=0 [11/30/15]
20 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F30%2F05&x=0&y=0 [11/30/15]
20 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F30%2F05&x=0&y=0 [11/30/15]
21 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [12/1/15]
22 - money.cnn.com/2015/11/30/investing/december-market-movers/ [11/30/15]
23 - forbes.com/sites/ashleaebeling/2015/11/16/its-official-medicare-part-b-premiums-will-rise-16-in-2016-for-some-seniors/ [11/16/15]