October maintained its reputation as a volatile month. Stocks ended the week significantly lower despite strong gross domestic product growth and headline earnings. Warnings about future earnings from industrial and technology companies were attributed to some of the selloff. The Treasury Department reported that overseas purchases of Treasury securities has declined with foreigners buying only $78BN year to date. Foreigners now own 41% of Treasuries down from 50% in 2013. The 10-year treasury yield fell to 3.077 by weeks end and the dollar rose against a basket of currencies. Commodities fell with oil prices lower for the third week in a row after Saudi Arabia promised to make up for any shortfall from Iranian production.
The European union rejected Italy’s budget as having too large a deficit pitting ECU against the populist Italian government. Germany agreed to accept U.S. liquified natural gas over Russian pipeline gas.
Many people have asked about what affect midterm elections may have on the markets. While I believe that uncertainty leading up to the mid-terms can create more volatility. History shows that the markets typically perform well after the mid-terms regardless of the outcome. Here is a graph of stock performance following every mid-term election since 1950.
In the numbers this week:
- Europe’s Manufacturing Purchasing Manager’s Index dropped from 53.2 in September to 52.1 in October. Anything over 50 represents expansion, just at a slower acceleration. Europe’s PMIs have been declining since February.
- The FED published a report showing its take on the economy from its 12 districts. The majority of the districts reported modest to moderate economic expansion but highlighted uncertainties with manufacturers related to trade issues and labor shortages.
- The Commerce Department reported:
- New single family home sales fell 5.5% in September. Higher prices, limited inventory and higher mortgage interest rates coupled with deduction limits were to blame for the drop. For the first nine months of 2018 new home sales rose 3.5%.
- Gross domestic product rose at an annual rate of 3.5% in the third quarter slower than the 4.2%
- The Labor department reported first time claims for unemployment rose 5,000 at a seasonally adjusted 215,000. The four-week moving average of claims was unchanged at a seasonally adjusted 211,750.
- The Energy Information Administration weekly report is here wpsrsummary. Also, the EIA reported
- U.S. Crude oil production was unchanged at 10.9MM barrels per day.
- Storage of natural gas rose 58BN cubic feet. Natural gas storage is below the minimum for this date during the past five years.
- According to Baker Hughes, In the past week, the number of active oil rigs rose 2 to 875 and natural gas rigs fell 1 to 193.
- Factset reported, with 48% of S&P 500 companies reporting 3rd quarter earnings, the blended earnings increase was 22.5% from the 3rd quarter of last year. However, 26 companies reported negative guidance and 15 reported positive guidance for future quarters in many cases citing tariffs.
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Loren C. Rex, CFP®, AIF®, MA Erik A Smith
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These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. The Indices mentioned are unmanaged and cannot be invested into directly.