Weekly Update 11/18/2019

Your Weekly Update for Monday, November 18, 2019

Beacon Rock Wealth Advisors is a financial planning and registered investment advisory firm in Camas, Washington.  We are always available to answer your finance questions. Give us a call at (800) 562-7096 or send an email to [email protected].

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Have a great week!

Mike Elerath
CERTIFIED FINANCIAL PLANNER^TM
NATIONAL SOCIAL SECURITY ADVISOR

Bill Roller
CHARTERED FINANCIAL ANALYST
CERTIFIED FINANCIAL PLANNER^TM
CHARTERED MARKET TECHNICIAN
NMLS #107972

Summary

Markets hit records last week. The Dow Jones Industrial Average rose 1.17% to 28,004.89. The S&P500 ended up 0.89% to 3,120.46 while the Nasdaq Composite finished up 0.77% to 8,540.83. The annual yield on the 30-year Treasury fell 10.6  basis points to 2.311%.

Economic data for the week included slightly higher-than-expected consumer and producer price inflation, positive retail sales and regional manufacturing data, while import prices declined.

U.S. equity markets ended the week as the best performers, with a positive showing, and outperformed mixed results in foreign equities. Bonds gained ground as interest rates fell back from recent peaks. Commodities were mixed with higher oil prices, but weaker showings from industrial metals and natural gas.

Economic Notes

(0/+) Retail sales for October rose by 0.3%, beating expectations by a tenth of a percent on a headline level. The same result occurred on a core/control level, after removing the volatile components of autos, gasoline, and building materials, which matched the median forecast. However, prior month numbers were revised lower. During October, strength was seen in gasoline station and food/beverage receipts (each up 1%, due to higher prices), as well as non-store/online retail. On the other hand, clothing/accessory, furniture/home furnishings, and sporting goods/hobby/etc. all saw declines of up to a percent. Overall, while not showing overly robust expansion, retail sales have been an economic bright spot, as GDP growth continues to be driven by stronger consumer behavior relative to business capex spending. Accordingly, retail sales are up over 3% on a year-over-year basis, with online sales gaining ground (at an all-time high, yet only 13% of all sales). As the Holiday shopping season ramps up, this segment, including more detailed week-to-week retail data, will be closely watched for their relative strength. These next few weeks represent the bulk of annual revenues for many retail segments.

(-) The Empire State manufacturing index declined by -1.1 points in November to 2.9, below forecasts calling for an increase to 6.0. Under the hood, new orders and employment rose further into expansion, while shipments and prices paid pulled back—but still expanded. Interestingly, the index of business condition expectations for six months out rose by a few points to a solid level of 19.

(0/-) The producer price index October rose by 0.4% in October on a headline basis, which surpassed expectations by about a tenth of a percent. While energy prices rose 3%, and food prices rose 1%, removing these from the equation, core PPI rose at a still-higher 0.3% rate. This was mostly accounted for by higher retail margins, under the trade services category, as well as medical care services.

(0/-) Similarly, the consumer price index for October rose by a sharp 0.4% on a headline basis, and 0.2% for core. Each were just slightly above forecast. Several individual segments experienced greater volatility than seen in recent months. The single-month headline number was driven by a nearly 3% increase in energy prices, including an even greater price gain for gasoline, although energy commodities as a whole remain down -7% from last October. In other areas, medical care services and commodities each rose 1%, as did used cars/trucks, which were offset by lower prices of new cars, apparel, which fell by -2%, and lodging, which declined by -4%. This brought the year-over-year rates of change to 1.8% for headline and down to 2.3% for core. These remains well within the tight range of 2% we’ve come to expect over the last several years. Despite the divergent details, the underlying inflation rate remains well within recent trend.

(0) Total import prices fell by -0.5% in October, surpassing the consensus forecast of -0.2%. However, when removing petroleum from the measure (which fell nearly -4% on the month), the price decline was reduced to -0.1%. In other segments, industrial supplies prices fell by nearly -2% to contribute, while food, capital and consumer goods also fell in price slightly. This report brought the year-over-year price decline to -3.0% on a headline level, and -1.5% when the petroleum was removed. Overall, this points to little inflationary impact from abroad, despite the more contentious trade environment.

(-) Industrial production for October fell by -0.8%, falling below the median forecast of -0.4%. Manufacturing production as a subcomponent declined -0.6%, led largely by auto production, which fell over -7% due to the General Motors strike. Outside of that anomaly, other manufacturing only ticked down -0.1%, with declines in business equipment, mining, and utilities. Capacity utilization fell by -0.8% in the month to 76.7%, led by weakness in the utilities component, which fell nearly three times that much.

(-/0) Initial jobless claims for the Nov. 9 ending week rose by 14k to 225k, which exceeded the 215k level expected. Continuing claims for the Nov. 2 week, however, fell by -10k to 1.683 mil., which was spot-on with consensus expectations. Larger movements occurred in a handful of states with larger populations (NJ and MI), but were otherwise widely dispersed. Cold weather and early snowfall across the country may affect numbers in coming weeks, but all-in-all, claims numbers continue to run at very low levels.

Market Notes

Period ending 11/15/2019	1 Week (%)	YTD (%)
DJIA	1.24	22.64
S&P 500	0.94	26.69
Russell 2000	-0.10	19.84
MSCI-EAFE	0.08	18.25
MSCI-EM	-1.51	8.60
BBgBarc U.S. Aggregate	0.54	8.31

U.S. Treasury Yields	3 Mo.	2 Yr.	5 Yr.	10 Yr.	30 Yr.
12/31/2018	2.45	2.48	2.51	2.69	3.02
11/8/2019	1.55	1.68	1.74	1.94	2.43
11/15/2019	1.57	1.61	1.65	1.84	2.31

The week started in a rough note as protests in Hong Kong escalated, resulting in violence and further uncertainty about governmental response from China. Otherwise, mixed results in the U.S. and global economies sustained pricing for equities, when coupled with continued optimism about a ‘phase one’ deal between the U.S. and China that the administration has promised as ‘close’. Fed Chair Powell also appeared before the House Budget Committee, and reiterated the current stabilization in policy after three interest rate cuts. Defensive sectors utilities, health care and consumer staples provided the strongest returns, well over a percent, while energy weakness continued, with the sector down a percent.

Foreign stocks offered mixed results, with all groups generally trailing results in the U.S. Broader indexes in the Eurozone and U.K. were slightly above zero, while Japanese stocks lost ground slightly. Perhaps importantly from a sentiment standpoint, German GDP growth for Q3 came in at a positive 0.1%, while Europe as a whole grew at a 0.2% rate, which matched growth in Japan for the quarter. The U.K. grew 1.0%, which was a bit better than expected considering Brexit worries. Emerging markets fared worst, with losses in China over -3%, and Hong Kong of -5%, as well as mixed to lower returns among other BRICs. In China, this was the result of weaker economic data points in industrial production, retail sales, and fixed asset investment—demonstrating how the trade war taking its toll on overall economic activity, despite claims by the government to the contrary. Hong Kong continued to be gripped by increasingly violent protests with an uncertain outcome, now that initial demands for withdrawal of an extradition policy to mainland China has been satisfied.

U.S. bonds recovered a bit of ground, as interest rates fell back across the yield curve by 10 basis points or so. Longer duration governments and investment-grade corporates provided the strongest gains, while high yield and bank loans rose to a far lesser degree to lag the group. Foreign developed market debt benefitted from lower rates and a slightly weaker dollar, while emerging market debt was mixed.

Commodities were mixed on the week, with strength in energy and precious metals, while industrial metals lost several percent—led by weakness in nickel and zinc—as fears of economic slowing remained persistent. The price of crude oil rose by a percent to just below $58/barrel, which was offset by natural gas falling over -3%.

Mortgage Rate

“The modest uptick in mortgage rates over the last two months reflects declining recession fears and a more sanguine outlook for the global economy,” said Sam Khater, Freddie Mac’s Chief Economist. “Due to the improved economic outlook, purchase mortgage applications rose fifteen% over the same week a year ago, the second highest weekly increase in the last two years. Given the important role residential real estate plays in the economy, the steady improvement of the housing market is a reassuring sign that the economy is on solid ground heading into next year.”

The 30-year fixed-rate mortgage averaged 3.75% with an average 0.6 point for the week ending November 14, 2019, up from last week when it averaged 3.69%. A year ago at this time, the 30-year FRM averaged 4.94%.

The 15-year fixed-rate mortgage averaged 3.2% with an average 0.5 point, up from last week when it averaged 3.13%. A year ago at this time, the 15-year FRM averaged 4.36%.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.44% with an average 0.4 point, up from last week when it averaged 3.39%. A year ago at this time, the 5-year ARM averaged 4.14%.

Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following link for the Definitions. Borrowers may still pay closing costs which are not included in the survey.

Through our relationship with Prestige Home Mortgage in Vancouver, Washington we originate residential and reverse mortgages. Check us out at https://beaconrwa.com and our affiliated websites at https://reverse-mortgages.us and https://socialsecurityquestionsanswered4u.com.

Sources: Ryan Long, CFA, FocusPoint Solutions, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Citigroup, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Marketfield Asset Management, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, PIMCO, Standard & Poor’s, StockCharts.com, The Conference Board, Thomson Reuters, T. Rowe Price, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wall Street Journal, The Washington Post. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. FocusPoint Solutions, Inc. is a registered investment advisor.

Notes key: (+) positive/encouraging development, (0) neutral/inconclusive/no net effect, (-) negative/discouraging development.