Weekly Update 11/25/2019

Your Weekly Update for Monday, November 25, 2019

 Markets will be closed on Thursday November 28 in honor of Thanksgiving, and they will close early at 10:00 am on Friday, November 29. Have a wonderful holiday with your family and friends.

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 were down week. The Dow Jones Industrial Average fell 0.46% to 27,875.62. The S&P500 ended down 0.33% to 3,110.29 while the Nasdaq Composite finished down 0.25% to 8,519.88. The annual yield on the 30-year Treasury fell 8.8 basis points to 2.223%.

During the week, several housing metrics continued to show improvement, although still a bit below expectations, coupled with positive consumer sentiment. On the other, the index of leading economic indicators declined again, reflecting a general tempering in economic growth.

U.S. and foreign equity markets declined last week, as optimism for a trade deal again waned. U.S. bonds gained, as the recipient of asset flows away from stocks, while foreign debt was held back by a stronger dollar. Commodities were down slightly, as declines in metals acted as more of an influence than the minimal change in the price of crude oil.

Economic Notes

(+) The Philly Fed manufacturing index rose by 4.8 points to a level of 10.4, which outperformed expectations calling for a minimal increase to 6.0. Within the report, shipments, new orders, employment, and prices paid all declined substantially—yet remained strongly expansionary. However, the business conditions indicator for the coming six months rose by 2 points to an even more expansionary level of 36.

(0) Existing home sales rose 1.9% in October to a seasonally-adjusted rate of 5.46 mil. units, which fell just under the 2.0% median forecast increase. Single-family sales rose 2%, while condos/co-ops were flat for the period. Regionally, the South and Midwest experienced sales gains in the low single-digits, while sales fell slightly in the Northeast and West. Year-over-year, existing sales are up nearly 5%, reflecting a pace that has picked up in recent months, but has pressured already-tight inventories. To sum up the current housing situation, demand has been rising, due to demographic pressure and lower interest rates, while the availability of homes for sale has not kept up.

(0) Housing starts in October reversed course by rising 3.8% to a seasonally-adjusted annualized level of 1.314 mil., which fell just short of the expected 5.1% gain to 1.320 mil. This was in addition to a positive upward revision for the prior month. Under the hood, the usually-volatile multi-family segment rose by nearly 9% to tilt the results upward, while the larger single-family segment rose 2% to the highest levels this year. Regionally, the West and Midwest experienced the strongest activity, up 17% and 9% respectively, while starts in the Northeast fell by over -20% for the month. Overall, starts are up over 8% from this time last year. Building permits rose 5.0% on the month to an annualized 1.461 mil., surpassing expectations for a -0.4% decline—also achieving the highest levels since the spring of 2007. Similar to starts, single-family rose 3%, while multi-family gained 8%. Regionally, stats were flipped from the starts data, as the Northeast experienced an increase of 20%, while the West experienced a minimal increase. Overall, this represents solid expansion of construction activity in 2019, fueled by the factors noted earlier, although the multi-family component may be further along in the cycle than single-family, which continues to run short of need.

(-) The NAHB homebuilder index fell by -1 point in November to 70, just below expectations of no change from the prior month. Current sales was the primary culprit, down -2 points, followed by a point decline in prospective buyer traffic, while future sales ticked up a point. Regionally, the Northeast and West each gained several points, while the Southern U.S. fell by -2 points. While this index tends to change little from month to month, it’s 10 points higher than this time last year, which implies a more optimistic environment for home building as interest rates have declined and demand for new homes remains ever-present.

(+) The final November edition of the Univ. of Michigan consumer sentiment index experienced a rise of 1.1 points to 96.8, beating expectations calling for a 95.7 reading. Consumer assessments of current conditions and expectations for the future both increased—more so for the latter. Inflation expectations for the coming year were unchanged at 2.5%, while those for the next 5-10 years ticked up 0.1% to that same 2.5% level.

(0) Initial jobless claims for the Nov. 16 ending week were unchanged at 227k, higher than an expected decline to 218k. Continuing claims for the Nov. 9 week ticked up by 3k to 1.695 mil., which remained higher than the 1.683 mil. expected by consensus. No anomalies were reported, with the largest changes happening in the largest states, as is typical. The overall levels continue to point to a strong jobs market.

(-) The Conference Board’s Index of Leading Economic Indicators fell by -0.1% in October, to continue the string of recent declines of -0.2% over the past several months. Per the press release, the monthly results were pulled down by weakness in manufacturing new orders, weekly hours worked and jobless claims, although sharp gains in building permits contributed positively. This brought the trailing 6-month annualized growth rate down to a negative -0.2%, which was below the 0.7% annualized rate for the prior six-month period. The coincident indicator was unchanged for October, while the lagging indicator rose 0.1%. Interestingly, the coincident indicator showed slightly stronger growth over the last six months than for the prior semi-annual period. While this metric remains a composite measure of data we already know, it has done a decent job in taking a 30,000-foot view in separating the forest for the trees.

(0) The FOMC Minutes from the October meeting again contained few surprises, but offered additional detail as to the mindset behind the third consecutive 0.25% rate cut. It seemed most members felt that economic growth continued at a ‘moderate’ pace with a ‘strong’ labor market, although trade tensions remained an important part of the backdrop. This continued to be seen in strong levels of household spending, which continues to be seen as an economic bright spot, compared to far weaker business spending and exports—no doubt bogged down by uncertainty about trade (as reported by many executives themselves), and the less reported issue of a tight labor market, which makes it difficult to ramp up hiring and production. Economic risks seemed to be skewed to the downside, although recession risks had also declined somewhat—interestingly. Inflation has remained persistently below 2%, and is expected to remain so over the next several years, which has remained a source of continual frustration for FOMC members. The idea of a standing repo facility was discussed, less as an ongoing infusion of cash, but more as a ‘backstop’ for periodic issues with liquidity.

Interestingly, when the periodic talk of negative rates comes up, all members viewed the prospect as an unattractive policy vehicle. Despite early receptiveness to the concept a few years ago, the lackluster experience with negative rates in Europe and Japan—along with undesirable externalities and poor public opinion—has seemingly lowered the prospect of implementation in the U.S. Instead, forward guidance communication concerning the ‘capping’ of certain interest rate levels appeared more popular and realistic.

Market Notes

Period ending 11/22/2019	1 Week (%)	YTD (%)
DJIA	-0.41	22.13
S&P 500	-0.29	26.33
Russell 2000	-0.45	19.29
MSCI-EAFE	-0.58	17.57
MSCI-EM	-0.02	8.57
BBgBarc U.S. Aggregate	0.29	8.63

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
11/15/2019	1.57	1.61	1.65	1.84	2.31
11/22/2019	1.58	1.61	1.62	1.77	2.22

U.S. stocks fell backward last week, breaking a streak of six straight positive weeks. Conditions continue to be heavily tied to U.S.-China trade and the potential for a deal. U.S. legislative support for Hong Kong also appeared to negatively affect sentiment, by irritating Chinese officials. It appears that the final elements of a ‘phase 1’ are being worked on, yet the same sticking points persist, with current rhetoric pointing to no deal before the end of the year. This leaves the issues of the upcoming December 15 slated additional tariffs, as well as ongoing intellectual property theft elements that China has consistently pushed back on. The base case of a ‘grand deal’ are degrading into more of a multi-phased incremental set of deals, with continued big picture issues remaining as problems.

By sector, defensive healthcare and utilities forged ahead with positive returns, along with financials. Healthcare was helped by tempering of political language concerning a radical (and expensive) overhaul of the current healthcare system. Materials, technology and consumer discretionary stocks suffered with negative returns, as earnings for a variety of well-known retailers again fell short of hopes. Real estate bucked the trend of other assets by losing ground in the U.S., but fared well in Asia. Weakness was attributed to poor sentiment in the retail/regional malls sector, which disappointed from an earnings standpoint as winners and losers continue to be sorted out.

The case for recession probabilities continues to vacillate. In fact, there seems to be little consensus from a variety of firms—with one example lowering assessments of recession chances from 40% down to roughly 20%, and another well-regarded firm doing the exact opposite.

Foreign stocks also lost ground last week, similar to U.S. equities, with underperformance not helped by a stronger U.S. dollar. While European manufacturing PMI reports remained in contraction, they improved from last month, which continues to have some investors pointing to a potential bottom in sentiment. Emerging markets performed largely in line with other global regions, with surprisingly little variation between countries during the week.

U.S. bonds experienced a positive week, as movement away from risk pushed interest rates lower. U.S. treasuries and investment-grade corporates performed similarly, while high yield and bank loans lost ground. A stronger dollar held back foreign bond returns into the negative, in both developed and emerging markets.

Commodities generally fell back, along with a stronger dollar, as is often the case. Energy and agriculture were little changed, while industrial and precious metals experienced declines. Despite movement of a few dollars in both directions on the week, the price of crude oil was barely changed on net to end the week at just below $58/barrel. The movement in oil prices was related to slower-than-anticipated increases in U.S. supply, which kept prices sustained, in addition to reports that OPEC production cuts could be carried into 2020. OPEC is surprisingly only responsible for just under 40% of the world’s overall petroleum output, while adding ‘OPEC+’ large producers Russia and Mexico brings the total to over half, so establishing a consensus level of overall production and pricing objectives remain key issues going into next year (as they are every year).

Mortgage Rate

The housing market continues to steadily gain momentum with rising homebuyer demand and increased construction due to the strong job market, ebullient market sentiment and low mortgage rates,” said Sam Khater, Freddie Mac’s Chief Economist. “Residential real estate accounts for one-sixth of the economy, and the improving real estate market will support economic growth heading into next year.”

The 30-year fixed-rate mortgage averaged 3.66% with an average 0.6 point for the week ending November 21, 2019, down from last week when it averaged 3.75%. A year ago at this time, the 30-year FRM averaged 4.81%.

The 15-year fixed-rate mortgage averaged 3.15% with an average 0.5 point, down from last week when it averaged 3.20%. A year ago at this time, the 15-year FRM averaged 4.24%.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.39% with an average 0.4 point, down from last week when it averaged 3.44%. A year ago at this time, the 5-year ARM averaged 4.09%.

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.