Monthly Market Insights | October 2018
Stock prices turned in a mixed performance for September as large-cap issues trended higher and trade talks progressed. Meanwhile, technology stocks struggled, pulling the NASDAQ Composite down.
The Dow Jones Industrials picked up 1.9 percent while the Standard & Poor’s 500 Index gained 0.43 percent. The NASDAQ Composite Index lagged, falling 0.78 percent.1
Markets opened on a weak note as technology stocks reacted to congressional testimony regarding social media's influence. Markets were further depressed by a slump in oil prices, as well as President Trump’s plans for further tariffs on Chinese goods.
All About Trade
Once the details of these tariffs were announced, investors were encouraged that U.S. tariffs were less harsh than expected and China’s retaliatory tariffs were lower than threatened.
The news came as a welcome relief, leading to a wave of new buying that propelled the Dow Jones Industrials and the S&P 500 to new historical highs. However, technology and small-capitalization stocks played a limited role in this run-up.
Fed Bumps Rates
With the month coming to an end, the Fed announced a 0.25 percent hike in the federal funds rate and raised the potential for an additional hike before year-end. Though the hike was telegraphed to investors, markets trended lower following the news.
While the S&P 500 Index ended the month in positive territory, only selected sectors participated in the rally. Gains were seen by five industry sectors, including Consumer Discretionary (+2.37 percent), Energy (+1.15 percent), Health Care (+2.71 percent), Industrials (+0.98 percent), and Technology (+0.12 percent). Declines were recorded in Communication Services (-0.90 percent), Consumer Staples (-0.44 percent), Financials (-2.66 percent), Materials (-2.74 percent), Real Estate (-3.97 percent), and Utilities (-2.83 percent).2
What Investors May Be Talking About in October
With less than a month to go before the midterm elections, many investors are watching whether Republicans will maintain control of the House and Senate.
History shows the party of the incumbent president generally loses Congressional seats during midterm elections. In the midterm election of President Obama’s first term, Democrats lost 63 seats in the House and six in the Senate. In the midterm election of President George W. Bush, Republican party lost 30 seats in the House and six in the Senate. 3,4
Stocks tend to perform differently based upon the political makeup of the presidency and Congress. Since 1933, the S&P 500 Index has had its most success when Republicans have controlled the presidency and both houses of Congress, posting a 15.1 percent average annual return.5
When Democrats controlled one Congressional chamber during a sitting Republican president, the average annual return was still a healthy 10.8 percent. 5
The midterms may cause some short-term volatility. They also may prompt some market watchers to change their forecasts. Regardless of the outcome, remember why you invested, stay the course, and avoid overreactions.
Overseas markets were higher in September, as the MSCI-EAFE Index gained 1.22 percent.6
European markets posted gains, overcoming trade tensions, as well as snags in Brexit negotiations, but stumbled later on political developments in Italy.
France gained 1.6 percent, and Great Britain added 1.3 percent. Germany, meanwhile, slipped 0.9 percent.7
Stocks in the Pacific Rim countries were mixed. Japan rose a solid 5.5 percent, but Hong Kong slipped 0.4 percent. Australia retreated 1.8 percent.8
Gross Domestic Product
The final reading on economic growth in the second quarter remained unchanged at 4.2 percent.9
Nonfarm employment increased by 201,000 in August, keeping the unemployment rate steady at 3.9 percent. Year-over-year wage growth appears to be picking up, as wages grew by 2.9, the largest rise since mid-2009.10
Consumer spending cooled off in August, as retail spending inched up 0.1 percent. The strong retail sales number in July was revised higher, from 0.5 percent to 0.7 percent.11
Industrial output rose 0.2 percent, led by utility and motor vehicle production. It was the third consecutive month of increased output.12
Housing starts rose 9.2 percent, driven by a sharp increase in multi-family dwellings (+29.3 percent). Single-family homes, which account for the bulk of new home construction, rose to a lackluster 1.9 percent. 13 New home sales increased 3.5 percent, rebounding from two consecutive months of declines.14 Sales of existing homes were unchanged in August, following four consecutive months of declines. Compared to August of last year, sales were 1.5 percent lower.15
Consumer Price Index
Easing for the first time this year, the price of consumer goods rose 0.2 percent in August. Relative to a year earlier, inflation grew at 2.7 percent, versus a 2.9 percent rate for the previous two months’ year-over-year period.16
Durable Goods Orders
Recording its biggest gain since February, orders for long-lasting goods jumped 4.5 percent, handily beating economists’ forecast of 2.1 percent.17
Federal reserve officials unanimously voted to increase the federal funds rate by 0.25 percent. This will be the third such rate hike this year, lifting the benchmark rate above 2 percent for the first time since the Fed’s intervention following the credit crisis.
Fed officials also hinted at one more rate hike before the year ends, while reaffirming their positive view of the U.S. economy.18
By the Numbers
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
Any companies mentioned are for illustrative purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance.
The forecasts or forward-looking statements are based on assumptions, may not materialize and are subject to revision without notice.
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.
Please consult your financial advisor for additional information.
Copyright 2018 FMG Suite.
1. The Wall Street Journal, September 30, 2018
2. FactSet Research Systems, September 2018
3. The American Presidency Project, University of California, Santa Barbara, 2018
4. Treasury Insights, Wells Fargo Investment Institute, 2018
5. Treasury Insights, Wells Fargo Investment Institute, 2018. Past performance does not guarantee future results. Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
6. MSCI.com, September 30, 2018
7. MSCI.com, September 30, 2018
8. MSCI.com, September 30, 2018
9. The Wall Street Journal, September 27, 2018
10. The Wall Street Journal, September 7, 2018
11. The Wall Street Journal, September 14, 2018
12. The Wall Street Journal, September 14, 2017
13. CNBC.com, September September 19, 2018
14. The Wall Street Journal, September 26, 2018
15. CNBC.com, September 20, 2018
16. The Wall Street Journal, September 13, 2018
17. The Wall Street Journal, September 27, 2018
18. The Wall Street Journal, September 26, 2018
19. USAToday.com, August 28, 2018
20. Social Security Administration, 2018
21. TheBalance.com, July 20, 2018
22. WealthManagement.com, September 17, 2018
23. Morningstar, July 26, 2018
24. Assumes an annual 2% COLA adjustment.
25. CNBC, April 4, 2018
26. Milwaukee Business Journal, January 19, 2018
27. Islands.com, 2018
28. Application-Filing-Service.com, 2018