Monthly Market Insights | November 2016

U.S. Markets

Stocks drifted lower in October amid mixed company earnings and rising bond yields, with the Dow Jones Industrial Average falling 0.91 percent, the Standard & Poor’s 500 Index dipping 1.94 percent and the NASDAQ Composite declining 2.31 percent.¹

Equity markets began the month in retreat as investors worried about the pace of economic growth and awaited third-quarter earnings reports.

Stock prices continued their decline into the second week owing to a mixed start to the earnings season and a reported decline in China’s exports, which fed mounting concerns about slowing global economic growth.

Influence from Europe, China

As the earnings season moved into full swing, stocks bounced back, encouraged by an announcement that the European Central Bank was maintaining interest rates and its current monetary policy stance, hints from ECB President Mario Draghi that its accommodative policy might get extended and positive economic growth numbers out of China.

Third-quarter earnings generally exceeded estimates. With 58 percent of companies in the Standard & Poor’s 500 reporting, 74 percent posted earnings above the mean estimate. If the trend continues, the earnings growth rate for the Standard & Poor’s 500 will be 1.6 percent—the first time the index has recorded year-over-year earnings growth since the first quarter of 2015.²

Despite the better-than-expected earnings, stocks continued to yield ground, ending the month in negative territory and marking the third consecutive month stocks have faltered.

Sector Watch

All sectors, except Financials (+2.38 percent), ended the month lower, with declines in Energy (-0.59 percent), Technology (-0.79 percent), Industrials (-2.09 percent), Materials (-2.18 percent), Consumer Discretionary (-2.22 percent), Consumer Staples (-1.00 percent), Health Care (-6.72 percent), Real Estate (-8.40 percent), and Utilities (-3.23 percent).³

World Markets

The MSCI-EAFE Index slid 2.12 percent in October.⁴

A sharp rise in yields, weak corporate earnings and the continuing Brexit saga were the major themes to trading in European markets. The UK, Germany and France ended the month slightly higher.⁵

Pacific region markets were mixed as stocks in Australia declined while Japan closed out the month with a gain.⁶

Indicators

Gross Domestic Product: Posting the fastest growth rate in two years, the third quarter GDP jumped 2.9 percent, well ahead of the 1.4 percent pace recorded in the prior quarter.⁷

Employment: The unemployment rate ticked up a tenth of a percentage point to 5.0 percent as private sector employers added 156,000 jobs in September, well below the 192,000 average of the last three months. The September jobs report also indicated that individuals were re-entering the labor pool, as suggested by the 0.5 percentage point jump in the labor force participation rate to 62.9 percent.⁸

Retail Sales: Rebounding from an August decline, retail sales shot up 0.6 percent in September. Compared to the same month last year, sales rose 2.7 percent.⁹

Industrial Production: Industrial output rose 0.1 percent, marking the third increase in the last four months. Capacity utilization inched higher to 75.4 percent—4.6 percentage points below its long-run average.¹⁰

Housing: Housing starts fell 9.0 percent, the second consecutive month of decline, but stood higher by 3.7 percent year-to-date. Building permits rose 6.3 percent in September, suggesting that a pick-up in starts may occur in the months ahead.¹¹

September’s sales of existing homes rose 3.2 percent with the percentage of first-time homebuyers reached 34 percent of sales, equaling the highest level since July 2012.¹²

Sales of new homes also moved higher, rising 3.1 percent in September. The jump was encouraging as it came off an 8.6 percent decline in August.¹³

CPI: For the sixth time in seven months, consumer prices increased, rising 0.3 percent in September. For the 12-month period ending in September, inflation was 1.5 percent, the biggest gain for any 12-month period since October 2014.¹⁴

Durable Goods Orders: In an indication that manufacturers were still struggling, orders for goods designed to last longer than three years fell 0.1 percent, with capital goods orders declining 1.2 percent, a number that appears to contradict earlier reports that business investment was picking up.¹⁵

The Fed

The Fed indicated that a federal funds rate hike could be “relatively soon,” according to the minutes of the September meeting of the Federal Open Market Committee.

The minutes described a committee that had come close to raising rates in September, but ended up bowing to those Fed officials who wanted to wait on further improvement in the labor picture.¹⁶

What Investors May Be Talking About

Member countries of the Organization of Petroleum Exporting Countries (OPEC) reached a primary agreement in September to cut oil output to 32.5 million barrels per day.¹⁷ On the day the agreement was announced, oil jumped more than 5 percent and the Dow Jones Industrial Average gained 111 points.¹⁸

However, the agreement deferred the more difficult decision of setting individual country production limits to its next formal meeting in late November. With a number of OPEC nations reluctant to sacrifice the revenues that may come with reduced output, reaching a final agreement is not certain.

As witnessed in September, oil can wield a strong influence on the financial markets.

The outcome of the November OPEC meeting may be carefully watched by investors. A failure to come to an agreement could send oil prices lower and influence stock prices. Inking an agreement may further support oil prices.

However, the longer term sustainability of firmer oil prices may rest on how strictly OPEC members adhere to new production quotas, whether non-OPEC nations (e.g., Russia) seek to fill the void with production increases, and the degree to which higher oil prices stimulate fracking production in the United States.

By the Numbers

Thanksgiving

Number of turkeys consumed in the U.S. on Thanksgiving Day: 51 million¹⁹

Amount Americans spent on food for their Thanksgiving feast: $2.9 billion¹⁹
Number of times you could pay Harvard’s annual tuition with that amount: 64,444²⁰

Average household spending on Thanksgiving dinner: $56.18¹⁹
Average household spending on Thanksgiving weekend: $312¹⁹

Number of Americans who travel: 47 million²¹
Percent who travel by car: 89%²¹

Number of airplane seats booked for Thanksgiving weekend 2015: 1.7 million²¹
Number of dollars you can save, per flight, by leaving on Thanksgiving Day rather than the day before: $40²¹

Number of turkeys raised in the U.S. in 2015: 228 million²²
Number of children born: 4 million²³

Number of pounds of cranberries produced: 841 million²²
Number of places in the U.S. named “Cranberry:” 7²²
Number of places named “Plymouth:” 32²²

Years since the first Thanksgiving: 395²⁴
Years since Thanksgiving became a national holiday: 153²⁴
U.S. President who declared it so: Abraham Lincoln²⁴

Top Google search on Thanksgiving Day: Buffet restaurants²¹

Number of people who attended the Macy’s Thanksgiving Parade in 2015: 3.5 million²⁵
Number of people who watched it on TV: 50 million²⁵

Number of people who watched the Cowboy game on Thanksgiving 2015: 32.5 million²⁶

Number of people who started their holiday shopping: 35 million²⁷

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.

The market value of a bond will fluctuate with changes in interest rates. As rates rise, the value of existing bonds typically falls. If an investor sells a bond before maturity, it may be worth more or less that the initial purchase price. By holding a bond to maturity an investor will receive the interest payments due plus your original principal, barring default by the issuer. Investments seeking to achieve higher yields also involve a higher degree of risk.

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 2016 FMG Suite.

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2. FactSet Research Systems, Inc. Third-quarter earnings through October 28, 2016
3. Interactive Data Managed Solutions, October 31, 2016
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15. The Wall Street Journal, October 27, 2016
16. The Wall Street Journal, October 12, 2016
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19. StatisticBrain.com, September 2, 2015
20. Harvard.edu, 2016
21. TravelandLeisure.com, November 19, 2015
22. U.S. Census, November 5, 2015
23. The Wall Street Journal, June 7, 2016
24. History.com, 2016
25. Fortune.com, November 24, 2015
26. CBSSports.com, January 12, 2016
27. TheBalance.com, August 6, 2016