Monthly Market Insights | October 2019
An improving trade outlook and constructive economic data helped lift stocks in September.
The Dow Jones Industrial Average led the way, gaining 1.95 percent. The Standard & Poor’s 500 Index tacked on 1.72 percent, while the NASDAQ Composite trailed, advancing 0.46 percent.¹
After stumbling out of the gate, markets advanced on news that U.S. and Chinese negotiators would meet in early October. A string of good economic reports, which eased recession concerns, also helped.
Stock prices continued their advance, though some investors were unnerved by a sharp rotation toward value and small-cap stocks, yet away from growth stocks. Investors who had been worried about the economy glimpsed some data affirming consumer strength.
Stocks drifted lower in the second half of September, an attack on two major oil facilities in Saudi Arabia prompted a spike in oil prices, but had less impact on the equity markets. Investors also had a muted reaction to the Federal Reserve’s widely anticipated 25-basis-points cut in the federal funds rate.
The tone of the markets shifted in the wake of a White House whistleblower report. However, stock prices rebounded after the release of additional information.
A rumor that the White House might be considering a ban on American investments in Chinese companies drove stocks lower, but prices rebounded again on the last day of trading.
All industry sectors moved higher in September, with gains in Communication Services (+1.15 percent), Consumer Discretionary (+2.23 percent), Consumer Staples (+1.55 percent), Energy (+6.77 percent), Financials (+7.18 percent), Health Care (+0.19 percent), Industrials (+5.79 percent), Materials (+4.60 percent), Real Estate (+1.24 percent), Technology (+2.01 percent), and Utilities (+3.85 percent).²
What Investors May Be Talking About in October
For nearly two years, investors’ moods have swung with each twist in the ongoing trade saga between the U.S. and China. Trade talks are scheduled to resume on October 10.³
The markets are expected to be looking for two key developments from these talks.
One is whether future talks appear to be on the horizon. Investors have shown that they can be satisfied with the promise of continued negotiation, especially considering the alternative.
The second key outcome is the post-meeting messaging coming from each nation. If countries communicate a positive message about the meeting, it could provide a boost to investor sentiment.
Overseas markets trended largely higher amid monetary easing in the European Union, falling worries about Brexit, and increasing optimism on U.S.-China trade talks. The MSCI-EAFE, which measures stock market performance of developed countries outside the U.S. and Canada, rose 2.54 percent.⁴
Major markets in Europe were higher, with gains in France, picking up 3.60 percent; Germany, 4.09 percent; the United Kingdom, 2.79 percent.⁵
Pacific Rim stocks showed gains. Australia added 1.27 percent; Japan, 5.08 percent. Argentina’s Merval index picked up 18.12%, rebounding from August’s stunning decline.⁶
Gross Domestic Product
Economic growth for the second quarter remained unchanged at 2.0 percent. Strong consumer spending was offset by weak exports and a contraction in business investment.⁷
The August employment report was mixed, with slower hiring, a steady unemployment rate (3.7 percent), and accelerating wage growth (higher by 3.2 percent, year-over-year).⁸
Retail sales rose 0.4 percent, driven by a sharp increase in motor vehicle and parts purchases.⁹
Industrial output rose 0.6 percent, a sharp rebound from July’s revised 0.1-percent decline.¹⁰
Lower mortgage rates helped spur a 12.8-percent jump in housing starts, with new home building reaching a level not seen since June 2007.¹¹ Existing home sales rose 1.3 percent in August, the fastest pace since March 2018.¹² In a further sign that falling mortgage rates have lifted the housing sector, new homes sales bounded 7.1 percent higher.¹³
Consumer Price Index
Prices of consumer goods moved slightly higher in August, rising 0.1 percent. Excluding the more-volatile food and energy sectors, inflation was a more-robust 0.3 percent. It was the third consecutive month in which core inflation had registered a 0.3-percent gain.¹⁴
Durable Goods Orders
Orders for long-lasting goods rose 0.2 percent, muted by weakness in business investment.¹⁵
Federal Reserve policymakers voted 7-3 to cut the federal funds rate by 0.25 percent, the second such cut this summer.
Chairman Jerome Powell framed this cut as an effort to sustain economic growth amid headwinds, chief among them being trade uncertainty.
In the post-meeting news conference, little sign was given as to the Fed’s future plans for interest rates, with Powell suggesting that prevailing circumstances would dictate actions.¹⁶