November 7, 2016
We’re in the middle of an interesting moment for the markets, where short-term volatility and uncertainty might lead you to believe that the economy is faltering. After all, the major stock indexes lost ground this week, with the S&P 500 losing 1.94%, the Dow dropping 1.50%, the NASDAQ dipping 2.77%, and the MSCI EAFE declining 1.59%.
[1] On top of these losses, the S&P 500 posted its longest losing streak since 1980.[2]
Of course, we never like to see the markets go down. However, we believe that when you look beneath the surface, the economy is still doing far better than what this week’s performance implies. Behind the losses and ongoing election exhaustion, we see a number of strong indicators that the economy is growing. This week, we learned that the trade deficit shrank[3], the service sector grew for the 81st consecutive month[4], and manufacturing continued its steady growth.[5]
On Friday, November 4, we also got to see new data on jobs and payrolls — the last significant economic report before Election Day.
What did the jobs report show us?
- Unemployment Rate Dropped
The unemployment rate hit 4.9%—only 0.1% above the Federal Reserve’s target unemployment rate.[6]
- Economy Added 161,000 Jobs
While this job creation rate was below economists’ predictions, we don’t think it is cause for concern. The growth was matched by revised August and September reports that added another 44,000 jobs.[7]
- Hourly Earnings Increased
Earnings increased by 0.4%, pushing them 2.8% higher than this time last year. We haven’t seen an earnings increase this large since 2009.[8]
- People Left Their Jobs at Higher Rates
Last month showed the highest number of people who voluntarily left their jobs since 2007. This statistic matters because it can show that people are more confident they’ll be able to find new jobs.[9]
Our Takeaway
For years, this plow horse economy has been adding new jobs at a slow and steady pace. Now that we’ve almost reached the benchmark unemployment rate, people are finally starting to see their wages increase and new opportunities arise. Typically, better jobs mean more disposable income, which equals increased consumer spending—and economic growth.
The rest of 2016 might not be a smooth ride, as the election and potential interest rate increase remain on investors’ minds. We hope you find comfort knowing that beneath this short-term volatility, we see growing economic strength.
ECONOMIC CALENDAR:
Monday: Gallup U.S. Consumer Spending Measure, Consumer Credit
Tuesday: U.S. Presidential Election
Wednesday: Wholesale Trade, EIA Petroleum Status Report
Thursday: Treasury Budget
Friday: Banks Closed but Markets Open, Consumer Sentiment
| Data as of 11/4/2016 | 1-Week | Since 1/1/16 | 1-Year | 5-Year | 10-Year |
| Standard & Poor’s 500 | -1.94% | 2.02% | -0.81% | 13.28% | 5.28% |
| DOW | -1.50% | 2.66% | 0.12% | 9.86% | 4.92% |
| NASDAQ | -2.77% | 0.78% | -1.87% | 17.57% | 11.65% |
| U.S. Corporate Bond Index | 0.18% | 7.78% | 7.24% | 4.86% | 7.28% |
| International | -1.59% | -4.49% | -6.93% | 2.26% | -1.74% |
| Data as of 11/4/2016 | 1 mo. | 6 mo. | 1 yr. | 5 yr. | 10 yr. |
| Treasury Yields (CMT) | 0.25% | 0.52% | 0.62% | 1.24% | 1.79% |
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
Check Your Flex Spending Accounts
The end of the year is less than two months away, and it’s time to check the balance on any flexible spending accounts or health savings accounts you have contributed to throughout the year. Check with your benefits provider to learn about the specifics of your program. If you don’t have a grace period and have a balance left in your account, plan to make a trip to the dentist, drug store, doctor, or optometrist.
Tip courtesy of IRS.gov[11]
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Diversification does not guarantee profit nor is it guaranteed to protect assets.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia and Southeast Asia.
The S&P U.S. Investment Grade Corporate Bond Index contains U.S.- and foreign-issued investment-grade corporate bonds denominated in U.S. dollars.
The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.
The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.
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Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
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[1]http://finance.yahoo.com/q/hp?s=%5EGSPC&a=06&b=1&c=2016&d=06&e=8&f=2016&g=d
http://finance.yahoo.com/q/hp?a=06&b=1&c=2016&d=06&e=8&f=2016&g=d&s=%5EDJI%2C+&ql=1
http://finance.yahoo.com/q/hp?a=06&b=1&c=2016&d=06&e=8&f=2016&g=d&s=%5EIXIC%2C+&ql=1
https://www.msci.com/end-of-day-data-search
[2] http://www.bloomberg.com/news/articles/2016-11-03/japan-futures-tip-stock-losses-on-yen-bounce-pound-holds-gains
[3] http://www.ftportfolios.com/Commentary/EconomicResearch/2016/11/4/the-trade-deficit-in-goods-and-services-came-in-at-36.4-billion-in-september
[4] http://www.ftportfolios.com/Commentary/EconomicResearch/2016/11/3/the-ism-non-manufacturing-index-declined-to-54.8-in-october
[5] http://www.ftportfolios.com/Commentary/EconomicResearch/2016/11/1/the-ism-manufacturing-index-rose-to-51.9-in-october
[6] http://www.ftportfolios.com/Commentary/EconomicResearch/2016/11/4/nonfarm-payrolls-increased-161,000-in-october
[7] http://www.ftportfolios.com/Commentary/EconomicResearch/2016/11/4/nonfarm-payrolls-increased-161,000-in-october
[8] http://www.ftportfolios.com/Commentary/EconomicResearch/2016/11/4/nonfarm-payrolls-increased-161,000-in-october
[9] http://www.ftportfolios.com/Commentary/EconomicResearch/2016/11/4/nonfarm-payrolls-increased-161,000-in-october
[10] http://www.realsimple.com/food-recipes/browse-all-recipes/warm-garlic-brie-crostini
[11] https://www.irs.gov/pub/irs-pdf/p969.pdf?_ga=1.151297401.1550323299.1477829790
[12] http://www.golftipsmag.com/instruction/strategy-troubleshooting/pull-the-trigger.html#.VIO46WTF-pw
[13] http://www.aarp.org/health/healthy-living/info-12-2013/health-tips-for-new-year.2.html
[14] https://www.tep.com/efficiency/tools/phantom/
