Market Highlights

Economic

• September consumer confidence rose to 138, above estimates, reaching a new 18-year high
• Retail sales fell 0.0% in September and auto sales rose to 17.4 million units, above estimates
• Non-farm payrolls in September were 134,000, below estimates of 185,000
• Unemployment fell to 3.8%, with underemployment dropping to 7.5%
• U.S. industrial production rose 0.3% in September, following a rise of 0.4% in August
• Housing prices are up 5.9% on a year-over-year basis, with a increase in supply to 6.5 months
• New home construction numbers were 1.2 million in September, versus 1.28 million in August
• Existing home sales fell to an annual rate of 5.1 million in September from 5.3 million in August
• U.S. manufacturing fell, with September ISM at 59.8, below estimates
• Personal income was up 0.4% and consumer spending was up 0.3% in August
• GDP for Q2 was up 4.2%, in line with estimates, and is estimated to be up 3.3% in Q3

Inflation

• September core inflation was 2.5% for CPI and 2.2% for PPI on a year-over-year basis
• Crude oil fell to $67, with sanctions on Iran, as Saudi Arabia fills the shortfall
• Deflation has been the worry for some time, but long term inflation remains concerning

Monetary Policy

• The Fed has raised the Fed Funds rate to 2.25%, with the Discount rate at 2.75%
• The Fed is expected to have raised rates four times in 2018, with three increases in 2019
• World Central Banks are withdrawing liquidity as the Fed continues its Quantitative Tightening
• The Federal Reserve is reducing its balance sheet by $50 billion a month

International

• Emerging markets continue to slow as the dollar strengthens and interest rates rise
• Worldwide debt has grown to $247 trillion, according to the Institute of International Finance
• The top seven Central Banks are starting to change course on monetary policy
• President Trump replaces Nafta with new deals struck with Mexico and Canada

Interest Rates

• Ten-year Treasury yields rose from a low of 2.8% to a recent 3.2%, with more rate hikes to come
• Libor, the inter-bank lending standard, is 2.48%, and is set to be phased out by 2020
• Mortgage rates rose again, as the 30-year fixed rate jumped from 4.0% to 4.74%

Earnings

• Reported corporate earnings are beating estimates 86% of the time and revenues are beating 68%
• Third quarter results are up 19.3% from a year ago, as tax cuts and deregulation boost growth
• Markets are adjusting to slower earnings growth of 10% in 2019 versus the 20% growth this year

Market Outlook

• S&P 500 and the Dow are in a correction as markets adjust to rising rates
• Market volatility increased during the third quarter, as risk gets repriced
• Healthcare, Consumer Discretionary, and Industrials were the best performing groups
• The S&P 500 is trading at 16.8 times forward earnings, at its 25-year average

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