Clarksville, TN – Real GDP rose at a 2.9% annual rate in the advance estimate of third quarter growth, a bit on the high side of expectations. However, the economy was not as strong as the headline figure suggests (similarly, growth over the four previous quarters was not as weak as the GDP number implies).
Inventories, which had been slowing over the five previous quarters (subtracting from GDP growth), rose at a faster pace (adding 0.6 percentage point to overall growth). Net exports (a narrower trade deficit) added 0.8 percentage point.
Private Domestic Final Purchases (consumer spending, business fixed investment, and residential homebuilding), a measure of domestic demand, rose at a 1.6% annual rate (vs. +2.3% over the four previous quarters).The Conference Board’s Consumer Confidence Index and the University of Michigan’s Consumer Sentiment Index both retreated in October – but while respondents were less optimistic regarding the outlook for the economy, they were still feeling pretty good about their personal finances.
Earnings reports remained the key driver for stocks, but results were mixed, keeping the major market averages within their recent ranges. Bond yields rose, but not due to fears of tighter Fed policy or higher inflation. Rather, long-term interest rates advanced overseas (partly on stronger-than-expected growth in the United Kingdom, which has yet to enter Brexit negotiations).
Next week, earnings reports will still matter, but the economic calendar is busy with fresh October figures. The ISM surveys have some potential to surprise (and hence, to move the markets), but the focus is expected to be on Friday’s job market data.
Nonfarm payrolls are expected to have risen at a moderate pace. The unemployment rate should hold steady or edge slightly lower, as those on the sidelines (not officially counted as “unemployed,” but wanting a job) return to the labor force. Average hourly earnings are expected to have risen moderately.
There is clear internal pressure for the Fed to raise short-term interest rates, but the FOMC said it could afford to wait for more information at the September meeting, and we haven’t really added much to the outlooks for the job market and inflation since then.
Indices
Last | Last Week | YTD return % | |
DJIA | 18169.68 | 18162.35 | 4.27% |
NASDAQ | 5215.98 | 5241.83 | 4.17% |
S&P 500 | 2133.04 | 2141.34 | 4.36% |
MSCI EAFE | 1667.18 | 1679.83 | -2.86% |
Russell 2000 | 1189.95 | 1219.79 | 4.76% |
Consumer Money Rates
Last | 1 year ago | |
Prime Rate | 3.50 | 3.25 |
Fed Funds | 0.41 | 0.12 |
30-year mortgage | 3.61 | 3.76 |
Currencies
Last | 1 year ago | |
Dollars per British Pound | 1.216 | 1.526 |
Dollars per Euro | 1.090 | 1.092 |
Japanese Yen per Dollar | 105.29 | 121.09 |
Canadian Dollars per Dollar | 1.339 | 1.319 |
Mexican Peso per Dollar | 18.840 | 16.639 |
Commodities
Last | 1 year ago | |
Crude Oil | 49.72 | 45.94 |
Gold | 1269.50 | 1176.10 |
Bond Rates
Last | 1 month ago | |
2-year treasury | 0.88 | 0.73 |
10-year treasury | 1.86 | 1.54 |
10-year municipal (TEY) | 2.71 | 2.32 |
Treasury Yield Curve – 10/28/2016
As of close of business 10/27/2016
S&P Sector Performance (YTD) – 10/28/2016
As of close of business 10/27/2016
Economic Calendar
October 31 | — | Personal Income and Spending (September) |
— | Chicago Business Barometer (October) | |
November 1 | — | ISM Manufacturing Index (October) |
— | Motor Vehicle Sales (October) | |
— | Pending Home Sales Index (September) | |
November 2 | — | ADP Payroll Estimate (October) |
— | FOMC Policy Decision (no press conference) | |
November 3 | — | Jobless Claims (week ending October 29) |
— | NF Productivity (3Q16, preliminary) | |
— | ISM Non-Manufacturing Index (October) | |
November 4 | — | Employment Report (October) |
— | Trade Balance (September) | |
November 8 | — | Election Day |
November 11 | — | Veterans Day Holiday (bond market closed) |
November 15 | — | Retail Sales (October) |
November 24 | — | Thanksgiving Holiday (markets closed) |
December 2 | — | Employment Report (November) |
December 14 | — | FOMC Policy Decision (Yellen press conference) |
Important Disclosures
US government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. US government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the US government.
Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments.
Tax Equiv Muni yields (TEY) assume a 35% tax rate on triple-A rated, tax-exempt insured revenue bonds.
Material prepared by Raymond James for use by its financial advisors.
The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Data source: Bloomberg, as of close of business October 27th, 2016.