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Wall Street to Your Street


October Market Recap: Economy Flexing Its Muscles

The economy appears to be picking up steam as U.S. gross domestic product (GDP) grew at a healthy 3% annualized rate in the third quarter, following a 3.1% annualized gain in the second quarter, according to the U.S. Department of Commerce GDP report October 27.

Trucks on highwayRecovery efforts from the hurricanes in Texas and Florida have also contributed to a surge in other economic indicators, according to data from the U.S. Department of Commerce. For instance, retail sales jumped 1.6% in September and consumer spending increased a full 1.0% from August, as consumers in the hurricane-affected areas bought automobiles and auto parts, building materials and other related supplies to rebuild from the storms. (See: The Economic Impact of Hurricanes Harvey and Irma)

Personal consumption expenditures have also increased for 31 consecutive months, according to the U.S. Bureau of Economic Analysis.

Here are some other highlights from the month covered in more detail later in this report (Exhibit 1):

  • Stocks move up. Stocks moved up solidly for the month, with the S &P 500 climbing 2.22%.
  • Employment growth disrupted. Employment dropped by 33,000 in September as hurricanes in Texas and Florida disrupted business, but the growth trend in jobs is expected to resume as businesses return to normal.
  • Oil continues to recover. Oil prices continued to rise for the second straight month, helping to strengthen the recovery in the oil industry.

Exhibit 1

Drilling down

US stocks move up again

Exhibit 2The S&P 500 was up modestly for the month, from 2,519.36 at the September close to 2,575.26 on October 31 – a 2.22% gain for the month and a 15.03% gain for the year (Exhibit 2). The total return of the index was 2.33% for October and 16.91% for the year.

The NASDAQ ended October at 6,727.67, which represented a 3.57% gain for the month and a 24.98% gain for the year.

Retail sales surge amidst hurricane recovery

Retail sales were up 1.6% in September as hurricane survivors in Texas and Florida opened up their pocketbooks to rebuild from the storm damage. The gain was the largest in 2 ½ years and followed a 0.1% decrease in August, according to the U.S. Department of Commerce Retail Sales Report issued October 13.

Auto and auto parts sales experienced their biggest increase since March 2015 – a 3.6% gain for the month – as consumers replaced or repaired autos damaged in the storm. Gasoline station gross sales moved up even more – a 5.8% increase – which resulted from a hike in gasoline prices after oil refineries and production were impacted across Texas.

One other area that has been bolstered by the recovery is the building materials and garden equipment sector, which was up 2.1% for the month and 10.7% year-over-year. (See: Retail Sales Have Biggest Jump in 2 ½ Years in Wake of Hurricanes)

Employment growth stalls but unemployment sinks

After 83 consecutive months of job growth, the streak ended in September as economic activity was slowed by Hurricanes Harvey and Irma in Texas and Florida. Employment fell by 33,000 jobs during the month, according to the U.S. Bureau of Labor Statistics.

Despite the drop of 33,000 jobs, the unemployment rate dropped 0.2% to 4.2% as a net 331,000 people dropped out of the work force. That is the lowest unemployment rate since 2000. The drop in jobs in September came after the economy gained 169,000 jobs in August and 138,000 in July. Wage growth has improved over recent months. Average hourly earnings for all employees on private nonfarm payrolls rose by $0.12 to $26.55 during the month. Over the past 12 months, average hourly earnings have increased by $0.74, or 2.9%. (See: Hurricanes Knock Job Growth Off Track but Unemployment Rate Falls)

Sector returns

Exhibit 3Several sectors posted solid gains in October, led by Information Technology, up 7.76%, Utilities, up 3.90%, Materials, up 3.87%, and Financials, up 2.93%. Information Technology also leads all sectors for the year, up 37.24%.

The Energy sector, which was up 9.94% in September, declined 0.66% in October despite a solid gain in oil prices. Telecom Services took a big hit in October, down 7.62%. It has posted the worst performance of all sectors in 2017, down 11.95% for the year.

Exhibit 3 shows the results for all 11 sectors.

Exhibit 4Bond yields move up

Market interest rates on 10-year U.S. Treasuries continued to increase in October, climbing from 2.33% in September to 2.38% at the October close (Exhibit 4). That marks a significant increase over the past two months after yields dropped to just 2.12% at the August close.

Oil keeps climbing

Exhibit 5Oil prices continued to move up in October, adding to the 9.40% price increase in September. Prices moved up 5.24% from $51.67 (West Texas Intermediate) at the end of September to $54.38 at the end of October as global demand picked up (Exhibit 5).

Gold prices retreat

Gold prices barely budged in October, edging down from $1,284.80 per ounce at the end of September to $1,270.50 at the close of October (Exhibit 6). Exhibit 6

International equities move back up

The international stock markets enjoyed a solid month in October as the MSCI EAFE Index gained 1.46%, moving up from 1,973.81 at the close of September to 2,002.54 October 31 (Exhibit 7). The MSCI EAFE is up 18.92% for the year.

Exhibit 7

What’s ahead for the economy?

Outlook from Chief Investment Strategist—Mark Simenstad

(See: November Outlook: Economy Has Brightened but Challenges Still Loom)

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