Market Share Newsletter Vol 1 Issue 6

The Economy

• Third quarter GDP came in at 1.9%, which was higher than the forecast of 1.6%. Economic growth was driven by personal consumption, investment into intellectual and residential property. The detractors for the third quarter were primarily business fixed investment and foreign trade. This was the first quarter in almost two years that there was growth in residential investment.
• The change in non-farm payrolls increased by 128k in October and were revised up by 44k in September. The unemployment rate increased to 3.6% from 3.5%, the labor force participation rate increased to 63.3% and average hourly earnings have increased 3% over the past 12 months.
• Single family housing starts in the United States have increased for four consecutive months, but overall new housing starts fell slightly from their 12-year high (includes multifamily). The real positive here has been the steady increase in single-family housing, driven by low mortgage rates and a resilient U.S. economy.
• Hong Kong officially moved into a recession in the third quarter as their economy shrank by 3.2%, following a decline of 0.5% in the second quarter. The economy continues to be negatively affected by the China-U.S. trade war and months of protests (the underlying cause is Hong Kong seeking independence from China).

Equities

• Apple Inc. stock reached a new all-time high on November 1 and their market capitalization has now breached $1.1 trillion. Apple beat both revenue and earnings expectations for their most recently reported quarter and provided strong guidance going forward. Microsoft and Facebook provided equally impressive quarterly results.
• Google (Alphabet’s leading subsidiary) announced that they plan to acquire Fitbit for $2.1 billion and the deal is expected to close in 2020. The premium that Google will pay for Fitbit is more than 70% of Fitbit’s stock price since Reuters announced the possible deal on October 28.
• The MSCI EAFE index, the primary developed international stock index, outperformed the S&P 500 by 1.43 percentage points in October. This is the second consecutive month of outperformance, as some economic data has been better than expected and European financial stocks have performed well.

Source: Bloomberg

Fixed Income

• The Federal Reserve lowered their target rate by 25 basis points on October 30, to a range of 1.50-1.75%. This came as little surprise as most expected a cut at either the Fed’s October or December meeting and it marked the third 25 basis point cut in 2019. Based on economic data and indications from the Fed, we expect this to be the last interest rate cut for 2019.
• Bond yields declined following the Fed meeting as Jerome Powell, chairperson of the Federal Reserve, stated that “serious inflation” is required to push the Fed to raise rates. Given that statement and, to a lesser degree, that the Fed’s goal of sustainable 2% core inflation has not been attainable, the markets pushed yields lower, as a rate hike has been virtually eliminated from the bond markets for the next few years.
• According to Lipper data, municipal bond mutual funds had their 43rd consecutive week of positive inflows. Municipal bonds should continue to perform well as municipalities continue to improve financially and personal incomes continue to rise.

Fixed Income Index Yields & Total Returns
	Yield	YTD	1-Year
B’berg Barclays Inter Govt./Credit	1.86%	6.83%	8.67%
B’berg Barclays US Aggregate Bond	2.23%	8.85%	11.42%
B’berg Barclays US Corp.High Yield	5.70%	11.71%	8.29%
B’berg Barclays Municipal Bond	1.83%	6.94%	9.52%
Key Interest Rates
	10/29/19	12/31/18	11/2/14
Federal Funds Target Rate	1.5-1.75%	2.25-2.5%	0-0.25%
3-Month LIBOR	1.91%	2.81%	0.23%
2-Year U.S. Treasury Note	1.52%	2.49%	0.49%
10-Year U.S. Treasury Note	1.69%	2.68%	2.34%
Prime Rate	4.75%	5.50%	3.25%

Source: Bloomberg