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Market Share Newsletter Vol 1 Issue 6
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  6. Market Share Newsletter Vol 1 Issue 6

Market Share Newsletter Vol 1 Issue 6

Issue #6: November 1, 2019 

1st Source Wealth Advisory Services logo

November 1, 2019

data abstract illustration
Market Share logo
Your 1st Source for market information
closeup of dollar bill
‘Tis the season to see spooky costumes, turkeys and holiday decorations all in the same day. The past two weeks have produced more treats than tricks in the equity markets as the S&P 500 reached new highs. Companies have reported better earnings results and consumers are positioned to continue spending. However, we still have a few “turkeys” to digest with the ongoing trade wars, impeachment inquiry and Brexit. The shortest traditional shopping season between Thanksgiving and Christmas has retailers working to get everyone in the holiday spirit and to buy gifts now.
 
We are entering a historically good part of the year for equities. The economy finished the most challenging months in very good shape, so our expectations are modest as we end 2019 with what could be a great year for equity returns.
 
Thank you for taking time to review The Market Share, and as always, we appreciate the opportunity to work with you!
 
Paul Gifford, CFA
Chief Investment Officer
1st Source Corporation Investment Advisors, Inc.
GiffordP@1stsource.com
Erik Clapsaddle, CFA, CFP®
Senior Fixed Income Portfolio Manager
1st Source Corporation Investment Advisors, Inc.
ClapsaddleE@1stsource.com
Considerations for your portfolio

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).
Economic Data: Recent
  Actual Survey Prior
Housing Starts
1,256k 1,320k 1,364k
Univ of MI Sentiment 95.5 96.0 96.0
ISM Manufacturing 48.3 48.9 47.8
Change in Nonfarm Payrolls 128k 85k 168k
Economic Data: Upcoming
    Survey Prior
Trade Balance   -$52.5b -$54.9b
Nonfarm Productivity   0.9% 2.3%
Consumer Price Index MoM 0.3% 0.0%
Retail Sales Advance MoM   0.2%
-0.3%
 

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.
Equity Index Values and Total Returns
  Value YTD 1-Year
S&P 500 3,037.6 23.16% 13.13%
Dow Jones Industrial Average 27,046.2 18.19% 9.17%
NASDAQ Composite 8,292.4 26.07% 12.83%
Russell 2000 (small-cap index) 1,562.5 17.16% 2.59%
MSCI EAFE (developed intl.) 1,955.5 17.50% 11.03%
MSCI Emerging Markets 491.6 10.35% 10.06%
Federal Reserve's Inflation Target
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%
Federal Reserve's Inflation Target
Source: Bloomberg
 
 
DISCLOSURES
The information in this email was prepared from sources believed to be reliable; it is for informational purposes only and does not provide recommendations based on the investment objectives, financial situation, or needs of any individual or entity. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets. The information in this email is not a comprehensive statement of the matters discussed. Unless specifically indicated otherwise, this email is not an offer to sell or a solicitation of any investment products or other financial product or service or a confirmation of any transaction. If you have questions about the information in this email, please contact your trust administrator at 1st Source Bank Wealth Advisory Services or call 800 882-6935. Investment and Insurance products are:
  • Not insured by the FDIC or any Federal Government Agency
  • Not a deposit or other obligation of, or guaranteed by, the Bank or any bank affiliate
  • Subject to investment risks, including possible loss of the principal amount invested
1st Source Corporation Investment Advisors, Inc. is a wholly owned subsidiary of 1st Source Bank.
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