Market Share Newsletter Vol 1 Issue 7

Issue #7: November 14, 2019 

November 14, 2019

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Your 1st Source for market information
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The weather outside this week has been a bit frightful (at least for those of us still up north), while the stock market has been relatively delightful. The third quarter earnings results in the U.S. were good. Combine that with an accommodative Federal Reserve, improving economies in Europe and positive trade talks—and you get all-time highs in the S&P 500!
 
We are entering a traditionally good time for stock market returns. The U.S. consumer continues be the global highlight. As we have mentioned before, good wage gains and low debt service payments have helped fuel consumer spending. We will continue to see slow and steady economic growth given this foundation. 
 
Thank you for taking time to review The Market Share, we hope that you continue to find this information to be of value. 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

  • In October, inflation in the United States, based on the Consumer Price Index (CPI), grew at a pace faster than expected. Although 0.3% was the forecast, the CPI increased by 0.4%. However, over the past 12 months, the increase was 1.8% which is still below the target of 2%. Core inflation (which excludes food and energy) is the Federal Reserve’s preferred measure of inflation and it increased by 0.2% in October. These factors contributed to inflation receiving less headline news in the U.S.
  • The number of job openings in the U.S. has started to decline since reaching an all-time high in November 2018 but have been greater than 7 million for 18 consecutive months. As of October 31, 2019, there were only 5.8 million unemployed workers in the labor force.
  • Germany reported a surprise quarter of economic growth, although only 0.1% in the third quarter, this did keep them out of official recession territory. The Eurozone increased by 0.2% for the same time period—slightly better than Germany.
Economic Data: Recent
  Actual Survey Prior
Trade Balance
-$52.5b -$52.4b -$55.0b
Nonfarm Productivity -0.3% 0.9% 2.5%
Consumer Price Index MoM 0.4% 0.3% 0.0%
Consumer Credit $9.51b $15b $17.84b
Economic Data: Upcoming
    Survey Prior
Retail Sales Advance MoM   0.2% -0.3%
Capacity Utilization   77% 77.5%
Markit US Manufacturing PMI 51.6 51.3
Existing Home Sales   5.49m 5.38m

Equities

  • Walmart, the United States’ largest retailer, reported strong third quarter earnings of $1.16/share vs. an estimate of $1.09/share. Walmart continues to see its e-commerce segment grow (+41% year-over-year), driven in large part this quarter by strong grocery sales. The company also raised its 2019 earnings outlook ahead of this year’s holiday season.
  • Walt Disney Co. launched its brand-new streaming service, Disney+, on November 12, 2019. The company reported that demand for the product exceeded their expectations as more than 10 million people signed up on the first day. Shares of Disney rose more than 7% following that announcement.
  • Thanks to a combination of better-than-expected corporate earnings and an easing of trade tensions between the U.S. and China, we saw international equities (measured by the iShares MSCI EAFE ETF) outpace the S&P 500 by 1.31% in the last three months.
Equity Index Values and Total Returns
  Value YTD 1-Year
S&P 500 3,094.0 25.57% 16.88%
Dow Jones Industrial Average 27,783.6 21.59% 13.49%
NASDAQ Composite 8,482.1 29.03% 20.19%
Russell 2000 (small-cap index) 1,589.2 19.22% 7.30%
MSCI EAFE (developed intl.) 1,972.4 18.63% 12.82%
MSCI Emerging Markets 492.6 10.58% 10.64%
Federal Reserve's Inflation Target
Source: Bloomberg

Fixed Income

  • A recent Bloomberg article highlighted the increased utilization of bank loans (or “term loans”) by investment grade companies, specifically Bristol-Myers and Broadcom, as they are aiming to keep high-investment grade ratings. According to Bloomberg data, investment grade term loans have increased by 21% this year, while investment grade bond sales have declined.
  • On this day 40 years ago, the ten-year U.S. Treasury note was yielding 10.75% and core inflation (removing food and energy) had most recently been reported at an annual increase of 10.1%. Today, we sit at approximately 1.83% on the 10-year Treasury and Core CPI (inflation) most recently read 2.3%.
  • The 30-year German bund, most recently issued with a 0% coupon, has fallen in value by almost 13% since its high on August 28. The total amount of global debt with negative yields has fallen from its high of $17 trillion on August 29 to $11.85 trillion.
Fixed Income Index Yields & Total Returns
  Yield YTD 1-Year
B’berg Barclays Inter Govt./Credit 1.98% 6.34% 8.06%
B’berg Barclays US Aggregate Bond 2.35% 8.10% 10.51%
B’berg Barclays US Corp. High Yield 5.71% 11.87% 9.04%
B’berg Barclays Municipal Bond 1.91% 6.53% 8.90%
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 1.64% 2.49% 0.51%
10-Year U.S. Treasury Note 1.89% 2.68% 2.32%
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:
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1st Source Corporation Investment Advisors, Inc. is a wholly owned subsidiary of 1st Source Bank.