Markets, Economy

Weekly Kickstart (10/07/2019-10/11/2019)

10/7/19 8:00 AM

iStock-626627280.jpgStocks continued lower last week, as the S&P 500 fell by 0.33 percent to 2,952.01. That still left the benchmark index up 17.76 percent 2019-to-date, and just 2.44 percent below the record close. As for performance during September, the S&P 500 experienced a few wild swings but still managed to finish the month up 1.72 percent. That helped offset some of the 1.81 percent decline in August and resulted in a quarter-over-quarter increase of 1.19 percent, the third such gain in a row following the end-of-2018 tumult. Looking ahead, and expanding on what we mentioned last week, October has historically been a very volatile month, and 2019 may not be any different because the market remains exposed to a lot of two-sided (downside and upside) tail risk at the moment. Just this week, for instance, a potential volatility catalyst is the Wednesday release of the minutes from the last FOMC meeting because the earlier run-up in equities essentially stalled after the September monetary policy announcement. Current market pricing implies a 42.3 percent chance of an additional 50 basis points in rate cuts before year end, including a 79.6 percent probability of a quarter-point cut later this month.


Another key issue traders will be paying close attention to this week is the new round of negotiations between the United States and China set to begin on Thursday. Since the ongoing trade war has been the biggest headwind for the economy this year, any substantive progress toward a deal could provide a needed stimulus (and vice versa). Savvy 401(k) investors, though, are perhaps less concerned about these possible near-term fluctuations in stock prices because they understand that volatility is a natural occurrence, and what really matters when building a retirement nest egg is the combination of consistent saving and a long time horizon. Indeed, updated EBRI data showed that the average 401(k) account balance for younger (25-34), less-tenured (1-4 years) workers just since the end of 2016 has surged by 146 percent, while the S&P 500 has gained “only” 33 percent (through the end of September 2019). Older workers (55-64) with at least five years of tenure saw their 401(k) balances rise by an average of 48 percent during this same period because these individuals tend to have much larger accounts that are less sensitive to both contributions and market swings. Altogether, these significant gains should provide more evidence of how routine 401(k) contributions and the long-term resiliency of the market can together help offset periods of heightened volatility and maximize compound growth. Additional assistance is available through the use of dollar-cost averaging and regularly consulting with a professional financial advisor. As always, we are here to help with any questions you may have.


To recap a few of the things we learned about the economy last week, the positives included that mortgage applications rose, residential construction spending jumped, small business hiring firmed, nonfarm payrolls grew for the 108th consecutive month, corporate layoff announcements declined, the underemployment rate slid to a cycle low, and the unemployment rate fell to the best level since 1969. As for the negatives, the nation’s trade deficit widened, gauges of both manufacturing and service sector activity continued to send mixed signals, wage growth cooled, and initial jobless claims increased for the third straight week, albeit from a historically low level. This week the pace of economic data slows down but there are still a few important reports on consumers, employment, small business, and inflation scheduled to be released, along with a handful of speeches from Federal Reserve officials.


What To Watch:








Sources: Econoday, CME, EBRI, Twitter, FRBSL

Post author: Charles Couch