Markets, Economy

Weekly Kickstart (11/04/2019-11/08/2019)

11/4/19 8:00 AM

iStock-626627280.jpgStocks continued higher last week, as the S&P 500 rose by 1.47 percent to 3,066.91. That was a new all-time closing high and it left the benchmark index up 22.34 percent 2019-to-date. Major indices have now surged by around 8 percent since the August lows, and a big factor behind this sharp rebound has been the dovish shift going on at the Federal Reserve. Indeed, last week monetary policymakers lowered the target range for the federal funds rate by another 25 basis points to 1.50-1.75 percent. With equities at record levels and a recent influx of encouraging economic data, some will naturally wonder why the Fed felt the need to cut rates for the third time since July. Perhaps one way to reconcile “why is the Fed easing when economic conditions are good,” is that conditions remain good in part because the Fed is easing, and in turn clearly signaling a willingness to closely monitor changes in the data and respond quickly when needed.


This is a sharp contrast to last year when the Fed appeared to be leaving monetary policy on “autopilot” and proceeded with what was widely considered an unnecessary rate hike in December that sent stocks tumbling briefly into bear market territory. Fed chair Jerome Powell in last week’s post-announcement press conference also noted that “we would need to see a really significant move up in inflation that's persistent before we even consider raising rates.” This and other commentary from the committee helped eliminate a lot of uncertainty about the Fed’s near-term monetary policy plans, therefore removing a major obstacle in the way of further gains in stock prices. Other challenges remain, though, and the market’s focus will likely stay on the trade negotiations between the United States and China, especially while the next round of tariffs that will more directly impact consumer goods are still scheduled to go into effect in December. More importantly, with stocks once again at record highs, some regular investors may benefit from consulting with a professional financial advisor and making sure their positioning is properly aligned with their risk tolerance, retirement goals, and other unique variables. 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 the nation’s trade deficit (in goods) narrowed, home affordability improved, mortgage applications increased, pending home sales rose, construction spending jumped, job creation rebounded, unemployment held near a half-century low, wage gains picked up, consumer spending remained solid, household inflation pressures moderated, and U.S. gross domestic product (GDP) during the third quarter of 2019 expanded by more than anticipated. As for the negatives, consumer confidence softened, manufacturing gauges continued to send mixed signals, corporate layoff announcements ticked higher, initial jobless claims rose, and small business hiring cooled. This week the pace of economic data slows down but there are still a few important reports on service sector activity, employment, productivity, and consumers scheduled to be released, along with a handful of speeches from Federal Reserve officials.


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Sources: Econoday, FRBG, Twitter, FRBSL

Post author: Charles Couch