Stocks rebounded from the fractional selloff the prior week with most major indexes closing at record highs. This, despite another government shutdown. The fact is that historically these short-term congressional impasses over the funding of the government have little impact on either the stock or bond market. At this time, we have little reason to believe this go around will be any different unless the Democrats really dig in their heels. To us, the political risk of this occurring probably outweighs any temporary reward.
· All major stock indexes posted sizable gains during the third quarter despite concerns over tariffs as the economy continued to display a remarkable amount of resilience. For the quarter that just passed the NASDAQ Composited jumped 11.24%, the S&P 500 rose 7.79% and the Dow Jones Industrial Average advanced 5.22%. However, the big winner was the Russell 2000, comprised of the second and third thousand largest stocks domiciled in the United States, which surged 12.02%.
· According to Crane Data, assets held in money-market funds hit a record $7.7 trillion last week, a figure that will most likely remain near these levels, given the competitive rate of interest they are paying amidst a period of easing monetary policy. Presently, the average investor at Fagan Associates holds a little under 10% of their portfolio in money market funds as we await either a market pullback or a bump higher in intermediate- or longer-dated fixed income securities.
· Elon Musk is back in the news, calling for a boycott of streaming giant Netflix (NFLX) over an animated show that featured a transgender character that Netflix canceled in 2023 after two seasons. Shares slipped 4.73% over what was a record high close the prior week. In our opinion, the call by Musk might provide a headwind to any short-term meaningful move higher of what is a richly valued stock. However, we don’t believe the boycott will gain a lot of traction that would push shares substantially lower. Fagan Associates does not purchase or sell securities based upon ideology. However, we must be cognizant of the fact that many Americans do. Readers might recall when shares of AB InBev, parent of Anheuser-Busch fell as a result of a boycott that did gain steam a couple of years ago.
· Investment house MFS recently relayed some encouraging data regarding the performance of the stock market during the fourth quarter. “Q4 stands out as the strongest and most consistently positive quarter of the year for stocks. Since 1928, the S&P 500 has averaged a gain of 2.9% in Q4 with positive returns 74% of the time. In comparison, Q1, Q2, and Q3 have all seen positive returns 60.2% of the time.” (MFS cited Bespoke as their source for this data.).
It’s The Economy…”
· The Conference Board’s Consumer Confidence Index fell to 94.2 (-5.0% y/y) during September from 97.8 in August. The present situation index fell to 125.4 in September from 132.5 (1.3% y/y) while the expectations component fell to 73.4 during September from 74.7 during August (-11.4% y/y). Those surveyed saying that jobs are “hard to get” remained at 19.1% of respondents during September when compared August while those claiming that jobs were “plentiful” fell to 26.9% of consumers from 30.2% during those same months.
· The Institute for Supply Management’s composite index of manufacturing sector activity improved to 49.1 during September compared to 48.7 in August. Generally, a reading above 50% indicates that the manufacturing economy is expanding, below indicates one in contraction. Of note were the changes in New Orders (48.9% v. 51.4%), Production (51.0% v. 47.8%), Supplier Deliveries (inverse, higher number indicates slower delivery times) (52.6% v. 51.3%), Inventories (43.7% v. 44.6%) and Employment (45.3% v. 43.8%). The Prices Paid Component fell to 61.9% during September from 63.7% during August.
· The Bureau of Labor Statistics reported that the Job Openings and Labor Turnover Summary (JOLTS) on the last business day of August totaled 7.227 million (-5.5% y/y), up 19,000 from 7.208 million one month prior. Job Openings have fallen from a high of 12.182 million in March 2022. This compares with total hires, which fell 114,000 to 5.126 million, leaving a gap of approximately 2.101 million between job openings and those available to work, up 228,000 from the prior month. The total number of Job Separations, which includes quits, layoffs, discharges and other separations fell 110,000 to 5.111 million in August from 5.221 million in July. Quits (Table 4) fell 75,000 to 3.091 million in August from 3.166 million in July. (Source, U.S. Bureau of Labor Statistics)
Economic Reports scheduled to be released this week include the following – on Tuesday, August Balance of Trade and August Consumer Credit; on Thursday, the Weekly Report of Initial Claims for Unemployment Benefits; and, on Friday October Consumer Sentiment as reported by the University of Michigan.
Several companies of note are scheduled to report quarterly earnings this week, to include CConstellation Brands (STZ), McCormick (MKC), Levi Strauss (LEVI), Applied Digital (APLD), PepsiCo (PEP), Progressive (PGR) and Delta Air Lines (DAL).