The large cap dominated S&P 500 and NASDAQ Composite posted record closing highs on Tuesday as the four-week rally continued. In fact, most major indexes advanced this week with only the mid-cap Russell 2000 and Dow Jones Transport Averages losing ground. Stocks were aided by a rebound in bond prices and the expectation of a strong earnings season. Investors are also hoping that both retail and wholesale inflation data, due out this week, will not be a headwind to stocks. In summary, throughout the remainder of October, we will be keeping an eye on interest rates, corporate earnings and the upcoming midterm elections.
- Speaking of football, third quarter earnings season is about to kick off and as noted below, financials are first up. Investors will be focusing on how rising global interest rates and Artificial Intelligence (AI) are impacting loan growth, profitability and their outlook on future consumption.
- According to the U.S. Department of The Treasury, over 60 million children have been enrolled into the “Trump Accounts” as every child under the ae of 18 who holds a valid Social Security Number is automatically enrolled and is eligible to receive a one-time $1,000 contribution into the fund. Although as noted enrollment is automatic, parents or legal guardians must activate the account to receive the funds. More information can be found at www.TrumpAccounts.gov.
- The Minutes from the September Meeting of the Federal Reserve Were Release This Past Week. They noted that “most participants assessed that another rate increase in the target range for the federal-funds rate would likely be appropriate by year-end.” Further on, “participants emphasized, however, that they approached each meeting with an open mind and decisions at future meetings would depend on incoming information.” In our opinion, the rise in the yield curve across all maturities is doing the job for the Fed so should not be in a hurry to raise rates as long as that rise is moderate and inflation expectations remain anchored.
- A research paper published by the Federal Reserve entitled “Changes In US Family Finances from 2022 to 2025” noted that “families’ propensity to stay current on their financial obligations worsened between 2022 and 2025. Families were more likely to be behind on their financial obligations than at any point since the 2010 survey. Between the 2022 and 2025 surveys, the share of families that reported being behind on loan payments sharply increased from about 12 percent to almost 20 percent. Furthermore, more than 8 percent reported being two months late or more, up from 5 percent in 2022.”
Economic Data That Drove Market Sentiment This Past Week…
- The University of Michigan reported that its Preliminary October Reading of Consumer Sentiment fell to 46.3 (-13.6% y/y) from a final September 48.1 and from a preliminary September reading of 47.8. The preliminary October expectations component rose to 47.3 (-6.0%) from a final September 46.3 as well as from a preliminary September 45.8. Lastly, the preliminary October current conditions component slumped to 44.7 (-23.7%) from the final September 50.9 and from the preliminary level of 50.9. Survey of Consumers Director, Joanne Hsu, noted that “while year-ahead expectations for personal finances and business conditions crept up slightly, buying conditions for durables plummeted amid high prices and borrowing costs.” (Source, Univ of Michigan)
- The Federal Reserve reported that Consumer Credit outstanding rose $8.3 billion during August, after climbing $17.5 billion during July. Over the past year Consumer Credit has risen 2.73%. Non-revolving Credit (automobiles, consumer durables and student loans), which accounts for nearly two-thirds of total consumer credit, rose $13.1 billion during August (2.51% y/y) while revolving credit (credit cards) fell $4.8 billion (3.37% y/y). Importantly, consumer credit as a percentage of disposable income stood at ~21.7%, remaining well within an acceptable range. (Source, U.S. Federal Reserve)
- The U.S. Trade Deficit ballooned to $105.6 billion during August from $92.8 billion in July. The value of Exports rose 1.45% to $315.2 billion from $310.7 billion while the value of Imports rose 4.26% to $420.8 billion during August from $403.6 one-month prior. (Source, Bureau of Economic Analysis)
- The Institute for Supply Management’s Services Purchasing Managers Index fell to 54.9% during September 55.4% in August, the twenty-seventh consecutive month of expansion. Of note were New Orders (59.8% v 60.9%), Employment (50.1% v 47.8%), Backlog of Orders (56.6% v 55.6%) and Business Activity (56.5% v. 61.7%). The Prices Paid Component rose to 74.0% during September from 72.6% in August. (Source, Institute for Supply Management)
Economic Reports scheduled to be released this week, include the following – on Wednesday, September Retail Inflation as Measured by the Consumer Price Index (CPI); on Thursday, September Wholesale Inflation as Measured by the Producer Price Index (PPI), September Retail Sales, August Business Inventories and Initial Weekly Claims for Unemployment Benefits; and, on Friday, September Capacity Utilization and Industrial Production.
Several potentially market moving companies are scheduled to report earnings, to include United Health Group (UNH), Wells Fargo (WFC), Goldman Sachs (GS), JP Morgan (JPM), Citigroup (C), Johnson & Johnson (JNJ), Blackrock (BLK), Bank of America (BAC), Morgan Stanley (MS), ASML Holding (ASML), US Bancorp (USB), Bank of NY Mellon (BNY), Taiwan Semiconductor (TSM), Charles Schwab (SCHW), Schneider Electric (SBGSY) and ICICI Bank (IBN).
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“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.
Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
