Monthly Market Insights | September 2017
The markets closed higher for the month as investors’ attention shifted from geopolitical headwinds, to potential tax reform, to positive economic news.
The Dow Jones Industrial Average gained 0.28 percent while the Standard & Poor’s 500 Index closed fractionally higher. The NASDAQ Composite led, picking up 1.27 percent.1
A strong jobs report and a series of better-than-expected corporate earnings reports led to a good start in August for large-cap stocks. Markets, however, took an abrupt about-face as disappointing earnings and rhetoric between North Korea and Washington sent stock prices lower.
The market began to trend lower over rising domestic and international political concerns, falling oil prices and weak earnings reports. The Dow Jones Industrial Average fell 1.2 percent on August 17th, ending 63 consecutive days in which a trading session did not move more than one percent in either direction. It was the longest such streak since 1995.2
Progress on Tax Reform
Reports that Washington was making political progress with tax reform boosted investors’ spirits and sent stock prices higher. However, in subsequent trading sessions, with political tensions exposed by the opening of NAFTA negotiations with Mexico and Canada and creeping doubts that a debt ceiling deal to prevent a government shutdown would easily pass, stocks quickly lost their positive momentum and headed lower once again.
Despite North Korea’s launching of a missile over northern Japan and the tragedy of Hurricane Harvey, investors focussed on positive economic growth prospects, sending stocks higher and into positive territory to close out the month.
Declining sectors outnumbered winning sectors in August, with Technology (+1.81 percent) and Utilities (+3.62 percent) the clear outperformers, while Real Estate (+0.37 percent) posted marginal gains. Energy (-5.72 percent) and Consumer Discretionary (-2.35 percent) suffered the largest monthly losses, followed by Consumer Staples (-1.17 percent), Financials (-0.96 percent), Materials (-0.74 percent), Health Care (-0.04 percent), and Industrials (-0.25 percent).3
What Investors May Be Talking About in September
German voters will be heading to the polls on September 24th to elect a new Bundestag (Germany’s federal legislative body), with Angela Merkel vying for her fourth term as chancellor. As investors have already seen, European elections hold the potential for considerable impact on the direction of markets worldwide.
Chancellor Merkel appears in no danger of losing her seat, but the nature of a mixed-member proportional system that elects members to the Bundestag could potentially require Ms. Merkel’s Christian Democrats (an alliance of the Christian Democratic Union and Christian Social Union parties) to strike a coalition with other parties in order to govern.
Early polls indicate only a slight chance that September’s election could result in a change to the current status quo.
However, if the election results go differently than expected, it may raise doubts about Germany continuing its leadership role in the European Union. Such an outcome could spark investor worries and lead to a widespread volatility across global markets, including here in the U.S.
Given the pollsters’ misfires on forecasting the Brexit vote, investors are expected to be eyeing Germany’s election and what it may say about the future policies of the world’s fourth largest economy.4
Overseas markets collectively posted another down month as the MSCI-EAFE Index slid 0.94 percent in August.5
European markets were mixed as investors focused on disappointing earnings reports and a strengthening euro. Germany was slightly lower, while the U.K., which continues to be unsettled by Brexit negotiations, notched a gain.6
The Pacific Rim markets were similarly mixed, as Australia declined 0.1 percent, Hong Kong advanced 2.4 percent and Japan slid 1.4 percent.7
Gross Domestic Product: Second-quarter GDP growth was revised higher, from 2.6 percent to 3.0 percent, making it the strongest quarter of economic growth since the first three months of 2015.8
Employment: The unemployment rate sunk to a 16-year low as the U.S. economy added 209,000 new jobs in July. The jobless rate now stands at 4.3 percent. Despite the surge in hiring, wage growth remains stuck, increasing just 2.5 percent from a year earlier for the fourth consecutive month.9
Retail Sales: Retail sales bounded 0.6 percent higher, recording their best monthly growth rate this year.10
Industrial Production: Output by American manufacturers, miners and utilities increased 0.2 percent, as auto and auto parts production fell sharply.11
Housing: Housing starts fell 4.8 percent, which was the fourth decline in the last five months. This year’s housing starts, nevertheless, remain 2.4 percent higher than the same period last year.12
Sales of new homes dropped 9.4 percent as shrinking inventory and rising prices have curbed the appetite of prospective buyers. Despite the recent softness, new home purchases for the first seven months of 2017 are 9.2 percent higher than the same period last year.13
Existing home sales also suffered last month, falling 1.3 percent as lower inventory levels dampened purchases. Although purchases of existing homes in July touched their lowest sales level this year, year-to-date sales are 2.1 percent above the same period last year.14
Consumer Price Index: The deceleration of inflation continued into July as consumer prices registered a 0.1 percent increase, leaving the price index higher by just 1.7 percent over the last 12 months.15
Durable Goods Orders: Durable goods orders fell 6.8 percent due to a sharp drop in aircraft orders, which had seen a huge rise in the previous month. Excluding the more volatile transportation category, orders rose 0.5 percent, powered by strong business investment.16
Low inflation has caused Fed members to split over the timing of the next rate hike, according to the minutes of the Fed’s most recent Open Market Committee meeting.
Some Fed members see the absence of an acceleration in the inflation rate as a hint of some larger economic issue that warrants further investigation. Others believe that an increasingly tight labor market may ignite inflation and send it higher, making it more difficult to reverse.
While it is unclear whether this fissure among committee members could result in slowing the pace of future Fed rate increases, it has introduced a new point of uncertainty.
By the Numbers: The U.S. Labor Force
Number of workers in the U.S. labor force: 163 million17
Number of workers in India: 510 million17
In China: 807 million17
Number of U.S. workers in education and health services: 22.7 million18
In business: 20.3 million18
In retail: 16 million18
In manufacturing: 12.3 million18
In government: 22.2 million18
Number of self-employed Americans: 15 million18
Percent of U.S. jobs created by the self-employed: 30%18
Median annual earnings for workers with only a high school diploma: $35,00019
Average starting salary for a 2017 college grad: $50,00020
Average starting salary for a college grad who is a software developer: $65,00020
Percent of today’s billionaires who are college dropouts: 25%21
Largest U.S. company by total revenues in 1955: General Motors22
In 1975: ExxonMobil22
In 2005: Wal-Mart22
Most dangerous job in America: Logger23
Least dangerous job in America: Accountant24
Job with highest satisfaction rate: Recruiter25
Average recruiter salary: $56,71525
Number of top-ten high-satisfaction jobs in STEM fields (science, technology, engineering, and math): 825
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
Any companies mentioned are for illustrative purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance.
The forecasts or forward-looking statements are based on assumptions, may not materialize and are subject to revision without notice.
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.
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Copyright 2017 FMG Suite.
- The Wall Street Journal, August 31, 2017
- The Wall Street Journal, August 17, 2017
- Interactive Data Managed Solutions, August 31, 2017
- Knoema.com, 2017
- MSCI.com, June 30, 2017
- MSCI.com, June 30, 2017
- MSCI.com, June 30, 2017
- The Wall Street Journal, August 30, 2017
- The Wall Street Journal, August 4, 2017
- The Wall Street Journal, August 15, 2017
- The Wall Street Journal, August 17, 2017
- The Wall Street Journal, August 16, 2017
- The Wall Street Journal, August 23, 2017
- The Wall Street Journal, August 24, 2017
- The Wall Street Journal, August 11, 2017
- The Wall Street Journal, August 25, 2017
- Worldbank.org, 2016
- Pew Research Center, September 1, 2016
- SmartAsset.com, March 1, 2017
- Time.com, May 12, 2017
- Parade.com, April 7, 2016
- Fortune.com, 2017
- Bureau of Labor Statistics, December 16, 2016
- CareerCast.com, 2017
- Forbes, March 4, 2016