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CCCM WEEKLY MARKET REVIEW

December 3, 2018

U.S. Markets: The major U.S. indexes rebounded strongly this week as Federal Reserve Chair Jerome Powell said that the federal funds rate is “just below” a neutral level (from his previous “a long way” from neutral), instantly moderating expectation of future interest rate hikes. The comments sparked a rally that lifted the S&P 500 to its best weekly gain since December of 2011. The Dow Jones Industrial Average surged over 1,250 points closing at 25,538, a gain of 5.2%. The technology-heavy NASDAQ Composite rallied 5.6%, ending the week at 7,330. By market cap, the large cap S&P 500 gained 4.8%, while the mid cap S&P 400 and small cap Russell 2000 each rose 3.0%.

U.S. Economic News: The number of Americans who applied for first-time unemployment benefits last week hit a 6-month high, but the reading remained well below historical standards. The Labor Department reported that initial claims for unemployment insurance rose 10,000 to 234,000, its third consecutive increase. The consensus was for a decline of 4,000 to 220,000. The four-week moving average of claims, which smooths out the week-to-week volatility, rose 4,750 to 223,250—its highest level in five months. Still, the reading is extremely low by historical standards, and economists state labor market conditions remain tight.

The growth in home prices slowed to nearly a two-year low according to the latest data from S&P CoreLogic Case-Shiller National Home Price Index. The index rose 0.4% in September, while the year-over-year change pulled back to 5.5% - its slowest rate of growth since January 2017. In addition, both the 10-city and 20-city composite indexes posted smaller year-over-year gains than in recent months, an indication that the slow-down in house price appreciation is broad-based. In the details, the West was still the best with Las Vegas, San Francisco, and Seattle continuing to post the highest year-to-date gains; however, Seattle also experienced the largest home price decline in September.

Sales of new homes declined almost 9% last month, their biggest drop this year and back to levels not seen since March of 2016. Consensus expectations were for a 4.0% rebound to a 575,000 annual rate. Year-over-year sales were off -12%. Sales declined in all four regions of the country, both from the previous month and the same time a year ago. Inventory of new homes increased by 4.3% to 336,000, to its highest level since January of 2009. That brought the number of months of inventory up to 7.4 months, its highest level since February of 2011. Analysts generally consider six months of housing inventory a “balanced” housing market.

Confidence among the nation’s consumers pulled back slightly, according to the Conference Board’s Consumer Confidence Index which fell 2.2 points this month to 135.7—its first decline in five months. Still, the index remained near its highest level since October 2000 and continues to indicate above-trend economic expansion. The decline last month was predominantly due to a 4.1 point slide in consumer expectations, the most in almost a year, as the outlook for business conditions and income growth moderated. The present situation index—how Americans feel about the economy right now - rose 0.8 point to 172.7, its highest level since December 2000. Consumer purchasing plans for the next six months were broadly in line with seasonal expectations. Lynn Franco, senior director of economic indicators at the board noted, “Overall, consumers are still quite confident that economic growth will continue at a solid pace into early 2019. However, if expectations soften further in the coming months, the pace of growth is likely to begin moderating.”

In the Windy City, a broad measure of the U.S. economy from the Chicago Federal Reserve showed slightly stronger growth last month. The Chicago Fed National Activity Index increased to 0.24 in October from 0.14 in the previous month. Due to the volatile nature of this indicator, analysts prefer to look at the three-month moving average which ticked up to 0.31 from 0.30. This suggests a modest acceleration of economic growth during the course of the fourth quarter. Only one of the four broad categories of indicators increased last month, but three continued to make positive contributions to the index. The Chicago Fed index is a weighted average of 85 economic indicators, designed so that zero represents trend growth and a three-month average above 0.70 suggests an increasing likelihood of a period of sustained increasing inflation. The Diffusion Index, which is based on 85 individual indicators, climbed 0.08 point to 0.32—its highest level this year and consistent with above-trend growth.

The government’s Bureau of Economic Analysis reported that the economy grew 3.5% in the third quarter, matching consensus forecasts and keeping the economy on track for around 3% growth for the year. In addition, on a year-over-year basis, real GDP was up 3.0% - its fastest pace since the second quarter of 2015. In the details, corporate profits from current production increased 3.4% in the third quarter, the most since 2014. The increase was led by a solid gain in domestic nonfinancial industries. Profits were up 10.3% year-over-year as companies locked in benefits from the lower corporate tax rate. However, the main engine of the U.S. economy, consumer spending, rose at a 3.6% pace instead of the earlier-reported 4%, and the increase in state and local government spending was trimmed -1.2% to just 2%. Richard Moody, chief economist at Regions Financial summed up the report stating, “The bottom line here is that the U.S. economy carried a good deal of momentum into the home stretch of 2018 and 2019 should be another year of solid growth, even if growth falls a bit shy of this year’s pace.”

Finally: As November came to a close, many investors who were diversified across numerous asset classes have seen a rather noticeable decline in the value of their investment accounts. While the first inclination may be to blame themselves or their financial advisor, the reality is that there were very few “safe havens” that avoided the October-November swoon. Research from Deutsche Bank shows that 90% of the 70 largest asset classes they follow are on track to post negative returns for the year. As Deutsche Bank notes, both stocks and bonds could both finish the year lower, a result that hasn’t happened in more than a quarter of a century.

(sources: all index return data from Yahoo Finance; Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Figs 1-5 source W E Sherman & Co, LLC)

The charts and tables presented herein are for illustrative purposes only and should not be considered as the sole basis for your investment decision. Opinions are those of Chapman and Cardwell Capital Management and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Dow Jones Industrial Average (DJIA), commonly known as "The Dow" is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market The S&P MidCap 400® provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500®, measures the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. Leading Economic Indicators are selected economic statistics that have proven valuable as a group in estimating the direction and magnitude of economic change. Indices are not available for direct investment. The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index is a composite of single-family home price indices for the nine U.S. Census divisions and is calculated monthly. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.


November 26, 2018

U.S. Markets: U.S. stocks endured a second week of losses, primarily due to sell-offs on Monday and Tuesday. Declines were particularly evident in technology stocks, but energy stocks were also particularly weak as crude oil prices continued to tumble. The Dow Jones Industrial Average fell over 1120 points last week, ending the week at 24,285, a loss of -4.4%. The Nasdaq Composite gave up 309 points, to close at 6,938, a loss of -4.3%. By market cap, the large cap S&P 500 fell -3.8%, the mid cap S&P 400 index gave up -2.2%, and the small cap Russell 2000 ended the week down -2.5%.

U.S. Economic News: The number of people applying for new unemployment benefits rose by 3,000 to 224,000, hitting its highest level in over four months. Economists had expected claims to decline by 2,000 to 214,000. Notably, the previous week’s reading was revised up by 5,000 to 221,000. The monthly average of new claims, smoothed to iron out the weekly volatility, also increase by 2,000 to 218,500. Still, although the level of claims rose they remained low both by historical standards and compared to the size of the labor force.

Confidence among the nation’s home builders tumbled the most in four years as multiple factors continued to weigh. The National Association of Home Builders’ (NAHB) monthly confidence index plunged eight points to 60 for November. Economists had expected just a one point decline to 67. The reading was the index’s biggest decline since February of 2014, and the third biggest drop on record. All three of the NAHB’s Housing Market Index’s components posted notable losses. Expected single-family home sales plunged ten points as builders noted growing affordability concerns. Labor remains expensive, lots are scarce, and the costs for raw materials such as lumber continue to rise. Confidence declined across the country, with the West particularly hard hit. In areas that have been impacted by wild fires, confidence fell to its lowest level since September 2015.

The Commerce Department reported housing starts ticked up 1.5% last month to a 1.228 million unit annual rate, below the consensus forecast of a 2.4% increase. Single-family starts, which account for 70% of total starts, fell in three of the four regions, down -1.8%. Multifamily starts, such as townhomes and apartment buildings, rose 6.2%. Permits, which analysts use to forecast future building activity, edged down -0.6% to a 1.263 million unit annual rate. Economists had expected an increase of 2.3%. Both housing starts and permits posted modest declines year-over-year, suggesting weakening momentum.

Sales of existing homes rebounded 1.4% last month for their first gain in seven months. The National Association of Realtors (NAR) reported existing home sales ran at a seasonally-adjusted annual rate of 5.22 million, beating forecasts of a 0.8% gain to a 5.19 million unit rate. The increase was led by a 5.3% jump in condominium/co-op sales, their most in almost a year. Single-family sales were up a modest 0.9%. However, despite the gain, existing home sales were down 5.1% from the same time last year—the most since August 2014. In the details of the NAR report, the median sales price of a home in October was $255,400, up 3.8% from a year ago. In addition, the months of supply ticked down to 4.3 from 4.4 (6 months is generally considered a “balanced” housing market). This suggests housing inventory remains tight.

Leading indicators show that the U.S. economy continues to grow, but the pace of that growth is expected to moderate. The Conference Board’s Leading Economic Index (LEI) edged up 0.1% in October, its smallest gain in five months, but beating expectations for an unchanged reading. Five the ten LEI components advanced last month, led by stronger consumer expectations. Over the past six months, the strength among the individual indicators has diminished, but still remains consistent with broad-based growth. Ataman Ozyildirim, economist at the board, stated “The index still points to robust economic growth in early 2019, but the rapid pace of growth may already have peaked. While near-term economic growth should remain strong, longer-term growth is likely to moderate to about 2.5% by mid- to late 2019.” The LEI is a weighted gauge of 10 indicators designed to signal peaks and valleys in the business cycle.

Americans are still optimistic about the U.S. economy, but the recent stock market volatility has made wealthier households more anxious about their financial situations. The University of Michigan’s consumer sentiment index fell 1.1 point to 97.5 this month. The index has been down in four of the past five months, indicating a gradual erosion in consumer sentiment. Both the current conditions and expectations sub-indexes declined. Of note, the biggest decline in sentiment occurred among the wealthiest one-third of U.S. households. This stands to reason, as wealthier Americans are more likely to have more invested in the stock market. In contrast, sentiment among Americans in the bottom third rose sharply.

Orders for goods expected to last at least 3 years, so-called “durable goods”, sank 4.4% in October but it was predominantly due to a drop in demand for aircraft. The decline was its biggest drop in 15 months; economists had expected just a 3.4% decline. Stripping out the transportation segment, orders rose a slight 0.1%. Nondefense capital goods orders ex-aircraft, or core business orders, posted a marginal decline for the third month in a row. On a year over year basis, durable goods orders increased 8.6%, while core orders were up 4.3% with both readings moderating in recent months. While some economists contend the slowdown is likely to be temporary, others suggest the effects of a slowing global economy may be hitting U.S. shores. Economists at Oxford Economics wrote in a note, “Looking ahead, we expect momentum to continue to fade as reduced tailwinds from fiscal stimulus dissipate and rising headwinds from slower global growth, reduced energy investment and heightened trade tensions start weighing on capex plans.”

Finally: As an example of how quickly assets in the financial markets can go from “hero to zero”, the website visualcapitalist.com created a graphic to show the true carnage that has occurred among recent tech market leaders. The so-called “FAANG” stocks (Facebook, Amazon, Apple, Netflix, and Google) have now each officially dropped in to “bear” market territory—defined as a drop of 20% of more from a recent high. Facebook has fared the worst, down almost 40%, while Google is off “just” -20.7%. As you might expect, these stocks have been the favorites of younger investors, who have taken it on the chin of late.

(sources: all index return data from Yahoo Finance; Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Figs 1-5 source W E Sherman & Co, LLC)

The charts and tables presented herein are for illustrative purposes only and should not be considered as the sole basis for your investment decision. Any opinions are those of Chapman and Cardwell Capital Management and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The Dow Jones Industrial Average (DJIA), commonly known as "The Dow" is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market The S&P MidCap 400® provides investors with a benchmark for midsized companies. The index, which is distinct from the large-cap S&P 500®, measures the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. Leading Economic Indicators are selected economic statistics that have proven valuable as a group in estimating the direction and magnitude of economic change. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.



In the ever-changing landscape of finance we must ensure our clients are properly invested based upon their investment goals and objectives.

Peter Chapman




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