A variety of resources at your service

CCCM INVESTMENT COMMITTEE MEETING

September 24, 2018

U.S. Markets: U.S. stock indexes finished the week mixed with the Dow and the S&P 500 at or near record highs, while the NASDAQ continued to see pressure amid weakness in tech stocks. The Dow Jones Industrial Average rose 588 points, or 2.3%, to end the week at 26,744. The Nasdaq Composite gave up 23 points to close at 7,987, a loss of 0.3%. By market cap, large caps powered ahead 0.9%, while smaller cap indexes finished in the red. The mid cap S&P 400 finished the week down -0.3%, along with the small cap Russell 2000 which fell -0.6%.

U.S. Economic News: Initial claims for new unemployment benefits fell by 3,000 last week to their lowest level since November of 1969. The Labor Department reported Initial Jobless Claims fell to 201,000 in the seven days ended September 15. The reading was below forecasts of an increase of 6,000. The four-week average of new claims, smoothed to lower the volatility, also declined down 2,250 to 205,750—its lowest level since December 1969. Continuing claims, which counts the number of people already receiving benefits, declined by 55,000 to 1.65 million. That number is at its lowest level since 1973. These numbers continue to reflect an economy with very tight labor market conditions.

The number of new homes under construction rebounded 9.2% last month to their highest level since January. The Commerce Department reported housing starts ran at a seasonally-adjusted 1.282 million annual rate in August, beating expectations for a 5.3% increase and up 9.4% from the same time last year. However, the details of the report painted a slightly less robust picture. Single-family home starts, which most economists consider the most critical component by which to judge builder activity, edged up only slightly - just 1.9%. But multi-family starts (apartments and condominiums) surged 27.3%--the most since December 2016. In addition, building permits, an indicator of future building activity, fell -5.7%--the most since February of 2017. The decline suggests that there is less construction in the pipeline which could translate into slower housing starts in the coming months.

Sales of existing homes remained unchanged at 5.34 million last month, matching its lowest level since February of 2016. However, it was the first time in five months that sales did not decline, perhaps indicating stabilization. The reading missed forecasts of a 0.7% gain. Year-over-year, existing home sales were down 1.5%. By region, sales surged 7.6% in the Northeast, rose 2.4% in the Midwest, but decreased 0.4% in the South and slumped 5.9% in the West. Inventories, expressed as months of available supply, remained unchanged at 4.3 indicating continued housing shortages. More than half of the properties sold in August were on the market for less than a month.

Confidence among the nation’s home builders held steady this month according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). The HMI remained unchanged at 67 in September, at its lowest level in a year. The consensus was for a one point decline to 66. Although lumber prices had declined since earlier in the summer, homebuilders remained concerned about rising material costs amid growing trade tensions. Builders had a slightly more favorable view of current and expected single-family home sales, although buyer traffic remained unchanged. By region, confidence shot up in the Northeast, but either declined or remained unchanged in the other three regions.

The latest reading from the Conference Board’s Leading Economic Index (LEI) suggests an economy poised for 3% growth for the rest of this year and broadly positive growth going into 2019. The LEI rose 0.4% last month, slightly below the consensus of 0.5%, but the previous month was revised up 0.1% to 0.7%. Seven of the ten LEI components made positive contributions, led by stronger new orders and better credit conditions. In addition, the year-over-year momentum held steady at 6.4%, near its fastest pace since July of 2014 and nearly three times the gain per annum historically. If the economy keeps it up, the U.S. might have its first full calendar year of 3% growth since 2005. Ataman Ozyildirim, economist at the board stated, “The leading indicators are consistent with a solid growth scenario in the second half of 2018 and at this stage of a maturing business cycle in the U.S., it doesn’t get much better than this.”

In the New York region, factories churned out goods at a slower but still flourishing pace this month according to a survey of executives. The New York Federal Reserve’s Empire State Manufacturing index fell 6.6 points in September to 19.0—a five-month low. Economists had expected just a 3.6 point decline to 22. In the details, shipments and new orders growth eased, while employment and average hours worked pick up. Firms tempered their expectations about growth in the near term as the Future Business Conditions Index retreated 4.5 points—its second decline in the last three months. With regard to inflation pressures, executives reported prices paid rose at a quicker rate this month than prices received.

The Philadelphia Fed’s measure of manufacturing activity in the mid-Atlantic area picked up by rebounding 11 points this month. The Philly Fed’s General Business Activity Index came in with a reading of 22.9 this month, far exceeding forecasts of a 3.1 point gain to 15.0. Most of the individual indexes increased, led by the new orders index which jumped 11.5 points to 21.4. The outlook for growth in the next six months remained broadly positive, although the Future Activity Index slipped 2.5 points to 36.3. Overall, the future activity indicators pointed to continued expansion, despite a moderation in expected rates of growth over the course of this year.

Finally: The number of new jobless claims just reached its lowest level since November of 1969. That alone is impressive, but to truly get an understanding of the tightness of today’s labor market it has to be compared to the size of the U.S. labor force. Indeed, the U.S. labor force has more than doubled over the last 49 years from 81,106,000 people to 161,776,000 last month. Jobless claims adjusted for the size of the U.S. labor force, are now at the lowest level since the Department of Labor started reporting monthly jobless claims in 1967.

(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)

Opinions expressed in the article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. 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 we do not guarantee that the foregoing material is accurate or complete.
Investing involves risk and investors may incur a profit or a loss. Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The prices of small company stocks may be subject to more volatility than those of large company stocks. Investors may not make direct investments into any index. Past performance may not be indicative of future results. Individual investor's results will vary.
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 Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market. The S&P Mid Cap 400 Index is a capitalization-weighted index that measures the performance of the mid-range sector of the U.S. stock market. The Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks.


September 17, 2018

U.S. Markets: U.S. stocks finished the week with gains despite significant volatility intraweek, mostly triggered by trade headlines. Early in the week concerns about the Trump administration implementing a new round of trade tariffs weighed on sentiment, however later in the week news that Treasury Secretary Steven Mnuchin would lead a new round of trade negotiations with China lifted stocks off their intraday lows. For the week, the Dow Jones Industrial Average rose 238 points, or 0.9%, to close at 26,154. The technology-heavy NASDAQ Composite retraced most of last week’s decline by rising 1.4% to close at 8,010. By market cap, large caps outperformed smaller cap indexes with the S&P 500 adding 1.2%, while the mid cap S&P 400 gained 1.0%, and the small cap Russell 2000 rose 0.5%.

U.S. Economic News: The Labor Department reported initial claims for new unemployment benefits fell 1,000 last week to just 204,000—their lowest level since December of 1969. The rate of layoffs underscores the strength of the U.S. economy and the labor market – the best since at least the turn of the century. The reading was far below consensus expectations for 210,000 claims. The less-volatile four week average of new claims fell by 2,000 to 208,000—also its lowest level since 1969. Continuing claims, which counts the number of people already collecting unemployment benefits, declined by 15,000 to 1.7 million to hit their lowest level since the end of 1973.

In the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) report, the number of job openings climbed to a record high of 6.94 million in July - a clear sign that the economy entered the second half of the year with strong momentum. In addition, the JOLTS report showed a fresh high in quits and new hires indicating more people than ever are confident enough to quit their jobs. The “quits” rate also rose by 106,000 hitting a record of 3.6 million, according to records that go back to 2000. Professions that registered the biggest gains in job openings were finance and insurance at 46,000 and nondurable goods manufacturing at 32,000. Openings decreased in retail, educational services and the federal government.

Sentiment among the nations’ small business owners climbed to a new record last month on the heels of tax cuts and reduced regulations from President Trump and the Republican-led congress. The National Federation of Independent Business (NFIB) reported that its small-business sentiment index rose 0.9 points to a seasonally-adjusted reading of 108.8. The index recorded advances in six of its ten major components. The previous record was set 35 years ago in 1983 during the second year of Ronald Reagan’s presidency. In the details of the report, the biggest gain came in plans to increase inventories, while the component with the highest level was job openings with a net 38% reporting improvement. The NFIB stated that both job creation plans and unfilled job openings set new records.

Inflation at the wholesale level fell for the first time in a year and a half last month, declining 0.1%. The Producer Price Index (PPI) for final demand missed economists’ forecasts for a gain of 0.2%. Stripping out the volatile food and energy components, the PPI was still off 0.1%. The drop was led by a decline in services producer prices, which fell 0.1%, and a 0.9% decline in trade margins. Transportation and warehousing prices also pulled back which was surprising given that various transportation services reports indicated capacity constraints, especially in trucking. On a year over year basis, the PPI for final demand eased to 2.8%, while its core fell to 2.4% - the slowest pace since January.

At the consumer level, inflation increased 0.2% in August. The reading was below the consensus forecast of 0.3%. The increase was led by a rebound in energy prices which rose 1.9% last month, the most since January. The Core CPI edged up just 0.1%, with notable gains in shelter (+0.3%) and airline fares (+2.4%). On a year-over-year basis, the CPI eased to 2.7% from 2.9% in the previous month, while core inflation was up 2.2%, down 0.2%. The moderation was broad-based with core commodities prices off 0.2% year-over-year, while core services were down 0.1% to 3.0% year-over-year.

The Fed’s latest “Beige Book”, an anecdotal summary of current economic conditions from each of the Federal Reserve’s districts, indicated that the economy continued to expand at a moderate pace between early July and the end of August, although the pace varied across districts. One district reported “brisk growth”, while three others reported “below average growth”. Though businesses remained optimistic about the near-term outlook, trade tensions continued to create uncertainty and have caused some capital expenditures to be scaled back or delayed. Tariffs and shortages of skilled workers continued to be the biggest worries for businesses. Still wage growth remained “modest to moderate” as firms tried to use benefits to attract employees. The picture presented is not one of an economy that is in imminent danger of overheating. Scott Brown Ph D., Chief Economist at Raymond James stated, “The report shows....implicitly, no pressing need for the Fed to slam on the brakes.”

U.S. retailers registered their weakest sales in six months last month, but the soft patch was not expected to last. Retail sales rose just 0.1% last month, well below the consensus forecast of 0.4%. Excluding vehicle sales, sales were up 0.3%. Despite the softness last month, the longer-term trend in retail sales continued to power ahead. On a smoothed year-over-year basis, retail sales were up 6.5%, their fastest pace since December 2011. Discretionary retail sales advanced 5.5% year-over-year, while core sales were up 5.7%. These readings show underlying consumer strength, which is especially positive for the outlook for economic growth as consumer spending accounts for more than two thirds of economic growth.

Confidence among the nation’s consumers regarding the U.S. economy and their own well-being rose toward the end of the summer and hit a nearly 14-year high, according to the University of Michigan. U of M’s consumer sentiment index rose to 100.8 this month, up 4.6 points from August in its preliminary reading. The reading was its second highest since 2004, trailing only the reading from March of this year. Both current conditions and expectations improved, up 5.8 points and 4.0 points, respectively. Of note, confidence increased among virtually all socio-economic groups of Americans, including President Trump’s most ardent political opponents.

Finally: With midterm elections less than two months away, a divisive political atmosphere and the aging bull market have investors particularly on edge. The vote to be held on November 6th comes at a time of unusually high political uncertainty with both houses of Congress at stake and key economic issues such as trade and taxes in the balance. According to the Wells Fargo Investment Institute, the S&P 500 sees an average pullback of nearly 19% in midterm-election years, based on data going back to 1962 (or 14 midterm cycles). However, in the year after the midterms the S&P climbs more than 31%, on average. Craig Holke, an investment strategy analyst at the Institute writes, “It does not matter which party was in charge before or after the midterm election. The removal of uncertainty and of constant media attention allows markets to resume focusing on fundamentals.”

(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)

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) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market. It is not possible to directly invest in an index. Small and mid-cap securities generally involve greater risks. Past performance is not a guarantee or a predictor of future results of either the indexes or any particular investment. CPI-The Consumer Price Index is a measure of inflation compiled by the US Bureau of Labor Studies.



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

Peter Chapman




Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Securities offered through Raymond James Financial Services, Inc. Member FINRA / SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Chapman & Cardwell Capital Management is not a registered broker/dealer, nor is it affiliated with Raymond James Financial Services.

Raymond James financial advisors may only conduct business with residents of the states and/or jurisdictions for which they are properly registered. Therefore, a response to a request for information may be delayed. Please note that not all of the investments and services mentioned are available in every state. Investors outside of the United States are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this site. Contact your local Raymond James office for information and availability. Links are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. | Privacy Policy

© Chapman & Cardwell Capital Management. All Rights Reserved.