Tag: Quarter in review

In this month’s recap: The coronavirus becomes the leading news story in the financial markets, sending stock indices and Treasury yields lower; oil futures slide; consumer confidence, hiring, and manufacturing data offer bright spots.

THE MONTH IN BRIEF

In February, anxieties about the novel coronavirus (COVID-19) rippled through stock, bond, and commodity markets. Stories about the disease dominated the news cycle, and concerns that a pandemic might occur hurt equities. The S&P 500 slipped 8.41% for the month, and foreign stock markets also retreated. Oil tumbled below $50. Away from the trading floors, the latest fundamental economic indicators showed manufacturing and job creation strengthening and consumer confidence at high levels. Data on home sales were mixed; home loans grew less expensive.¹

DOMESTIC ECONOMIC HEALTH

Past the coronavirus headlines, the latest round of U.S. economic indicators appeared largely encouraging.

The Department of Labor’s January jobs report topped the expectations of economists surveyed by Bloomberg: while they forecast 165,000 net new hires, the gain was actually 225,000. The labor force participation rate (the percentage of people either working or looking for work) hit 63.4%, a level unseen since 2013. The main jobless rate rose 0.1% to 3.6%, and the U-6 rate, counting the underemployed and the unemployed, rose 0.2% to 6.9%. Hourly wages were up 3.1% year-over-year.²

American manufacturing picked up its pace, according to the Institute for Supply Management (ISM). January’s ISM Factory Purchasing Managers Index, or PMI, came in at 50.9, a rise of 3.1 points, which signaled the first sector expansion in six months. ISM data also showed monthly improvements in new orders, prices for manufactured goods, and employment. The Institute’s Non-Manufacturing PMI rose half a point to 55.5 in January.^2,3

Inflation also rose in January. The annualized rise in the federal government’s Consumer Price Index reached 2.5%. Yearly inflation last ran at that pace in October 2018. Core inflation (minus food and energy prices) saw a 12-month advance of 2.3%. All this said, the Federal Reserve prefers to use its core Personal Consumption Expenditures (PCE) price index to track rising consumer costs, and in January, the core PCE index was still under the Fed’s 2% yearly inflation target.⁴

Statistics related to consumer spending and sentiment did not hint at economic slowing. Retail sales advanced 0.3% in January; the gain was even larger (0.4%) with gasoline and other automotive purchases removed. Personal spending rose 0.2% in January, and personal incomes improved 0.6%. The University of Michigan’s monthly Consumer Sentiment Index went back above 100, finishing February at 101.0. The Conference Board’s February Consumer Confidence Index was up at 130.7.⁵

While delivering his semi-annual testimony on monetary policy to Congress on February 11, Federal Reserve Chairman Jerome Powell noted that central bank officials were “carefully” watching coronavirus developments and acknowledged that the global economic effects of the virus could “very likely” impact America. On February 28, Powell stated that central bank policymakers would not be hesitant to “use our tools and act as appropriate to support the economy.”^6,7

GLOBAL ECONOMIC HEALTH

Analysts attempting to gauge the impact of COVID-19 on the global economy weighed some big questions last month. Could corporations rearrange their supply chains in the near term to be less dependent on China? In the event of a pandemic, would lower interest rates be any kind of meaningful response to interruptions in the flow of goods and services or consumer spending pullbacks? According to the New York Times, one respected Wall Street analyst wrote in a research note that he would “rather have a vaccine than a rate cut.”⁸

Speaking of cuts (of a different kind), China announced a cut in some of the tariffs it had imposed on U.S. goods. It said that 10% and 5% import taxes on about $75 billon of U.S. imports would be halved on February 14, the same day on which the U.S. halved tariffs on $120 billion of Chinese products to 7.5%.⁹ As February ended, the latest economic indicators for the 19-country euro area showed unemployment at 7.4% (down nearly half a percentage point from a year earlier), inflation at 1.4%, and gross domestic product (GDP) at just 0.1% for the last quarter of 2019.¹⁰

WORLD MARKETS

Just how did some of the big foreign benchmarks fare in February? Broadly speaking, they fared worse than our major equity indices. Among the least hurt: Hong Kong’s Hang Seng, falling 0.43%; China’s Shanghai Composite, down 3.23%; Malaysia’s KLCI, off 4.45%; India’s Nifty 50, slipping 7.08%.^11,12

Other losses were steeper. Mexico’s Bolsa tumbled 7.59%; Australia’s All Ordinaries, 8.27%; South Korea’s Kospi, 8.72%; Japan’s Nikkei 225, 8.93%. MSCI’s multi-regional EAFE index took a 9.23% fall. Double-digit drops came for France’s CAC-40 (10.39%), Brazil’s Bovespa (10.57%), Germany’s DAX (10.76%), and Russia’s RTS (17.33%).^11,13

COMMODITIES MARKETS

The rollercoaster ride of gold and the fall of oil stood out in the commodities sector last month. Gold jumped above $1,650 on the New York Mercantile Exchange (NYMEX) late in the month, then abruptly slipped from that level, closing at $1,585.30 on February 28 and recording a monthly loss of 0.44%. Meanwhile, energy traders grew uneasy about global oil demand in the wake of more COVID-19 cases, and this influenced the performance of West Texas Intermediate crude, which declined 12.73% in February to a month-ending NYMEX price of $44.97. The U.S. Dollar Index rose 0.24% for the month, closing out February at 98.10.^14,15

How did other commodity futures perform? In the energy sector, unleaded gasoline declined just 0.52%, while heating oil fell 8.95%, and natural gas retreated 8.41%. Silver, which ended February at a NYMEX price of $16.54, sank 7.94%. Platinum dipped 10.48 in February, while copper rose 1.09%. Among ag futures, corn lost 4.06%; wheat, 4.47%; cotton, 3.70%; sugar, 1.51%. Coffee improved 5.53%; cocoa, 2.46%; soybeans, 1.35%.¹⁴

REAL ESTATE

Late last month, 10-year Treasury yields fell to record lows, with positive implications for prospective homebuyers. Mortgage rates tend to move in the direction of Treasury yields. Freddie Mac’s February 27 Primary Mortgage Market Survey showed the mean interest rate on a 30-year home loan at 3.45%, down 0.90% across the past 12 months. For the 15-year loan, the number was 2.95%, down 0.82% year-over-year. (In the January 30 PMMS, the average interest rate for a 30-year mortgage was at 3.51%; the average interest rate for a 15-year mortgage, at 3.00%.)^16,17

Data from the National Association of Realtors showed existing home sales retreating 1.3% in January. A seller’s market remained firmly in place. There was just 3.1 months of existing home inventory available in the first month of the year, and the median sales price was $266,300, up 6.8% from a year before. New home sales (which make up a relative sliver of the housing market) advanced 7.9% in January, according to a Census Bureau report.^5,18

Another Census Bureau report showed permits for new residential construction increasing 9.2% in January, to a 13-year peak. Housing starts were down 3.6% in January.^5,19

T I P   O F   T H E  MONTH

Delegation is a key to sustaining a small business. A business owner should try to hand off tasks that can be done easily (or better) by others.

LOOKING BACK, LOOKING FORWARD

February may be remembered as a month when unease about the coronavirus unsettled the stock market, yet it was also a month that saw the S&P 500 achieve a new record close (3,386.15, on February 19).²⁰

The S&P fell sharply from that lofty height in the last ten days of the month, suffering a correction. The respective February 28 settlements for the major U.S. stock indices: Dow Jones Industrial Average, 25,409.36; S&P 500, 2,954.22; Nasdaq Composite, 8,567.37.²¹

The yield of the 10-year Treasury bond was at 1.13% when February ended, a record low. Bond yields generally fall as bond prices rise, and rising demand for Treasury notes helped to drive Treasury prices higher in global bond markets.¹⁶

MARKET INDEX	Y-T-D CHANGE	1-MO CHANGE	2019
DJIA	-10.96	-10.07	+22.34
NASDAQ	-4.52	-6.38	+35.23
S&P 500	-8.56	-8.41	+28.88
BOND YIELD	2/28 RATE	1 MO AGO	1 YR AGO
10 YR TREASURY	1.13	1.51	2.73

Sources: wsj.com, bloomberg.com, treasury.gov – 2/28/20^21,22,23

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year Treasury yield = projected return on investment, expressed as a percentage, on the U.S. government’s 10-year bond.

When will stocks recover from their deep descent, and when will stock traders reach a point of capitulation? Right now, Wall Street must contend with this unknown and others. The coronavirus outbreak, a black swan event, may suppress bullish sentiment for some time. It is possible that central bank monetary policy adjustments, vaccine progress, or better-than-expected corporate guidance may breed some optimism. At this point, investors in for the long game might want to sit, watch, and wait. 

Q U O T E   O F   T H E   QUARTER

“Let us be grateful to people who make us happy: They are the charming gardeners who make our souls blossom.”

MARCEL PROUST

UPCOMING RELEASES

Here are some of the economic news items for investors to consider in March: the February Institute for Supply Management Non-Manufacturing Index (3/5), February’s Consumer Price Index (3/11), February’s Producer Price Index (3/12), the initial March Consumer Sentiment Index from the University of Michigan (3/13), February retail sales (3/17), February housing construction activity (3/18), February existing home sales (3/20), February new home sales (3/24), February durable goods orders (3/25), the third estimate of fourth quarter (and 2019) gross domestic product from the Bureau of Economic Analysis (3/26), February personal spending and income and the final March University of Michigan Consumer Sentiment Index (3/27), and then the Conference Board’s March Consumer Confidence Index and the latest S&P/Case-Shiller Home Price Index (3/31).

THE MONTHLY RIDDLE

What gets broken without being held?

LAST MONTH’S RIDDLE: I am soft, and you can serve me indoors or outdoors, but you would not want to eat me. What am I?

ANSWER: A tennis ball.

Know someone who could use information like this?
Please feel free to send us their contact information via phone or email. (Don’t worry – we’ll request their permission before adding them to our mailing list.)

Pensionmark® Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark® is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC).

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs, or expenses. Investors cannot invest directly in indices. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The CBOE Volatility Index^® (VIX^®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx^®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The FTSE Bursa Malaysia KLCI, also known as the FBM KLCI, is a capitalization-weighted stock market index, composed of the 30 largest companies on the Bursa Malaysia by market capitalization. The Hang Seng Index is a free float-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The NIFTY 50 (National Index Fifty)  is the broad-based stock market index for the Indian equity market. The Mexican Stock Exchange, commonly known as Mexican Bolsa, Mexbol, or BMV, is the only stock exchange in Mexico. Established in January 1980, the All Ordinaries is the oldest index of shares in Australia. It is made up of the share prices for 500 of the largest companies listed on the Australian Securities Exchange. The Korea Composite Stock Price Index, or KOSPI, is the representative stock market index of South Korea, like the S&P 500 in the United States. The Nikkei-225 Stock Average is a price-weighted average of 225 top-rated Japanese companies listed in the First Section of the Tokyo Stock Exchange. The MSCI EAFE Index is an equity index which captures large and midcap representation across 21 developed markets countries around the world, excluding the U.S. and Canada. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The Bovespa Index, best known as Ibovespa, is the benchmark index of about 60 stocks that are traded on the B3 (Brasil Bolsa Balcão). The DAX is a blue-chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The RTS Index is a free-float capitalization-weighted index of 50 Russian stocks traded on the Moscow Exchange, calculated in U.S. dollars. The U.S. Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

In this month’s recap: the emerging coronavirus reins in the bulls on Wall Street, trade deals make headlines, the United Kingdom makes its Brexit, and confident U.S. households help the economy keep its pace.

THE MONTH IN BRIEF

Early January gains gave way to late January losses as the coronavirus emerged as a global health concern, and correspondingly, a concern for the investment markets. The S&P 500 ended up retreating 0.16% for the month. The coronavirus outbreak was just one of the big stories in January: President Trump signed one trade deal while Congress approved another, Brexit occurred, oil prices temporarily jumped as tensions between America and Iran heightened, and stocks hit record highs again.

DOMESTIC ECONOMIC HEALTH

On January 15, President Donald Trump and Chinese Vice-Premier Liu He signed the phase-one trade deal between the U.S. and China. The U.S. agreed to cut the existing 15% tariffs in half on certain Chinese goods, with the possibility of dismissing or reducing other import taxes on Chinese products in the coming months. China agreed to buy more U.S. crops, hard goods, and fuels, and to police counterfeiting of U.S. products and intellectual property to a greater degree. By mid-February, China is supposed to unveil an “action plan” for better intellectual property protection to U.S. trade officials.²

The Senate passed the U.S.-Mexico-Canada Agreement (USMCA), and President Trump signed it into law on January 29. Mexico has also approved the USMCA; if Canada does so, it will be finalized and take effect in 90 days. Intended as a replacement for the North American Free Trade Agreement (NAFTA), the USMCA would boost wages for auto industry workers in all three countries and make auto manufacturing more reliant on parts made in the west. The USMCA would also extend and broaden copyright terms in the digital age.³

January federal government reports showed 0.3% increases in household spending and retail sales in December. In addition to these positives, the Conference Board’s consumer confidence index increased 3.4 points to 131.6, and the University of Michigan’s consumer sentiment index ended the month at 99.8, slightly above its December final mark of 99.3. Late in January, the Bureau of Economic Analysis said the economy grew 2.1% in the final quarter of 2019, the same as it did in the third quarter.⁴

The Department of Labor’s latest jobs report showed unemployment at only 3.5%, and underemployment (defined by the U-6 rate, which also counts discouraged and part-time workers) at merely 6.7%. Net monthly job growth, however, was just 139,000, and hourly wages were growing at 2.9% annually in December, down from 3.1% in November.^5,6

Yearly inflation increased by 0.2% to 2.3% in January, according to the Consumer Price Index, which is maintained by the Bureau of Labor Statistics. The Federal Reserve has sought to keep inflation at or near 2% for some time.⁵

The manufacturing sector grew in January, according to the Institute for Supply Management’s manufacturing Purchasing Manager Index. ISM’s manufacturing sector PMI jumped up to 50.9 from 47.8 in December; analysts polled by MarketWatch had forecast another month of sector contraction, and a reading of 48.5. In early January, ISM’s non-manufacturing PMI came in at 55.0 for December.^5,6

GLOBAL ECONOMIC HEALTH

Investors worldwide wondered if the flu-like coronavirus would hurt the powerful Chinese economy, where the disease was first reported in December. Nearly 10,000 Chinese citizens had been infected by the end of January, and the World Health Organization declared a public health emergency over the outbreak. If enough Chinese consumers are kept at home, corporate earnings could be hurt, and central banks might have to take action in response to slumping financial markets.^7,8

New data showed that China’s economy grew by 6.1% in 2019; the smallest seen in 29 years. Still, this figure fell into the Chinese government’s target range for GDP. It dwarfed the Eurozone’s 2019 economic expansion, which was only 1.2%.^9,10

On January 31, the United Kingdom officially left the European Union and entered a transition period set to end on December 31, 2020. During these eleven months, the U.K. faces the challenge of forging new trade pacts with the E.U. and other nations, with a U.K.-E.U. deal at the top of the list.¹¹

WORLD MARKETS

Anxieties about the coronavirus also dampened risk appetite in foreign markets. A few gains stood out from the monthly losses: Mexico’s Bolsa benchmark rose 1.30%, Australia’s All Ordinaries improved 4.69%, and the Shanghai Composite added 0.47%. But besides those gains there were numerous downturns.¹²

The MSCI EAFE index, a broad benchmark for developed stock markets outside of North America, fell by 2.12%. Losses were felt elsewhere as well; France’s CAC 40 lost 2.87%, Germany’s DAX 2.02%, Spain’s IBEX 35 1.90%, and Russia’s RTS 2.06%. Losses were also seen across Asia. Hong Kong’s Hang Seng slid 6.66%, India’s Nifty 50 1.70%, Japan’s Nikkei 225 1.91%, South Korea’s Kospi 3.58%, Taiwan’s TWSE 4.18%, and Indonesia’s Jakarta Composite 5.71%.^12,13

COMMODITIES MARKETS

After surging in early January following a U.S. drone strike in Iraq, oil prices fell steadily across the month. West Texas Intermediate crude settled at $51.38 on the New York Mercantile Exchange (NYMEX) on January 31, down 15.61% year-to-date. Gold gained value: 4.01% on the NYMEX, to be precise. NYMEX Silver was flat (down 0.04%) for the month.¹⁴

Turning to other commodities, energy futures followed oil’s path and posted double-digit declines: heating oil dropped 19.73%, natural gas 13.47%, and unleaded gas 12.44%. Platinum was off 3.11%, copper 10.94%. Wheat lost 1.97%, corn 2.43%, cotton 2.56%, soybeans 7.47%, and coffee 19.66%. On the other hand, cocoa improved 9.20% and sugar gained 11.27%. The U.S. Dollar Index rose 1.04% for the month.^14,15

REAL ESTATE

In January, the National Association of Realtors said that existing home sales improved by 10.0% in 2019. This happened despite the median sale price of a single-family home rising 7.8% over the year, to $274,500 in December.¹⁶

Residential resales increased by 3.6% during the last month of 2019, reaching a pace not seen since February 2018. The NAR’s pending home sales index, however, fell 4.9% for December. One possible factor influencing that pending home sales dip: a record-low 1.4 million listings were on the market.^6,16

Mortgages grew less expensive in January. Freddie Mac’s Primary Mortgage Market Survey (PMMS), released on January 30, showed that 30-year fixed-rate mortgages are averaging a 3.51% interest rate and 15-year fixed-rate mortgages are averaging a 3.00% interest rate. The PMMS released on January 2 showed that 30-year home loans bore an average interest rate of 3.72%, while 15-year home loans had an average interest rate of 3.16%.¹⁷

30-year and 15-year fixed rate mortgages are conventional home loans generally featuring a limit of $510,400 ($765,600 in high-cost areas) that meet the lending requirements of Fannie Mae and Freddie Mac, but they are not mortgages guaranteed or insured by any government agency. Private mortgage insurance, or PMI, is required for any conventional loan with less than a 20% down payment.

Construction on new homes reached a 13-year high in December, according to the Census Bureau. New home buying, though, declined 0.4% in that month (and decreased in every month of the third quarter). Regardless, new home sales surged 23% for 2019.^16,18

T I P   O F   T H E  MONTH

If you are considering disability insurance, seek coverage with a benefit approximating 60% or more of your current income.

Disability insurance is issued by participating insurance companies. Not all policy types and product features are available in all states. Any obligations are dependent on the ability of the issuing insurance company to continue making claim payments.

LOOKING BACK, LOOKING FORWARD

The S&P 500 settled at a new record of 3,329.62 on January 17 and then descended. Its January loss was but a fraction of that of the Dow Jones Industrial Average while the Nasdaq Composite advanced for the month. The S&P ended January at 3,225.52, the Dow at 28,256.03, and the Nasdaq at 9,150.94.^19,20

MARKET INDEX	1-MO CHANGE	2019	2018
DJIA	-0.99	+22.34	-5.63
NASDAQ	+1.99	+35.23	-3.88
S&P 500	-0.16	+28.88	-6.24
BOND YIELD	1/31 RATE	1 MO AGO	1 YR AGO
10 YR TREASURY	1.51	1.92	2.63

Sources: wsj.com, barchart.com, treasury.gov – 2/2/20^20,21,22,23

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year Treasury yield = projected return on investment, expressed as a percentage, on the U.S. government’s 10-year bond.

The markets (and central banks) are watching to see how far the coronavirus might spread and wondering what impact it may ultimately have on global commerce. If there are signs the outbreak is slowing, markets may breathe a collective sigh of relief. Meanwhile, U.S. economic data has been good as of late, especially regarding consumers, factories, and service industries. Still, traders might pay as much attention to the coronavirus this month as they do to earnings and fundamental indicators.

Q U O T E   O F   T H E   QUARTER

“Whatever you do in life, surround yourself with smart people who’ll argue with you.”

JOHN WOODEN

UPCOMING RELEASES

Here are the scheduled economic news items Wall Street is expected to have an eye on this month: the Institute for Supply Management’s latest non-manufacturing purchasing managers index (2/5), the January jobs report from the Department of Labor (2/7), January’s Consumer Price Index (2/13), the initial February University of Michigan consumer sentiment index and January retail sales (2/14), January housing starts, building permits, and wholesale inflation (2/19), January existing home sales (2/21), the Conference Board’s February snapshot of consumer confidence (2/25), January new home sales (2/26), January durable goods orders (2/27), and then January personal spending and the final February University of Michigan consumer sentiment index (2/28).

THE MONTHLY RIDDLE

I am soft, and you can serve me indoors or outdoors, but you would not want to eat me. What am I?

LAST MONTH’S RIDDLE: It is met by feet in the morning, and sees few feet in the night. It may shake as if it is angry, but it will never bite. What is it?

ANSWER: The ground.

Know someone who could use information like this?
Please feel free to send us their contact information via phone or email. (Don’t worry – we’ll request their permission before adding them to our mailing list.)

Pensionmark® Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark® is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC).

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs, or expenses. Investors cannot invest directly in indices. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx^®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The Mexican Stock Exchange, commonly known as Mexican Bolsa, Mexbol, or BMV, is the only stock exchange in Mexico. Established in January 1980, the All Ordinaries is the oldest index of shares in Australia. It is made up of the share prices for 500 of the largest companies listed on the Australian Securities Exchange. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia, and Southeast Asia. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The DAX 30 is a Blue-Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The IBEX 35 is the benchmark stock market index of the Bolsa de Madrid, Spain’s principal stock exchange. The RTS Index (Russia Trading System) is a free-float capitalization-weighted index of 50 Russian stocks traded on the Moscow Exchange, calculated in U.S. dollars. The Hang Seng Index is a free float-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The NIFTY 50 index National Stock Exchange of India’s benchmark broad based stock market index for the Indian equity market. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE).  The Nikkei average is the most watched index of Asian stocks. The Korea Composite Stock Price Index or KOSPI is the index of all common stocks traded on the Stock Market Division—previously, Korea Stock Exchange—of the Korea Exchange. It is the representative stock market index of South Korea, like the S&P 500 in the United States. The TWSE, or TAIEX, Index is capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange. The Jakarta Stock Price Index is a modified capitalization-weighted index of all stocks listed on the regular board of the Indonesia Stock Exchange. The U.S. Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

CITATIONS:

1 – us.spindices.com/indices/equity/sp-500 [2/2/20]

2 – cnbc.com/2020/01/15/trump-and-china-sign-phase-one-trade-agreement.html [1/15/20]

3 – vox.com/2018/10/3/17930092/usmca-mexico-nafta-trump-trade-deal-explained [1/29/20]

4 – marketwatch.com/story/fed-holds-benchmark-interest-rate-steady-sees-economy-growing-at-moderate-pace-2020-01-29 [1/29/20]

5 – investing.com/economic-calendar [2/2/20]

6 – marketwatch.com/tools/calendars/economic [2/3/20]

7 – scientificamerican.com/article/study-reports-first-case-of-coronavirus-spread-by-asymptomatic-person/ [1/31/20]

8 – on.wsj.com/2RXzoC9 [2/2/20]

9 – bbc.com/news/business-51144892 [1/17/20]

10 – tradingeconomics.com/euro-area/gdp-growth-annual [2/2/20]

11 – bbc.com/news/uk-politics-51194363 [2/1/20]

12 – barchart.com/stocks/indices/world-indices?viewName=performance [2/2/20]

13 – marketwatch.com/investing/index/990300?countrycode=xx [2/2/20]

14 – money.cnn.com/data/commodities [2/2/20]

15 – marketwatch.com/investing/index/dxy [2/2/20]

16 – reuters.com/article/usa-economy-housing/us-existing-home-sales-surge-to-near-two-year-high-idUSL1N29Q1U2 [1/22/20]

17 – freddiemac.com/pmms/archive.html [2/3/20]

18 – marketwatch.com/story/sales-of-new-homes-fell-in-december-but-the-future-looks-bright-for-the-home-building-industry-2020-01-27 [1/27/20]

19 – tradingeconomics.com/united-states/s-p-500-index-index-d-na-fed-data.html [2/3/20]

20 – wsj.com/market-data [1/31/20]

21 – barchart.com/stocks/indices?viewName=performance [12/31/19]

22 – markets.wsj.com/us [12/31/18]

23 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldAll [2/2/20]

In this Q4 recap: Equities maintain their momentum to close out a strong year on Wall Street, helped by a slight thaw in the U.S.-China trade dispute and some better-than-expected domestic economic data.

THE QUARTER IN BRIEF

Movement in U.S.-China trade negotiations, an accommodative Federal Reserve, evidence of decent economic growth – all this brought some fourth-quarter tailwinds to Wall Street. The S&P 500 advanced 8.53% in the final three months of the year. Foreign stock markets also posted Q4 gains, and some clarity emerged regarding the Brexit. Gold and oil both posted Q4 gains. Home buying tapered off. As the quarter ended, a new federal law was passed, affecting both retirement savers and retirees.¹  

DOMESTIC ECONOMIC HEALTH

In the fourth quarter, traders reacted to even the tiniest bits of news concerning U.S.-China trade relations. New 15% tariffs were scheduled for select Chinese imports on December 15. Those tariffs were never implemented, for on December 13, Chinese and U.S. officials announced an agreement on a preliminary trade pact. In this “phase-one” deal, to be signed in Washington this month, the U.S. agrees to phase out existing tariffs on Chinese products, and China agrees to buy more U.S. crops. The phase-one deal also made a start in addressing the most pressing issue in Sino-American trade relations: the protection of U.S. intellectual property in China.²

The Federal Reserve made its third interest rate cut of the year in October – the third cut in three meetings. Then, it signaled that it may not adjust short-term interest rates for all of 2020. In December, the central bank’s newest dot-plot (a chart used to convey the benchmark interest rate outlook for coming quarters) showed that none of the 17 members of the Federal Open Market Committee expected a rate cut in 2020, and only four anticipated any kind of rate hike. Currently, the target range for the federal funds rate is 1.50-1.75%.³

In terms of economic indicators, the fall increase in hiring was surprising news for labor market analysts. The Department of Labor said that employers added 156,000 net new jobs in October; then, 266,000 in November. These numbers hinted at an economy picking up rather than slowing down. Unemployment was at 3.6% in October, declining to 3.5% in November. The broader U-6 unemployment rate (which counts the underemployed as well as the unemployed) was at 7.0% in October and 6.9% a month later.⁴

Consumer spending, according to the Department of Commerce, rose by 0.4% in November, improving on an October increase of 0.3%. Through November, retail sales were up 3.5% year-over-year, with respective October and November gains of 0.4% and 0.2%. During Q4, the Bureau of Economic Analysis revised its Q3 gross domestic product estimate up from 2.0% to 2.1%.⁴

Households maintained their optimism; however, in December, the Conference Board’s Consumer Confidence Index recorded its fourth decline in five months. With revisions factored in, the index went from 126.1 in October to 126.8 in November to 126.5 in December. The University of Michigan’s consumer sentiment gauge, on the other hand, had its best reading since May in December, rising to 99.3. It rose in each month of Q4, ascending to 95.5 in October and 96.8 in November.^5,6

Inflation picked up in the fourth quarter; the Consumer Price Index rose 2.1% in the 12 months ending in November, 0.3% higher than the annualized inflation seen a month earlier. The core CPI (which factors out energy and food costs) was up 2.3% year-over-year in November.⁴

Manufacturing seemed to stand out as the U.S. economic weak spot in Q4. The Institute for Supply Management’s Factory Purchasing Managers Index was below 50 for the whole quarter (indicating an economic sector that is shrinking). The December reading of 47.2 was the poorest since June 2009. ISM’s PMI for the larger service sector of the economy was above 50 in both October and November (54.7, and then 53.9).^4,7

The quarter also saw the passage of the Setting Up Every Community for Retirement Enhancement (SECURE) Act, a major piece of legislation impacting traditional retirement accounts. Under the SECURE Act, the age for required minimum distributions (RMDs) from these accounts rises from 70½ to 72. (This change affects only those who turn 70½ in 2020 or later.) The SECURE Act also lets seniors with earned income keep contributing to these accounts after age 70.^4,8

GLOBAL ECONOMIC HEALTH

The IHS Markit Purchasing Managers Index (PMIs) for the eurozone factory sector was at 46.3 in December; a number below 50 indicates a sector in which activity is contracting. Seven of eight countries measured by this index saw manufacturing weaken further in December; Germany’s factory sector was in the poorest shape by the end of the quarter, according to Markit’s data summary. Factory sectors in Italy and the Netherlands showed their most dramatic monthly contraction since 2013 in December.⁹

The Caixin China General Manufacturing PMI for China was at 51.5 by December, down a bit from 51.8 in November. The rate of new Chinese factory orders declined in Q4, but there was a small gain for export orders. China’s state factory PMI had a poorer reading of 50.2 in both November and December. As Q4 ended, China’s government announced it would reduce cash reserve requirements for the nation’s banks, which would effectively pour another 800 billion yuan into China’s financial system.^9,10

While the quarter opened with much uncertainty about when (and even if) the Brexit would occur, some of this ambiguity was resolved by the end of the year. The Conservative (Tory) Party won a decisive victory in December’s United Kingdom general election, and Boris Johnson remained Prime Minister. As a consequence, the Brexit may occur by the extended January 31 deadline set by the European Union, as Johnson and the Conservatives appear to have the votes needed to approve a revised Brexit deal. Their next task: forging a working trade pact with the European Union before 2020 ends.¹¹

WORLD MARKETS

Gains far outnumbered losses last quarter. The largest advances were made by emerging-market benchmarks: Argentina’s Merval jumped 43.36%, Russia’s RTS rose 16.12%, and Brazil’s Bovespa climbed 10.41%. In the Asia-Pacific region, there were three improvements worth mentioning: Japan’s Nikkei 225 gained 8.74%; China’s Shanghai Composite, 4.99%; South Korea’s Kospi, 6.53%. France’s leading stock index, the CAC 40, gained 5.29%; Germany’s benchmark, the DAX, added 6.61%.¹²

In the midst of all this, a couple of stock indices failed to advance. Thailand’s Set50 index slipped 2.00% in the quarter, and Australia’s ASX 200 benchmark went sideways, losing 0.06%.¹²

COMMODITIES MARKETS

What were the best-performing commodities of the quarter? Well, there were several gains of 10% or more, and at the top of the list, there is coffee, which rose 23.88% on the Intercontinental Exchange (ICE) in Q4. Soybean oil advanced 17.67%; palladium, 16.56%; WTI crude oil, 14.70%. RBOB gasoline gained 12.23%; wheat, 11.19%. WTI crude ended the quarter trading at $61.18 a barrel. Gold rose 3.41% in Q4, with the price hitting $1,523.10 on the New York Mercantile Exchange (NYMEX) on December 31.^13,14

Some other futures took Q4 losses. Natural gas fell 15.69% for the quarter, and Q4 brought setbacks of 5.36% for orange juice, 2.94% for corn, and 2.45% for the U.S. Dollar Index, which ended the year at 96.16.¹³

REAL ESTATE

When Freddie Mac conducted its last Primary Mortgage Market Survey of the decade (December 26), it measured the average interest rate on a 30-year conventional mortgage at 3.74%, and the mean interest rate for a 15-year conventional mortgage was at 3.19%. Three months earlier (September 26), the average interest on the 30-year home loan was at 3.64%, while the average interest on the 15-year loan was at 3.16%.¹⁵

30-year and 15-year fixed rate mortgages are conventional home loans generally featuring a limit of $484,350 ($726,525 in high-cost areas) that meet the lending requirements of Fannie Mae and Freddie Mac, but they are not mortgages guaranteed or insured by any government agency. Private mortgage insurance, or PMI, is required for any conventional loan with less than a 20% down payment.

The pace of home buying decelerated during the fall. National Association of Realtors’ reports showed residential resales down 1.5% in October and 1.7% in November. Still, sales were up 2.7% year-over-year. By November, the median sale price of an existing home was $271,300, a 5.4% increase from November 2018. The NAR said that there was less than four months of existing home inventory in both October and November; it views six months of inventory as a sign of a balanced market.^4,16

New home sales, by the estimation of the Census Bureau, fell 2.7% in October, but bounced back with a 1.3% gain a month later. Groundbreaking on new housing developments had definitely picked up from 2018. Federal government data showed housing starts up 13.6% year-over-year in November, with permits for future construction up 11.1% year-over-year.^4,17

T I P   O F   T H E  QUARTER

You may not want to abbreviate the year 2020 on financial, insurance, legal, and health care documents you sign or date. If you write “2/1/20” and there is enough space left after the “20,” an unscrupulous party could add a couple of numerals and change that date to 2/1/2018 or 2/1/2017, and so on.

LOOKING BACK, LOOKING FORWARD

As the chart below reveals, the big Wall Street benchmarks surged in the fourth quarter. Their Q4 gains capped off one of the better years of the decade for domestic stocks. Both the Nasdaq Composite and S&P 500 had their best years since 2013. The quarter-ending settlements: Dow, 28,538.44; S&P, 3,230.78; Nasdaq, 8,972.60.^18,19

MARKET INDEX	Y-T-D CHANGE	Q4 CHANGE	Q3 CHANGE
DJIA	+22.34	+6.02	+1.19
NASDAQ	+35.23	+12.17	-0.09
S&P 500	+28.88	+8.53	+1.19
BOND YIELD	12/31 RATE	3 MO AGO	1 YR AGO
10 YR TREASURY	1.92	1.68	2.69

Sources: barchart.com, treasury.gov – 12/31/19^18,20,21

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year Treasury yield = projected return at maturity given expected inflation.

The opening quarter of 2020 got off to a bullish start, with a 330-point gain (and a new record close) for the Dow Industrials on January 2. With the phase-one U.S.-China trade deal slated to be signed and the economy not giving off distinct signals of slowing, traders entered the new quarter seeing some upside in the market. Questions are on the horizon, though. Can geopolitical tensions in the Middle East be managed? Will the next earnings season meet forecasts? While the market opened 2020 with a rally, there are certainly potential headwinds around.²²

Q U O T E   O F   T H E   QUARTER

“Age is… wisdom, if one has lived one’s life properly.”

MIRIAM MAKEBA

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Pensionmark® Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark® is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC).

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs, or expenses. Investors cannot invest directly in indices. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The MERVAL Index (MERcado de VALores, literally Stock Exchange) is the most important index of the Buenos Aires Stock Exchange. The RTS Index (Russia Trading System) is a free-float capitalization-weighted index of 50 Russian stocks traded on the Moscow Exchange, calculated in U.S. dollars. The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The Korea Composite Stock Price Index or KOSPI is the major stock market index of South Korea, representing all common stocks traded on the Korea Exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The DAX 30 is a blue-chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The SET50 index is calculated from the prices of 50 selected SET (Stock Exchange of Thailand) stocks. The S&P/ASX 200 index is a market-capitalization weighted and float-adjusted stock market index of stocks listed on the Australian Securities Exchange. The index is maintained by Standard & Poor’s and is considered the benchmark for Australian equity performance. Intercontinental Exchange (ICE) is an American company that owns exchanges for financial and commodity markets, and operates 12 regulated exchanges and marketplaces. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.