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Higher Rates, Home Sales Slow, Market Volatility Continues

HOMES MOVE AT THE SLOWEST PACE IN 3 YEARS

Existing home sales slumped 3.4% in September as the annualized sales rate decelerated to a degree unseen since November 2015. In reporting this, the National Association of Realtors cited the usual factors: climbing mortgage rates, tight inventory, and ascending prices (the median sale price in September was $258,100, up 4.2% in 12 months). The NAR’s chief economist, Lawrence Yun, now projects a 1.6% reduction in resales for 2018; economists at Fannie Mae are forecasting a 2.0% retreat. In other real estate news, the Census Bureau said that housing starts fell 5.3% last month, while building permits declined 0.6%.1,2

AGAIN, RETAIL SALES RISE JUST 0.1%

The Census Bureau said that the overall gain for September matched that of August. With fuel and auto sales factored out, retail sales were flat last month. Core sales retreated 0.1%.2

FED MINUTES NOTE POSSIBILITY OF FURTHER GRADUAL RATE HIKES

The Federal Reserve released minutes from its September policy meeting Thursday, and they relayed the consensus opinion that a “gradual approach” to tightening monetary policy will be warranted if inflation, labor, and GDP readings keep indicating a thriving economy. Policymakers noted that raising rates too quickly could prompt “an abrupt slowing in the economy and inflation moving below the committee’s objective.” Then again, the minutes also acknowledged “the risk of moving too slowly, which could engender inflation persistently above the objective and possibly contribute to a buildup of financial imbalances.”3

A POSITIVE WEEK FOR EQUITIES

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Markets Slide on Interest Rate Worries

UNCERTAINTY BREEDS SELLING, FOLLOWED BY A RELIEF RALLY

On Friday, Wall Street rebounded from a disquieting slump that saw the blue chips take an almost 1,400 point dive. The S&P 500 gained 1.42% to snap a 6-session losing streak, the Nasdaq Composite rose 2.29% to fight back from a correction, and the Dow rose 1.15%. A new earnings season may take investors’ minds off the insecurities they have felt recently about bond yields, tariffs, and interest rate hikes. Those uncertainties weighed on equities again this past week: the Dow fell 4.19% to 25,339.99; the S&P, 4.10% to 2,767.13; the Nasdaq, 4.86% to 7,496.89. Small caps had it worse than the big three last week: the Russell 2000 lost 5.23%.1,2

INFLATION SOFTENED LAST MONTH

Advancing only 0.1% for September, the headline Consumer Price Index showed a yearly gain of 2.3%, quite a contrast from the 2.9% increase measured in July. The core CPI also advanced 0.1%, and its 12-month gain was unchanged at 2.2%. If further deceleration in the annual inflation rate occurs, that might give the Federal Reserve some pause.3

A LITTLE LESS CONFIDENCE ON MAIN STREET

The latest University of Michigan consumer sentiment index fell short of the heights forecast by economists surveyed by Briefing.com. They expected a preliminary October reading of 100.0. Instead, the index fell to 99.0, 1.1 points below its final September mark.4

SOCIAL SECURITY BENEFITS WILL GROW 2.8% IN 2019

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Blue Chips Hit a 2018 High

BLUE CHIPS HIT A 2018 HIGH

On Thursday, the Dow Jones Industrial Average saw its best close since January. Friday took the index even higher, to another record settlement of 26,743.50. That capped a 2.25% weekly advance. The Dow was not the only major benchmark shattering records last week. The S&P 500 also settled at a historic peak Thursday before drifting slightly lower to 2,929.67 a day later; in five days, it rose 0.85%. For the Nasdaq Composite, the story was different: it declined 0.29% last week to 7,986.96.1,2

AUGUST WAS A FLAT MONTH FOR HOME BUYING

The National Association of Realtors declared the pace of existing home sales unchanged from July in its August snapshot of the residential real estate market. Economists surveyed by Reuters anticipated an advance of 0.3% after four consecutive months of retreats. Sales were down 1.5%, year-over-year, through August, but existing home inventory grew 2.7% during the same 12 months; that marked the first annualized increase in the supply of homes for sale since 2015. The median existing home price in August: $264,800, 4.6% higher than a year ago.3

HOUSING STARTS JUMP; BUILDING PERMITS FALL

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Consumer Confidence and Spending Numbers Impress

OPTIMISM REIGNS ON MAIN STREET

In August, the Conference Board’s respected consumer confidence index made a remarkable leap, rising 5.5 points to 133.4. This was its highest reading in almost 18 years. (Economists surveyed by Briefing.com forecast an August reading of 126.5.) The University of Michigan’s consumer sentiment index also improved in its final August edition, ending the month at a mark of 96.2, 0.9 points above its preliminary reading.1,2

STRONG SHOWING FOR PERSONAL SPENDING, IMPROVEMENT FOR Q2 GDP

Households boosted their outlays by 0.4% in July, according to the Department of Commerce. The seventh month of the year also saw a 0.3% gain in personal incomes. In June, both indicators displayed an advance of 0.4%. The Department also issued its first revision to second-quarter economic growth last week, taking the number up 0.1% to an even stronger 4.2%.1

WILL NAFTA BE REPLACED NEXT YEAR?

Last week, the U.S., Mexico, and Canada progressed toward a new trade deal that would supplant

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Core Inflation Reaches 10-year Peak

INFLATION AT 2.9%, CORE INFLATION AT 2.4%

Friday, the Department of Labor reported these annualized gains through July of this year for the Consumer Price Index. Both the headline and core CPIs rose 0.2% last month, matching the consensus forecast of economists polled by Reuters. The yearly core inflation increase is the largest on record since September 2008. (The core inflation reading leaves out food and energy costs.) The Producer Price Index was flat in July, with the yearly advance declining slightly to 3.4%; the core PPI rose 0.3%, resulting in a 2.8% annualized gain.1,2

HOW IS EARNINGS SEASON GOING?

Ninety-one percent of S&P 500 companies have reported Q2 results so far. FactSet, the respected stock market analytics firm, reports that 72% have surprised to the upside in terms of sales and 79% have topped earnings expectations. Weighing actual earnings results and future projections, FactSet estimates a 24.6% “blended” earnings growth rate for the second quarter. On Friday, the forward 12-month P/E ratio for the S&P 500 was 16.6; that compares to an average of 16.2 across the past five years.3

OIL FALLS FOR A SIXTH STRAIGHT WEEK

WTI crude last suffered such a losing streak in 2015. Friday, it settled at $67.63 on the NYMEX, even after a 1.2% advance during Friday’s trading session. Some commodities investors believe that the emerging trade war will reduce demand for energy products.4

NASDAQ ADVANCES, S&P and DOW RETREAT

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