This bull market is nearly nine years old and picking up steam. However, “Reversion to the mean” may mean that stock market returns over the next decade will be very modest (4-6%). Mean reversion is the theory suggesting that prices and returns eventually move back toward the mean or average.
My contrarian nature gives me pause that tax reform will have a short-term positive impact. Our income tax structure has long been a patchwork of special interests and complexity that advantages those that have influence and resources to hire advisors. Eliminating complexity and itemized deductions would recapture lost productivity (time spent figuring out what amount the IRS is taking from you) and help level the playing field for the middle class. My belief is that any impact will be more drawn out than an economic spike some predict.
Hiring Rebounds, Industries Expand
According to the Department of Labor, October brought a net gain of 261,000 jobs. (Last month’s net loss of 33,000 was revised to a net gain of 18,000.) The headline unemployment rate ticked down to 4.1%, while the broader U-6 rate fell to 7.9% (down 1.3% in 12 months). Wages were up 2.4% year-over-year. The Institute for Supply Management’s purchasing manager indices alternately rose and fell in October. The readings were strong: 58.7 for the factory PMI (down 2.1 points), 60.1 for the service sector PMI (up 0.3 points).1,2
Consumer Spending, Confidence Impress
Personal spending rose 1.0% in September, helped by households replacing vehicles and goods damaged in hurricanes and floods. This was the largest monthly advance in more than eight years. Personal wages improved 0.4%. The Conference Board’s consumer confidence index climbed 6.1 points to 125.9 in October; economists surveyed by MarketWatch expected a reading of 121.3.2,3
Jerome Powell Nominated to Lead Fed
If his nomination is approved, the Federal Reserve governor and former investment banker will become chairman when Janet Yellen’s term ends in February. He is expected to maintain the Fed’s current strategy for normalizing monetary policy. The central bank held interest rates steady at its November meeting. Bloomberg puts the odds of a December rate hike at 85%.4,5
Another Advance for Stocks
All three major indices rose last week, with the gains paralleling those of the previous week. The respective improvements: S&P 500, 0.26% to 2,587.84; Nasdaq Composite, 0.94% to 6,764.44; Dow Jones Industrial Average, 0.45% to 23,539.19.6
On Monday, AMC Entertainment, Avis Budget Group, CVS Health, Etsy, GoDaddy, Michael Kors, Priceline, Sysco, TripAdvisor, and Weight Watchers announce earnings. Tuesday’s earnings roll call includes news from Container Store, Dean Foods, Extended Stay America, Green Dot, Invacare, Marcus & Millichap, Marriott International, Snap, Take-Two Interactive, Valeant Pharmaceuticals, and Zynga. AmeriGas, Hostess Brands, Humana, Square, Starwood Hotels & Resorts, Twenty-First Century Fox, Valvoline, and Wendy’s release earnings Wednesday. Thursday, earnings news streams in from AstraZeneca, D.R. Horton, Walt Disney Co., Hertz Global Holdings, Lionsgate, News Corp., and Time. November’s initial University of Michigan consumer sentiment index appears Friday, plus Q3 results from ArcelorMittal.
|% CHANGE||YTD||1-YR CHG||5-YR AVG||10-YR AVG|
|REAL YIELD||11/3 RATE||1 YR AGO||5 YRS AGO||10 YRS AGO|
|10 YR TIPS||0.48%||0.14%||-0.73%||1.92%|
Sources: wsj.com, bigcharts.com, treasury.gov – 11/3/176,7,8,9
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS
real yield = projected return at maturity given expected inflation.
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 and expenses, and cannot be invested into directly. 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. 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.
- 1 – forbes.com/sites/maggiemcgrath/2017/11/03/payrolls-rebound-from-hurricane-losses-adding-261000-jobs-in-october/ [11/3/17]
- 2 – marketwatch.com/economy-politics/calendars/economic [11/3/17]
- 3 – bloomberg.com/news/articles/2017-10-30/u-s-consumer-spending-rises-most-since-2009-on-auto-purchases [10/30/17]
- 4 – csmonitor.com/USA/Politics/2017/1103/Trump-taps-Jerome-Powell-for-Federal-Reserve-chair [11/3/17]
- 5 – businessinsider.com/fed-statement-november-2017-11 [11/1/17]
- 6 – markets.wsj.com/us [11/3/17]
- 7 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F3%2F16&x=0&y=0 [11/3/17]
- 7 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F3%2F16&x=0&y=0 [11/3/17]
- 7 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F3%2F16&x=0&y=0 [11/3/17]
- 7 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F2%2F12&x=0&y=0 [11/3/17]
- 7 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F2%2F12&x=0&y=0 [11/3/17]
- 7 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F2%2F12&x=0&y=0 [11/3/17]
- 7 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F2%2F07&x=0&y=0 [11/3/17]
- 7 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F2%2F07&x=0&y=0 [11/3/17]
- 7 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F2%2F07&x=0&y=0 [11/3/17]
- 8 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [11/3/17]
- 9 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [11/3/17]