Although new data continued to show strength in the U.S. economy, markets stumbled across the globe last week. The S&P 500 lost 0.98%, the Dow dropped 0.04%, and the NASDAQ declined 3.21%. International stocks in the MSCI EAFE struggled, posting a 2.35% loss.
While U.S. and international stocks followed similar paths last week, data is beginning to show that our economic outlooks may be very different for the moment.
U.S. Strength in a Growing International Divide
The latest labor report helped underscore some of the differences between the U.S. economy and the rest of the world. While the data missed the mark for new jobs added, September marked the 96th-straight month of job growth - and the lowest unemployment level since 1969. The report pushed interest rates higher, which contributed to last week's equity losses.
However, when describing our economy, Federal Reserve Chair Jerome Powell said it is experiencing "a particularly bright moment."
Global Growth Adjustments
At the same time, the International Monetary Fund (IMF) indicated that it would decrease its global economic growth predictions. The IMF hasn't downgraded its forecasts since 2016. Currently, more risks are beginning to emerge - from trade tension to political challenges in Europe. In particular, the rise in oil prices, the U.S dollar, and interest rates are hurting emerging economies.
HSBC mirrored this divide, cutting its global economic outlook while upgrading U.S. numbers.
A Look Ahead While Looking Back
As the labor market tightens, inflation could rise - bringing even more interest rate hikes from the Federal Reserve. While rising rates bring their own set of risks, they are ultimately a sign that the economy is growing. On the other hand, when the Fed lowers rates, they do so because the economy is slowing.
This week, we mark the 11th anniversary of the markets hitting their highest pre-recession point on October 9, 2007. At that time, hopes that the Fed would lower rates again contributed to the new record highs. In the ensuing months, the Dow lost more than half its value as the Great Recession began.
While markets were down last week, they were still far ahead of their highs from 2007. The Dow closed at 14,164.43 on October 9, 2007 - and ended at 26,447.05 on October 5, 2018.
Investors have experienced quite a ride in the past 11 years, but the market's long-term growth is undeniable. Risks are here, as they always are. But we are here to help you understand and navigate those risks, no matter what the markets bring.
Monday: U.S. Holiday: Columbus Day
Thursday: CPI, Jobless Claims
Friday: Import and Export Prices, Consumer Sentiment
Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
These are the views of 4th River Financial Group, and not necessarily those of the named representative, and should not be construed as investment advice. Neither the named representative nor the Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Diversification does not guarantee profit nor is it guaranteed to protect assets.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
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 indexes from Europe, Australia and Southeast Asia.
The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.
The S&P US Investment Grade Corporate Bond Index contains US- and foreign issued investment grade corporate bonds denominated in US dollars. The SPUSCIG launched on April 9, 2013. All information for an index prior to its launch date is back teased, based on the methodology that was in effect on the launch date. Back-tested performance, which is hypothetical and not actual performance, is subject to inherent limitations because it reflects application of an Index methodology and selection of index constituents in hindsight. No theoretical approach can take into account all of the factors in the markets in general and the impact of decisions that might have been made during the actual operation of an index. Actual returns may differ from, and be lower than, back tested returns.
The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Google Finance is the source for any reference to the performance of an index between two specific periods.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
You cannot invest directly in an index.
Consult your financial professional before making any investment decision.
Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
By clicking on these links, you will leave our server, as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.