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October 2018 Market Recap

Oil prices have fallen more than 30% over the past two months as inventories in the U.S. have continued to rise for 10 consecutive weeks. The supply imbalance has been exacerbated by rising production not only in the U.S., but in Russia and Saudi Arabia as well.

This slump comes after a strong rebound in the oil market over the past two years, driven by production constraints by OPEC producers. But as supplies began to pile up again in recent months, prices began to plunge. In all, the price per barrel of West Texas Intermediate (an oil price benchmark) has dropped from its peak of $74.41 on October 3 to just $50.93 at the November close – a 31.6% decline.

Meanwhile, the stock market has continued its volatility. Although the S&P 500 finished the month in positive territory, it is still down 5.8% from its peak level of 2,930.75 on September 20 to its November close of 2,760.17. (See: What’s Next for Shaky Stock and Bond Markets?)

Here are some other highlights from the past month covered in more detail later in this report:

• Retail sales rise. Retail sales moved up 0.8% in October, with auto sales making a solid rebound, according to the U.S. Department of Commerce.

 Job growth continues. Employers added 250,000 new jobs in October, and the unemployment rate was unchanged at 3.7%, according to the U.S. Bureau of Labor Statistics.

• Fed hike coming? The Federal Reserve Board indicated that it is likely to raise rates 0.25% when it meets in mid-December, but are planning to proceed slowly and cautiously with future rate hikes.

• Income and expenditures rising. Personal income increased 0.5% in October according to the U.S. Department of Commerce report issued November 29, while personal consumption expenditures increased by 0.6%.

• International stocks still sluggish. International stocks were down slightly in November, and the MSCI EAFE Index is down nearly 12% for the year. (The MSCI EAFE tracks performance of developed-economy stocks in Europe, Asia and Australia.)

In a Nutshell

What’s ahead for the economy and the markets? See: December Market Outlook: What’s Next for Shaky Stock and Bond Markets? by Mark Simenstad, Chief Investment Strategist

Drilling Down

U.S. Stocks Remain Volatile

The S&P 500 had a topsy-turvy month but ended November above where it started. After closing October at 2,711.74, the S&P ended November at 2,760.17 – a 1.79% gain. (The S&P 500 Index is a market-cap-weighted index that represents the average performance of a group of 500 large-capitalization stocks.)

The total return of the index (including dividends) was 2.04% in November. For the year, the S&P has had a total return of 5.11%.

The NASDAQ Index closed up slightly for November. After ending October at 7305.90, it closed November at 7330.54 – a 0.34% increase. For the year, the NASDAQ is up 6.19%. (The NASDAQ – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.)

 
 
 
S&P 500 Index

Retail Sales Rising

Retail sales increased by 0.8% in October from the previous month, and up 4.6% from a year earlier, according to the advance monthly retail sales report issued November 15 by the U.S. Department of Commerce.

Auto sales, which had been slowing down in recent months, were up 1.1% for the month, but were still down 0.3% from a year earlier. Building and related supplies were up 1.0% for the month and 3.6% for the past year. Non-store retailers (primarily online) were up 0.4% for the month and 12.1% for the year.

Jobs Still Climbing

U.S. employers added 250,000 new jobs in October, and the unemployment rate remained unchanged at 3.7%, according to the U.S. Bureau of Labor Statistics Employment Situation Report issued November 2. The economy has added jobs for 97 consecutive months.

Average hourly earnings for all employees on private nonfarm payrolls rose by $0.05 to $27.30. Over the past year, average hourly earnings have increased by $0.83 cents, or 3.1%.

Manufacturing Expansion Continues

Economic activity in the manufacturing sector continued to expand in November, as the overall economy grew for the 115th consecutive month, according to the Institute for Supply Management (ISM) Report on Business issued December 3.

Thirteen of the 18 manufacturing industries reported growth in November, led by computer and electronic products; plastics and rubber products; paper products; textile mills; and electrical equipment.

Sectors Returns Mixed

Eight of the 11 sectors of the S&P 500 moved up in November, with only Energy, Information Technology and Communications Services edging lower. The leading gainers were Health Care, up 7.05%, Real Estate, up 5.63%, and Materials, up 4.05%.

The chart below shows the results of the 11 sectors for the past month:

 
S&P 500 Sectors

Treasury Yields Unchanged

The yield on 10-year U.S. Treasuries ended November just as it started – at 3.15%. The yield is up 0.74% this year, after ending 2017 at 2.41%.

 
U.S. Treasury 10-Year Bond Yields

Oil Market Keeps Falling

Oil prices continued to drop in November, as the price of West Texas Intermediate crude plummeted from $65.31 per barrel at the end of October to $50.93 at the November close – a 22.02% decline.

 
Oil Price - West Texas Intermediate

International Equities Flat

The MSCI EAFE Index finished the month of November with a 0.31% decline from its October close. For the year, the index is down 11.76%.

 
 
MSCI EAFE Index

What’s ahead for the economy and the markets? See: December Market Outlook: What’s Next for Shaky Stock and Bond Markets? by Mark Simenstad, Chief Investment Strategist

To see our Market Recaps every month and learn more about our perspective on the markets, subscribe to our Investing Insights newsletter.

Media contact: Samantha Mehrotra, 612-844-4197; samantha.mehrotra@thrivent.com

 

All information and representations herein are as of 12/03/2018, unless otherwise noted.

The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management associates. Actual investment decisions made by Thrivent Asset Management will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product.  Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.

Past performance is not necessarily indicative of future results.

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