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October 16, 2020

Market Commentary
by Scott J. Brown, Ph.D., Chief Economist

Retail sales rose 1.9% in September, boosted partly by a seasonal quirk. Department store sales jumped 9.7% (-7.0% before seasonal adjustment) and clothing store sales surged 11.0% (-4.3% before seasonal adjustment). August is the month for back-to-school sales. Reduced strength in August led to a smaller seasonal decline into September, add a strong, seasonally adjusted gain. Still, auto dealerships, home furnishings, home improvement, sporting goods and grocery stores are all doing better than before the pandemic. However, department stores, clothing stores, gasoline sales and restaurants remain far below where they were in February.

Industrial production fell 0.6% in the initial estimate for September (-7.3% y/y), partly reflecting a 5.6% drop in the output of utilities (-6.1% y/y). Manufacturing output fell 0.3%, down 6.1% from February. Jobless claims rose to 898,000 in the week ending October 3. The Consumer Price Index rose 0.2% in September (+1.4%), as a 6.7% increase in used vehicle prices offset declines in car insurance, airfares and apparel. The International Monetary Fund raised its outlook for global growth in 2020 to -4.4% (vs. an estimate of -4.9% in June).

Next week, residential construction figures are expected to have strengthened further in September (watch single-family permits). The Fed’s Beige Book should continue to reflect a mixed recovery. The Index of Leading Economic Indicators is likely to remain consistent with a moderation in the pace of the recovery. None of this is expected to be market-moving, as earnings reports and political news will carry more weight.


Indices

  Last Last Week YTD return %
DJIA 28494.20 28425.51 -0.16%
NASDAQ 11713.87 11420.98 30.55%
S&P 500 3483.34 3446.83 7.82%
MSCI EAFE 1870.47 1896.55 -8.17%
Russell 2000 1638.88 1628.55 -1.77%

Consumer Money Rates

  Last 1 year ago
Prime Rate 3.25 5.00
Fed Funds 0.08 1.95
30-year mortgage 3.00 3.79

Currencies

  Last 1 year ago
Dollars per British Pound 1.2909 1.283
Dollars per Euro 1.1708 1.072
Japanese Yen per Dollar 105.45 108.760
Canadian Dollars per Dollar 1.322 1.320
Mexican Peso per Dollar 21.274 19.201

Commodities

  Last 1 year ago
Crude Oil 40.96 53.36
Gold 1908.90 1494.00

Bond Rates

  Last 1 month ago
2-year treasury 0.24 0.13
10-year treasury 0.72 0.67
10-year municipal (TEY) 1.42 1.26

Treasury Yield Curve – 10/16/2020

Chart

As of close of business 10/015/2020


S&P Sector Performance (YTD) – 10/16/2020


Chart

As of close of business 10/15/2020


Economic Calendar

October 19  —  Homebuilder Sentiment (October)
October 20  —  Building Permits, Housing Starts (September)
October 21  —  Fed Beige Book
October 22  —  Jobless Claims (week ending October 17)
 —  Existing Home Sales (September)
 —  Leading Economic Indicators (September)
October 26  —  New Home Sales (September)
October 27  —  Durable Goods Orders (September)
 —  CB Consumer Confidence (October)
October 29  —  Real GDP (3Q20, advance estimate)
November 3  —  Election Day
November 5  —  FOMC Policy Decision
November 6  —  Employment Report (October)

 

All expressions of opinion reflect the judgment of the Research Department of Raymond James & Associates, Inc. and are subject to change. There is no assurance any of the forecasts mentioned will occur or that any trends mentioned will continue in the future. Investing involves risks including the possible loss of capital. Past performance is not a guarantee of future results. International investing is subject to additional risks such as currency fluctuations, different financial accounting standards by country, and possible political and economic risks, which may be greater in emerging markets. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, and state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Municipal bonds may be subject to capital gains taxes if sold or redeemed at a profit. Taxable Equivalent Yield (TEY) assumes a 35% tax rate.

The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks. An investment cannot be made directly in these indexes. The performance noted does not include fees or charges, which would reduce an investor's returns. U.S. government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments. Gross Domestic Product (GDP) is the annual total market value of all final goods and services produced domestically by the U.S. The federal funds rate (“Fed Funds”) is the interest rate at which banks and credit unions lend reserve balances to other depository institutions overnight. The prime rate is the underlying index for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. Material prepared by Raymond James for use by financial advisors. Data source: Bloomberg, as of close of business October 15, 2020.

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