Market News – October 1, 2018

WHILE YOU WERE NOT PAYING ATTENTION: While no one seemed to be paying attention, the stock market muddled through a week that ended slightly lower.  Nothing extraordinary occurred to move markets in one direction or the other.  Early in the week, trade tensions with China moved stocks lower.  Then the Fed made their announcement raising interest rates, and stocks edged lower again.  Then stocks bounced back as investors more fully absorbed the Fed’s announcement and on anticipation of a healthy upcoming earnings season.  When all was said and done, not much movement occurred.

However, Friday marked the end of a very strong quarter for the U.S. stock market.  In fact, it was the best quarter for U.S. stocks in five years.  The strengthening of the U.S. economy is expected to keep pushing stocks higher.  Will there be challenges to a continued climb?  Of course, contentious midterm elections will be a major distraction and cause some volatility. In December, the Fed is likely to raise interest rates again.  Continued trade issues could play a role in dampening the markets.

THE FED RAISES RATES AGAIN:  After a two day meeting of the Federal Open Market Committee, which sets monetary policy, the Fed announced its eighth rate increase since the 2008 financial crisis.  Another increase is expected in December.  The increase was another quarter of a percent to its benchmark interest rate to between 2% and 2.25%.  Although the announcement by Chairman Powell implied that nothing is set in stone, the Fed is making it clear that it anticipates continued increases probably through 2020, getting to the 3.0% to 3.5% range, which the Fed classifies as “neutral”.

BIOTECH INVESTMENTS INCREASING:  In the late 1990s, there were nearly 8,000 publicly traded companies in the U.S. from which to choose.  Now, there are about half that number.  Just before the Great Recession, there were well over 5,000, but it quickly dipped and has been staying around the 4,000 figure since about 2012.  Publicly traded biotech companies have a different story.  The number increased from well below 200 in the early 1990s to almost 400 by 2007.  That number sharply dropped to close to 300 during the Great Recession and leveled off at that amount for about four years.  Since 2012, the number has had a 50% increase from 300 to 450.

BLACK GOLD, TEXAS TEA:  The price for this commodity is rising.  The global benchmark Brent crude rose 4.1% in the third quarter to $82.72 per barrel, the highest level in four years and its fifth consecutive quarter of increases.  OPEC recently decided to leave production steady.  This move in conjunction with the removal of Iranian oil from the market and supply disruptions in Venezuela and other places will likely lead to shortages and further price increases.  This is happening in the teeth of a strong U.S. economy where demand is increasing.

WHAT CLASS ARE YOU IN?:  According to the Pew Research Center, 52% of adults in the U.S. are “middle-income”.  (Middle income are adults whose average household income is two-thirds to double the national median, after incomes have been adjusted for household size.)  29% are in lower-income households, and 19% are in upper-income households.  Pew Research actually came up with a calculator which can help you see how you stack up.  Enter your state, metropolitan area, household income and number of people in your household, and it will tell you where you fall.  It will also give you some data about your geographic region.  I did a quick comparison of the Boston and Philadelphia areas, and it shows that 19% of the American population is upper-income, while the Philadelphia area has 23% upper-income and the Boston area has 29% upper income.

REFERENCES:

THE FED RAISES RATES AGAIN: https://www.reuters.com/article/us-usa-fed/fed-raises-rates-sees-at-least-three-more-years-of-economic-growth-idUSKCN1M60EE?il=0
PRODUCTIVE APPROACH TO POVERTY: http://dignitycoconuts.com/
WHAT CLASS ARE YOU IN?: http://www.pewresearch.org/fact-tank/2018/09/06/are-you-in-the-american-middle-class/
BLACK GOLD, TEXAS TEA: https://www.wsj.com/articles/reignited-rally-sets-off-talk-of-100-oil-1538305201
BIOTECH INVESTMENTS INCREASING: https://www.horsesmouth.com/the-burgeoning-of-biotech; https://www.forbes.com/sites/brucebooth/2018/09/21/the-incredible-expanding-universe-of-biotech-stocks/#2fc4d3869bd6