NEW HOME SALES: According to the Census Bureau, 607,000 new homes were sold in January. This is 6.9% below December and 4.1% below January of a year ago. The graph below shows new home sales since 1963. Even with increased sales in the last several years, current rates are somewhat low historically. The supply of new homes is currently estimated at 6.6 months compared to 6.3 months in December. The all time record for inventory was 12.1 months in January of 2009.
INDUSTRIAL PRODUCTION UP, BUT MANUFACTURING DOWN: Industrial production in the U.S. rose by 0.1% in February after decreasing 0.4% in January. Industrial production is a measure of economic activity in utilities, mining and manufacturing. Utilities rose in February by 3.7% while the index for mining rose 0.3%. Manufacturing decreased by 0.4% after falling 0.5% in January. January’s decline was attributed to one industry: automobiles. February’s decline seems more broad-based. The health of the global economy and trade issues play a big role in the health of this sector. We will be watching the manufacturing sector closely as the year unfolds. Many are predicting a rebound later in the year, but not a strong rebound.
POST MID-TERM ELECTIONS RALLY CONTINUES: This week, stocks regained all the value they lost in the prior week. The rally was led largely by technology companies, the sector that led the fourth quarter malaise. Companies like Apple and Broadcom rose on good news on earnings and sales, and others rose on the news of Nvidia agreeing to purchase Melanox Technologies. If the current positive market holds throughout the year, it will be adhering to a historic pattern. The stock market has risen in the year after mid-term elections without fail since World War II. Is it because the presidential party in power does everything it can to keep the economy moving in a positive direction prior to the re-election campaign? Is it because the resulting gridlock makes investors happy that no major disruptive legislation is likely to pass? Whatever the cause, it has been consistent. (But remember, past performance is no guarantee….well you know the rest.)
SHORT AND LONG TERM U.S. STOCK MARKET RETURNS: The following pieces of historical data can be very important when you are trying to determine how to invest, and whether to get into the stock market. Using the S&P Composite Index from 1872 to 1957, and the S&P 500 from 1957 to 2018, the following results occurred:
- One-Year Returns: Maximum was 53.2%. Minimum was -37.0%. The average was 8.4%. The standard deviation was 18.2%.
- Five-Year Returns: Maximum was 28.5%. Minimum was -11.7%. The average was 7.1%. The standard deviation was 7.8%.
- Ten-Year Returns: Maximum was 17.6%. Minimum was -4.1%. The average was 6.8% and the standard deviation was 5.1%.
- Twenty-Year Returns: Maximum was 13.2%. Minimum was 0.5%. The average was 6.7%. The standard deviation was 3.0%.
Over 146 years of data, the chance of seeing negative returns in any given year is about 31%.
Data reflects real total returns (i.e., including the re-investment of dividends and adjusted for inflation).