Market News – September 30, 2019

CONSUMERS SLOWED SPENDING IN AUGUST:  Consumers slowed their rate of spending in August.  The rate of Personal Consumption Expenditures (PCE), as measured by the U.S. Bureau of Economic Analysis, increased by 0.1% in August.  During the first seven months of 2019, the average increase in spending was 0.5% per month.  Until August, U.S. consumer spending seemed to be immune to slowing global growth and continuous trade friction.  It is only one month of data, and you can parse some of the details.  Lower energy prices, for example, magnified the slower spending.  Outlays on durable goods actually picked up (although at a slower rate than the month before).  Thus, we do what we should do and keep our eye on whether August is a trend or a blip.

HOME SALES REBOUNDING:  Pending home sales increased in August.  The Pending Home Sales Index, which measures contract signings (and thus is a forward-looking indicator), increased 1.6% in August.  August of 2019 registered 2.5% higher than August of a year ago.  Buyers seem to be responding to the decrease in interest rates.  With interest rates expected to remain low, home sales should rise in the coming months.  If this translates into further home building, it will be a boost to overall economic (GDP) growth in 2020.

THREE WEEKS UP, TWO WEEKS DOWN:  After three straight weeks of gains, U.S. stocks have now experienced two straight weeks of losses.  Trade tensions with China continue to heavily influence market direction, and this week a report that the White House is weighing limiting investment in China caused the market to move downward.  Reports that consumer spending and business investment slowed in August contributed to the negative week.

But, we cannot ignore the impact of last week’s political drama.  Investors are parsing political news to determine what affect it may have on the economy, and thus stock valuations.  Whether it has any effect, it certainly causes more short-term volatility due to increased overall anxiety and uncertainty.  However, I generally agree with the statement last week by Chris Zaccarelli, Chief Investment Officer at Independent Advisor Alliance:

“Historically speaking, the market tends to look past these types of political events, with little immediate impact, though we may get a bit of volatility in the short run.  Corporate earnings, the Federal Reserve, and trade news will still be at the forefront–that’s really what’s driving the market at this point.”

IMPACT INVESTING:  This phrase is becoming mainstream.  Watch for it to continue to grow in the years to come.  As an example, twenty-four S&P 500 companies mentioned the acronym ESG on earnings conference calls after the second quarter, doubling the amount from the first quarter.  ESG stands for Environmental, Social and Governance factors.  There are a growing number of funds that focus on ESG, or some flavor of impact investing.  Traditionally, these have been labeled SRI (Socially Responsible Investments), but there are many varieties including a subset called BRI (Biblically Responsible Investing).

REFERENCES:

CONSUMERS SLOWED SPENDING IN AUGUST:  https://www.bea.gov/data/income-saving/personal-income; https://www.wsj.com/articles/u-s-consumer-spending-slowed-sharply-in-august-11569587637; https://www.calculatedriskblog.com/2019/09/personal-income-increased-04-in-august.html
HOME SALES REBOUNDING: https://www.nar.realtor/newsroom/pending-home-sales-grow-1-6-in-august; https://www.calculatedriskblog.com/2019/09/nar-pending-home-sales-grow-16-in-august.html
FINDING YOUR PASSION BY ROCKING AND SWAYING:  https://www.cnbc.com/2019/09/26/bill-gates-the-day-i-knew-what-i-wanted-to-do-for-the-rest-of-my-life.html
THREE WEEKS UP, TWO WEEKS DOWN:  https://www.wsj.com/articles/global-stocks-waver-after-weak-chinese-data-11569572823; https://www.forbes.com/sites/sergeiklebnikov/2019/09/26/heres-how-impeachment-talks-will-affect-the-stock-market/#78562877246a
IMPACT INVESTING: https://www.wsj.com/articles/more-companies-are-making-noise-about-esg-11569263634?mod=searchresults&page=1&pos=3