September 2019 Market Summary
Market Update
(all values as of 08.30.2024)

Stock Indices:

Dow Jones 41,563
S&P 500 5,648
Nasdaq 17,713

Bond Sector Yields:

2 Yr Treasury 3.91%
10 Yr Treasury 3.91%
10 Yr Municipal 2.70%
High Yield 6.92%

YTD Market Returns:

Dow Jones 10.28%
S&P 500 18.42%
Nasdaq 18.00%
MSCI-EAFE 9.72%
MSCI-Europe 9.81%
MSCI-Pacific 9.34%
MSCI-Emg Mkt 7.44%
 
US Agg Bond 3.07%
US Corp Bond 3.49%
US Gov’t Bond 2.95%

Commodity Prices:

Gold 2,535
Silver 29.24
Oil (WTI) 73.65

Currencies:

Dollar / Euro 1.10
Dollar / Pound 1.31
Yen / Dollar 144.79
Canadian /Dollar 0.74

Macro Overview

A proposed tariff increase on goods imported from China was delayed from October 1st to October 15th. Tariffs on a number of Chinese goods are scheduled to increase to 30 percent from 25 percent effective on the 15th.

U.S. equity markets marked their best third quarter since 1997, recapturing gains that were lost in the final quarter of 2018. The market’s resilience has allowed stock and bond prices to elevate higher even with the headwinds of trade tensions and recessionary concerns. Meager bond yields worldwide also fueled a gravitation towards stocks as investors sought more attractive yields in the form of dividends.

Domestic bond yields rose in September, climbing back from ultra low levels reached in August. The Fed’s easing rate trend is part of a larger global movement by other central banks to lower rates internationally.

Currency markets reacted to slightly higher U.S. rates in September, sending the U.S. dollar to its strongest levels in over two years. Various factors such as consistent consumer demand and a stable economic environment, relative to other global economies, helped drive the demand for the dollar.

A key inflation indicator, the Consumer Price Index (CPI), moved higher with its fastest annualized growth since 2008. The CPI index, which measures the price of various goods and services such as food, housing, and medical expenses, rose 2.4% over the past year. Medical insurance and healthcare related expenses saw some of the largest increases. (Sources: Commerce Depart., U.S. Treasury, BLS)

Equity Markets Advance In The 3rd Quarter – Domestic Equity Update

Despite ongoing trade tensions and concerns about a slowing economy, U.S. equities excelled in the third quarter, with technology, consumer staples, and utilities as the leading sectors for the S&P 500 Index. The energy and health care sectors were the under performers relative to the other 9 sectors. Equity markets are reacting more sensitively to economic indicators, such as unemployment, manufacturing, and Gross Domestic Production (GDP) data. Earnings growth for U.S. companies is starting to slow for certain sectors, as economic expansion decelerates. The corresponding chart illustrates how the various sectors contributed to the S&P 500 Index for the 3rd quarter. (Sources: BLS, Bloomberg, Reuters)

 
This year, the youngest baby boomers are now 55 and the oldest are 73

Rates Edge Up Slightly In September – Fixed Income Overview

Bond yields edged higher in September, rebounding from the lows reached in August. The 10- year Treasury bond yield rose from 1.47% at the beginning of September to 1.68% at the end of the month. The rise in yields affected loan rates as they had just reached lows in August not seen in years.

Additional rate cuts in Europe by the European Central Bank (ECB) pressured bond yields lower in Europe and Asia. Bond markets are eagerly awaiting indications of any further rate reduction in the U.S. by the Fed, perhaps prompted by economic data.

Low mortgage rates continue to fuel home sales nationally, with the rate on a conventional 30-year fixed mortgage at 3.64% at the end of September, down from 4.51% at the beginning of the year. (Sources: FreddieMac, ECB, U.S. Treasury)

Baby Boomers Working Past Retirement – Demographics

This year, the youngest baby boomers are now 55 and the oldest are 73, according to the Bureau of Labor Statistics. As more baby boomers reach retirement, good health and financial obligations are driving more to work longer or find a new job.

As baby boomers retire, some are finding it necessary to return to work even in their retirement years. Data released by the Labor Department show that about 15% of workers age 65 and older had been with their employer 2 years or less in 2018. Many baby boomers may have worked for the same employer for years, then retire, yet find themselves seeking work thereafter. There hasn’t been a growing trend of retirees doing this yet, but there has been a consistent number.

Roughly 85% of workers age 65 and older have been with the same employer for 10 years or more, a trend that has been in place for years. Some believe that the dynamics of the job market and employers has begun to shift to where workers will spend less time with the same employer. (Source: Bureau of Labor Statistics)

 
projections reveal a federal budget deficit exceeding $1 trillion in 2020

Federal Deficit Projections Top $1 Trillion – Fiscal Policy Review

The Congressional Budget Office (CBO) establishes budget forecasts based on various factors that are constantly changing. Among the factors are fiscal policy, economic projections, as well as trade policy initiatives.

Projections are revised on a regular basis by the CBO and may change or be modified contingent on fiscal policy and government outlays such as Social Security and health care expenses.

The most recent projections reveal a federal budget deficit exceeding $1 trillion in 2020, an estimate based on current fiscal circumstances and the economic environment. Projections over the next 10 years show an average annual budget deficit of $1.2 trillion between 2019 and 2029. The estimate represents a deficit of 4.4% to 4.8% of GDP, above the 50-year average. Even though tax revenues are estimated to grow, GDP is expected to expand at a more conservative pace. Current estimates show GDP growing at 2.3% in 2019, yet the CBO projects an average annual GDP growth rate of 1.8% over the next 10 years.

The three largest expense items for the federal government have been and are projected to be Social Security, health care programs, and interest paid on government debt. Rising interest rates may become more of an issue as rates may eventually head higher for government debt, with future debt issuance becoming more expensive for the U.S. as rates slowly rise. (Sources: CBO; Update To The Budget & Economic Outlook 2019-2029)

Countries With Highest & Lowest Import Tariffs – International Trade Policy

Some countries impose import duties, also known as tariffs, on certain imports for various reasons. Import duties on products that may hinder or compete with an industry or product produced in that country may have tariffs imposed in order to limit imports that may have negative consequences.

Imports brought into a country at below market prices may be considered dumping, where tariffs can act as a restraint against such tactics meant to gain marketshare via unfair trade practices. Limited resources and production capabilities may require certain countries to openly import necessary goods and raw materials with no tariffs in order to satisfy the demands of its citizens and industries. Based on data from the World Bank, Switzerland, Singapore, and Hong Kong are among those that impose no tariffs on imported products and materials. (Sources: World Bank; 2016 data, CIAWorldFactBook)

 

 
The US Dollar represents 62% of the world's foreign reserves.

 

The World’s Most Powerful Reserve Currencies

In essence, reserve currencies (i.e. U.S. dollar, pound sterling, euro, etc.) are held on to by central banks for the following major reasons:

Because these currencies are accepted almost everywhere, they provide third-parties with extra confidence and perceived liquidity. This is a network effect that snowballs from the growing use of a particular reserve currency over others.

Reserve Currencies Over Time

Here is how the usage of reserve currencies has evolved over the last 15 years:

Currency composition of official foreign exchange reserves (2004-2019)
🇺🇸 U.S. Dollar 🇪🇺 Euro 🇯🇵 Japanese Yen 🇬🇧 Pound Sterling 🌐 Other
2004 65.5% 24.7% 4.3% 3.5% 2.0%
2009 62.1% 27.7% 2.9% 4.3% 3.0%
2014 65.1% 21.2% 3.5% 3.7% 6.5%
2019 61.8% 20.2% 5.3% 4.5% 8.2%

Over this time frame, there have been small ups and downs in most reserve currencies.

Today, the U.S. dollar is the world’s most powerful reserve currency, making up over 61% of foreign reserves. The dollar gets an extensive network effect from its use abroad, and this translates into several advantages for the multi-trillion dollar U.S. economy.   The euro, yen, and pound sterling are the other mainstay reserve currencies, adding up to roughly 30% of foreign reserves.  Finally, the most peculiar data series above is “Other”, which grew from 2.0% to 8.4% of worldwide foreign reserves over the last 15 years. This bucket includes the Canadian Dollar, the Australian Dollar, the Swiss Franc, and the Chinese Renminbi.

 

 

 

 

*Market Returns: Index data sources; MSCI, DJ-UBSCI, WTI, IDC, S&P.  LBA Advisors, LLC is a Registered Investment Advisor. The information provided is believed to be reliable, but its accuracy or completeness is not warranted. This material is not intended as an offer or solicitation for the purchase or sale of any stock, bond, mutual fund, or any other financial instrument. The views and strategies discussed herein may not be appropriate and/or suitable for all investors. This material is meant solely for informational purposes, and is not intended to suffice as any type of accounting, legal, tax, or estate planning advice. Any and all forecasts mentioned are for illustrative purposes only and should not be interpreted as investment recommendations.