Although new data continued to show strength in the U.S. economy, markets stumbled across the globe last week. The S&P 500 lost 0.98%; the Dow dropped 0.04%; and the NASDAQ declined 3.21%.International stocks in the MSCI EAFE struggled, posting a 2.35% loss.
While U.S. and international stocks followed similar paths last week, data is beginning to show that our economic outlooks may be very different for the moment.
U.S. Strength in a Growing International Divide
The latest labor report helped underscore some of the differences between the U.S. economy and the rest of the world. While the data missed the mark for new jobs added, September marked the 96th-straight month of job growth -- and the lowest unemployment level since 1969. The report pushed interest rates higher, which contributed to last week's equity losses.
However, when describing our economy, Federal Reserve Chair Jerome Powell said it is experiencing "a particularly bright moment."
Global Growth Adjustments
At the same time, the International Monetary Fund (IMF) indicated that it would decrease its global economic growth predictions. The IMF hasn't downgraded its forecasts since 2016. Currently, more risks are beginning to emerge, from trade tension to political challenges in Europe. In particular, the rise in oil prices, the U.S dollar, and interest rates are hurting emerging economies.
HSBC mirrored this divide, cutting its global economic outlook while upgrading U.S. numbers.
A Look Ahead While Looking Back
As the labor market tightens, inflation could rise, bringing even more interest rate hikes from the Federal Reserve. While rising rates bring their own set of risks, they are ultimately a sign that the economy is growing. On the other hand, when the Fed lowers rates, they do so because the economy is slowing.
This week, we mark the 11th anniversary of the markets hitting their highest pre-recession point on October 9, 2007. At that time, hopes that the Fed would lower rates again contributed to the new record highs. In the ensuing months, the Dow lost more than half its value as the Great Recession began.
While markets were down last week, they were still far ahead of their highs from 2007. The Dow closed at 14,164.43 on October 9, 2007, and ended at 26,447.05 on October 5, 2018.
Investors have experienced quite a ride in the past 11 years, but the market's long-term growth is undeniable. Risks are here, as they always are, but we are here to help you understand and navigate those risks, no matter what the markets bring.
Monday: U.S. Holiday: Columbus Day
Thursday: CPI, Jobless Claims
Friday: Import and Export Prices, Consumer Sentimen
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Diversification does not guarantee profit nor is it guaranteed to protect assets.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia, and Southeast Asia.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
The Federal Reserve System (also known as the Federal Reserve and, informally, as the Fed) is the central banking system of the United States. The Federal Reserve System is composed of 12 regional Reserve banks which supervise state member banks. The Federal Reserve System controls the Federal Funds Rate (aka Fed Funds Rate), an important benchmark in financial markets used to influence the supply of money in the U.S. economy.
A recession is a significant decline in activity across the economy, lasting longer than a few months. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP); although the National Bureau of Economic Research (NBER) does not necessarily need to see this occur to call a recession.
HSBC Holdings Plc is a British multinational banking and financial services holding company. The bank is considered one of the largest in the United Kingdom and was established in Hong Kong by Thomas Sutherland.HSBC was originally called The Hong Kong and Shanghai Banking Corporation, which was originally established to assist with financial needs related to trading between Europe and China.
The International Monetary Fund (IMF) is an international organization headquartered in Washington, D.C., of 189 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. It plays a central role in the management of balance of payments difficulties and international financial crises. Countries contribute funds to a pool through a quota system from which countries experiencing balance of payments problems can borrow money. As of 2016, the fund had about $668 billion.
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