Equities rebounded from last week’s sell-off and finished this week substantially higher amid a more dovish speech from Federal Reserve Chairman, Jerome Powell. Interest rates fell with the 10-year treasury yield dropping a moderate 4 basis points to 3.01%. The spread between the 10-year treasury yield and the 2-year treasury narrowed by 5 basis points to 0.22%. The price of gold rose a marginal 0.35% to $1,227.80 an ounce while the price of oil dropped 1.30% to $50.72 a barrel. The U.S. dollar index was little changed from last week, rising from 96.60 to 97.20.
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THIS WEEK’S ECONOMIC HIGHLIGHTS
- Third quarter GDP came in as expected and very strong at a 3.5% annualized growth rate. The strong growth was supported by tax-cuts which fortified strong growth in consumer spending and business investment.
- The U.S. trade deficit in goods widened more than expected in October, increasing from $76.3 billion to $77.2 billion. Exports dropped 0.6% to $140.5 billion while imports rose 0.1% to $217.8 billion. Year-over-year exports in goods are still up 7.8%, however imports are up a larger 10.0%.
- New home sales continue to fall, dropping 9,000 in October to an annualized rate of 544,000. Despite the drop in sales, the supply of new homes rose to 336,000 units, which generally supports sales. Prices of new homes also fell, with the median price dropping 3.6% to $309,700.
- Federal Reserve Chairman Jerome Powell delivered a speech on economic growth and interest rates. His speech was interpreted as more dovish as he mentioned that the current Federal Funds Rate (2.125%) is “just below” its natural range. In reference to excessive leverage in the financial system, he also noted that he sees “no dangerous excesses” in the stock market.
- Unemployment claims seem to have reversed its downward trend as initial claims rose 10,000 to 234,000 for the week ending November 24th, with its 4-week average up a considerable 4,750 to 223,250. Continuing unemployment claims rose 50,000 with its 4-week average up 20,000 to 1.67 million.
- Personal income rose 0.5% in October while consumer spending rose a more sizable 0.6%. Personal Consumption Expenditures (PCE) rose a sustainable 0.2% for a year-over-year change of 2.0%. However, core PCE, which excludes the more volatile food and energy components, only rose 0.1% for a year-over-year change of 1.8%.
QUOTE OF THE WEEK
“Real risk lies in how we respond to the ups and downs in the market. Just because an investor doesn’t like the ups and downs of the stock market doesn’t mean that she can afford to skip the ride if she wants to meet her goals.”
– Ben Johnson
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