December Monthly Economic Update

MONTHLY QUOTE

“The more I want to get something done, the   less I call it work.”
      

–   Richard Bach

MONTHLY TIP

There are four instances when using a credit   card may be preferable to using a debit card. One, when you buy something   online. Two, when you are in a rewards program. Three, when you pay for   lodging or fuel. Four, when any point of purchase appears sketchy.

MONTHLY RIDDLE

Which side of an   ocelot has the most fur?

Last month’s riddle:
  I occasionally run, but I   never walk. Everywhere I go, thoughts are close behind me. What am I?

Lastmonth’sanswer:

A nose.

December 2015

THE MONTH IN BRIEF
  While the Russell 2000 and Nasdaq Composite advanced   significantly in November, the S&P 500 did not – the broad U.S. benchmark   rose a mere 0.05%. Terrorists took hundreds of lives in France, Lebanon,   Nigeria, Mali and Tunisia during the month, and the fear in the wake of those   attacks was felt in the investment markets. Federal Reserve policy minutes   contained strong hints that the central bank could raise interest rates in   December, a signal investors accepted without disillusionment. Oil, gold and   many other major commodities retreated. Key consumer confidence, consumer   spending and manufacturing indicators disappointed, but reports on the job   market and real estate market offered better news.¹

DOMESTIC ECONOMIC HEALTH
  The   Federal Open Market Committee’s October policy minutes, released on November   18, noted that “most” FOMC members believed that conditions   for a rate hike “could well be met” by December. Another passage noted that   “it may well become appropriate to initiate the normalization process” at   that time. Tightening could be very gradual, the minutes elaborated, as Federal   Reserve officials felt that “economic conditions may, for some time, warrant   keeping the target federal funds rate below levels the Committee views as   normal in the longer run.”²

If   the Fed does raise rates in December, the upward move would come at a time of   decidedly mixed economic signals. Hiring was solid in October – the economy   added 271,000 new jobs, far more than the 182,000 economists   surveyed by Bloomberg projected. Annualized wage growth reached 2.5%, the   best since 2009. The headline jobless rate was at 5.0%, and the U-6 rate   (underemployed + unemployed) sank to 9.8%. Manufacturing, on the other   hand, was flagging: the Institute for Supply Management’s factory PMI fell to   48.6 in November, a recessionary reading that was the lowest seen since June   2009.^3,4

Consumer   confidence dipped as well in November. The Conference Board’s respected index   dropped nearly nine points to a mark of 90.4, its weakest showing since   September 2014. One key reason? Consumers polled thought there would be fewer   jobs available by spring 2016. The University of Michigan’s household   sentiment index finished November at 91.3; its preliminary reading had been   93.1.⁵

Consumer   spending and retail sales had each improved just 0.1% in October. Black   Friday weekend may or may not have been great this year, with ShopperTrak   reporting a drop of about 11% for brick-and-mortar store sales and Adobe   measuring an 18% year-over-year leap in online Thanksgiving and Black Friday   sales to a record level.^6,7

The   Bureau of Economic Analysis revised Q3 GDP up to 2.1% from its first estimate   of 1.5%, yet the prime reason for that increase was underestimation of   inventories. Hard goods orders rose 3.0% in October, buoyed by a 200% rise in   airplane orders. The gain was 0.5% with the transportation sector factored   out.⁵

Consumer   inflation was evident in October – the core Consumer Price Index rose 0.2%   for a second straight month. The core CPI had not posted such notable monthly   advances since April and May. The headline CPI rose 0.2% as well, its first   gain since July. That still meant it had advanced only 0.2% in a year. Core   CPI was up 1.9% in the 12 months ending in October.⁸

GLOBAL ECONOMIC HEALTH
  Did the world’s biggest economy cool off   further in November? By the looks of the official China factory PMI, the   answer seemed to be yes. It settled in contraction territory for a third   straight month at 49.6, the lowest mark since August 2012. The private-sector   Caixin manufacturing PMI stayed below 50 for a ninth consecutive month,   though it rose 0.3 points to a mark of 48.6. While China has set a 7.0% GDP   target for 2015 (its lowest growth target since 1990), its economy officially   expanded 6.9% in Q3.   An economic transition is occurring in the country: the service sector   accounted for 51.4% of its economy in Q1-Q3, as opposed to 49.1% during Q1-Q3   2014. Markit manufacturing PMIs in other Asia Pacific nations were mostly in   the 40s last month – 49.1 in South Korea, 49.5 in Taiwan, 47.0 in Malaysia,   46.9 in Indonesia, 49.4 in Vietnam. India was a notable exception at 50.3%.^9,10

Many   analysts assumed the European Central Bank would make a rate cut as December   started, or at least institute additional stimulus measures to try and boost   the euro area economy, which was projected to grow but 0.4% in Q4. The eurozone   unemployment rate ticked down to a 3-year low of 10.7% in October; Germany’s   jobless rate was just 4.5%. The Markit euro area manufacturing PMI reached   52.8 in November for its best reading since April 2014. Markit factory PMIs   were at 52.9 in Germany, 50.6 in France, 54.9 in Italy and 53.0 in Spain.¹¹  

WORLD MARKETS
  Asia Pacific indices were mixed in   November. The month saw losses of 1.92% for the Sensex, 2.84% for the Hang   Seng, 4.24% for the Asia Dow, 1.85% for the Kospi, 1.39% for the S&P/ASX   200, and 5.36% for the KSE 100 ... but the Nikkei 225 rose 3.48% and the   Shanghai Composite 1.86%. In the Americas, the Dow Jones Americas index was   basically flat (-0.08%) while the S&P/TSX Composite fell 0.44%, the   Bovespa 1.63%, and the IPC All-Share 2.52%. The MSCI World index retreated   0.67% in November; its sibling, the MSCI Emerging Markets index, had a much   deeper loss of 3.96%. November also saw the Global Dow decline 1.96%.^1,12  

While the Europe Dow slipped 2.86% last   month, other European indices performed better. The DAX advanced 4.90%, in   fact, and Ireland’s ISEQ rose 6.38%. Other gains and losses from around the   continent: IBEX 35, +0.25%; CAC 40, +1.22%; STOXX 600, +2.65%; RTS, +0.18%;   FTSE MIB, +1.23%; FTSE 100, -0.08%.¹

COMMODITIES MARKETS

In November, the U.S. Dollar Index   advanced 3.37%. Dollar strength and slow growth in emerging markets held many   futures in check. WTI crude lost 10.09% last month, winding up November at   $41.71 on the NYMEX. Unleaded gasoline descended 5.92%, natural gas 3.82%,   and heating oil 8.88%. Select ag futures did see values rise: sugar improved   2.61%, cotton 0.39% and cocoa 1.60%. Corn futures lost 5.89%, coffee futures   2.82%, soybean futures 1.02%; wheat slipped 10.90% for the month.^13,14

Gold lost 6.73% in November to conclude   the month at $1,065.00 on the COMEX. Silver went south as well, ending   November at $14.14 due to a 9.59% drop. Platinum and copper stumbled last   month: the former fell 15.97%, the latter 11.57%.¹⁴

REAL ESTATE
  Fall brought a surge in new home sales. They   improved 10.7% in October, recovering from a surprise September dip. The   Census Bureau also reported that the pace of new home buying was up 15.7%   YTD. Existing home sales, on the other hand, fell 3.4% in October, though the   National Association of Realtors did note an 0.2% gain for its pending home   sales index in the tenth month of the year after August and September   declines.^15,16

September saw a gain for the   S&P/Case-Shiller 20-city home price index, which was up 5.5% in a year   (compared to 5.1% in the August edition). NAR said the median existing home   sale price was $219,900 in October, representing an 0.9% monthly decline.^5,17

Housing starts and building permits went in   opposite directions in October. While permits increased 4.1%, starts fell   11.0% to a low unseen since March. Even with that descent, the annual pace of   housing starts stayed above the 1 million mark for a seventh consecutive   month. That had not happened since 2007.¹⁸

The prospect of a higher federal funds rate   sent mortgage rates upward last month. In the October 29 Freddie Mac Primary   Mortgage Market Survey, the interest rate averages were as follows: 30-year   FRM, 3.76%; 15-year FRM, 2.98%; 5/1-year ARM, 2.89%; 1-year ARM, 2.54%. In   the November 25 edition of the survey, the numbers were notably different:   30-year FRM, 3.95%; 15-year FRM, 3.18%; 5/1-year ARM, 3.01%; 1-year ARM,   2.59%.¹⁹

LOOKING BACK…LOOKING   FORWARD
  Rather   quietly, the Russell 2000 gained 3.12% last month. The small-cap benchmark   ended November at 1,198.11, improving to -0.55% YTD. The CBOE VIX ended November   at 16.13, rising 7.03% for the month yet still ending up -15.99% YTD. As for   the three major U.S. stock indices, the Nasdaq led the way in November with a   1.09% gain to 5,108.67. The Dow rose 0.32% to end November at a close of 17,719.92;   the S&P 500 settled at 2,080.41 after its 0.05% advance. Topping all U.S.   indices in November, the NYSE Arca Biotechnology index rose 7.69%.¹

  Sources: wsj.com, bigcharts.com,   treasury.gov – 11/30/15^1,20,21

Indices   are unmanaged, do not incur fees or expenses, and cannot be invested into   directly. These returns do not include dividends. 10-year TIPS real yield =   projected return at maturity given expected inflation.

This   month, investors have their eyes on two major news items   – the November jobs report arriving December 4 from the Labor Department, and   the Fed rate decision (and subsequent press conference) occurring on December   16. Many analysts think the Fed will make an upward move even if hiring   totals fall short of expectations (and even with other key economic indicators   flagging); annualized wage growth could influence the FOMC decision more than   payroll growth. Investors are also looking overseas, wondering whether OPEC   nations will vote to cut oil production this month and whether the ECB will   cut its benchmark interest rate or expand its stimulus effort this week.   December is often a hot month for stocks, and if OPEC and the ECB make the   decisive moves referenced above, a notable rally in oil or stocks could   commence. Strong hiring and any kind of pickup in consumer spending, retail   sales and consumer confidence would be welcomed and likely add momentum. So   investors cannot discount the possibility of a Santa Claus rally just yet,   even with the possibility of tightening on the horizon. So a subpar year for   U.S. equities may end encouragingly, and perhaps lead into a better 2016.²²

A   correction: in last month’s Update, it was noted that monthly Medicare Part B premiums   would rise 15% in 2016 for all Medicare recipients. They will actually   increase 16% for about 30% of Medicare recipients (to $121.80). The majority   of Medicare beneficiaries will continue to pay monthly Part B premiums of   $104.90 in 2016. The 5% of beneficiaries paying high-income surcharges will   see those surcharges rise 16% next year, in addition to a 16% base premium   increase.²³

UPCOMING   ECONOMIC RELEASES: The list of key December   news items includes the federal government’s November employment report   (12/4), October wholesale inventories (12/9), the preliminary December   University of Michigan household sentiment index, the November PPI, November   retail sales and October business inventories (12/11), the November CPI   (12/15), November housing starts, building permits and industrial output and   the Federal Reserve’s much-awaited interest rate decision (12/16), the   November Conference Board index of leading indicators (12/17), November   existing home sales and the last estimate of Q3 GDP (12/22), the University   of Michigan’s final December household sentiment index   and November durable goods orders, consumer spending and new home sales (12/23), the October S&P/Case-Shiller home price indexand   the Conference Board’s December consumer confidence index (12/29), and finally NAR’s November pending home sales index (12/30).

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«RepresentativeDisclosure»

This material was prepared by   MarketingPro, Inc., and does not necessarily represent the views of the   presenting party, nor their affiliates. This information has been derived   from sources believed to be accurate. MarketingPro, Inc. is not affiliated with any   broker or brokerage firm that may be providing this information to you. This   information should not be construed as investment, tax or legal advice and   may not be relied on for the purpose of avoiding any Federal tax penalty.   This is not a solicitation or recommendation to purchase or sell any   investment or insurance product or service, and should not be relied upon as   such. The Dow Jones Industrial Average is a price-weighted index of 30   actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged,   market-weighted index of all over-the-counter common stocks traded on the   National Association of Securities Dealers Automated Quotation System. The   Standard & Poor's 500 (S&P 500) is an unmanaged group of securities   considered to be representative of the stock market in general. It is not   possible to invest directly in an index. The Russell 2000 Index measures the   performance of the small-cap segment of the U.S. equity universe. The CBOE Volatility   Index® (VIX®) is a key measure of market expectations of near-term volatility   conveyed by S&P 500 stock index option prices. NYSE Group, Inc.   (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange   (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or   ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of   securities listing, trading and market data products and services. The New   York Mercantile Exchange, Inc. (NYMEX) is the world's largest physical   commodity futures exchange and the preeminent trading forum for energy and   precious metals, with trading conducted through two divisions – the NYMEX   Division, home to the energy, platinum, and palladium markets, and the COMEX   Division, on which all other metals trade. The BSE SENSEX (Bombay Stock   Exchange Sensitive Index), also-called the BSE 30 (BOMBAY STOCK EXCHANGE) or   simply the SENSEX, is a free-float market capitalization-weighted stock   market index of 30 well-established and financially sound companies listed on   the Bombay Stock Exchange (BSE). The Hang Seng Index is a freefloat-adjusted   market capitalization-weighted stock market index that is the main indicator   of the overall market performance in Hong Kong. The Asia Dow measures the   Asia equity markets by tracking 30 leading blue-chip companies in the region.   The Korea Composite Stock Price Index or KOSPI is the major stock market   index of South Korea, representing all common stocks traded on the Korea   Exchange. The S&P/ASX 200 index is a market-capitalization weighted and   float-adjusted stock market index of Australian stocks listed on the   Australian Securities Exchange from Standard & Poor’s.Karachi Stock Exchange 100   Index (KSE-100 Index) is a stock index acting as a benchmark to compare prices   on the Karachi Stock Exchange (KSE) over a period. Nikkei 225 (Ticker: ^N225)   is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei   average is the most watched index of Asian stocks. The SSE Composite Index is   an index of all stocks (A shares and B shares) that are traded at the   Shanghai Stock Exchange. The Dow Jones Americas Index measures the Latin   American equity markets by tracking 30 leading blue-chip companies in the   region. The S&P/TSX Composite Index is an index of the stock (equity)   prices of the largest companies on the Toronto Stock Exchange (TSX) as measured   by market capitalization. The Bovespa Index is a gross total return index   weighted by traded volume & is comprised of the most liquid stocks traded   on the Sao Paulo Stock Exchange. The Mexican IPC index (Indice de Precios y Cotizaciones)   is a major stock market index which tracks the performance of leading   companies listed on the Mexican Stock Exchange. The MSCI World Index is a   free-float weighted equity index that includes developed world markets, and   does not include emerging markets. The MSCI Emerging Markets Index is a   float-adjusted market capitalization index consisting of indices in more than   25 emerging economies. The Global Dow is a 150-stock index of corporations   from around the world created by Dow Jones & Company. The Europe Dow   measures the European equity markets by tracking 30 leading blue-chip   companies in the region. The DAX 30 is a Blue Chip stock market index   consisting of the 30 major German companies trading on the Frankfurt Stock   Exchange. The ISEQ Overall Index is a capitalization-weighted index of all   official list equities in the Irish Stock Exchange, excluding U.K.-registered   companies. The IBEX 35 is the benchmark stock market index of the Bolsa de   Madrid, Spain's principal stock exchange. The CAC-40 Index is a narrow-based,   modified capitalization-weighted index of 40 companies listed on the Paris   Bourse. The STOXX Europe 600 Index is derived from the STOXX Europe Total   Market Index (TMI) and is a subset of the STOXX Global 1800 Index. The RTS   Index (abbreviated: RTSI, Russian: Индекс РТС) is a free-float   capitalization-weighted index of 50 Russian stocks traded on the Moscow   Exchange. The FTSE MIB (Milano Italia Borsa) is the benchmark stock market   index for the Borsa Italiana, the Italian national stock exchange. The FTSE   100 Index is a share index of the 100 companies listed on the London Stock   Exchange with the highest market capitalization. The US Dollar Index measures   the performance of the U.S. dollar against a basket of six currencies.   Additional risks are associated with international investing, such as   currency fluctuations, political and economic instability and differences in   accounting standards. This material represents an assessment of the market   environment at a specific point in time and is not intended to be a forecast   of future events, or a guarantee of future results. Past performance is no   guarantee of future results.   Investments will fluctuate and when redeemed may be worth more or less   than when originally invested. All economic and performance data is   historical and not indicative of future results. Market indices discussed are   unmanaged. Investors cannot invest in unmanaged indices. The publisher is not   engaged in rendering legal, accounting or other professional services. If   assistance is needed, the reader is advised to engage the services of a   competent professional.

Citations.

1 - wsj.com/mdc/public/page/2_3023-monthly_gblstkidx.html   [11/30/15]

2 - foxbusiness.com/economy-policy/2015/11/18/federal-reserve-minutes/   [11/18/15]

3 - usatoday.com/story/money/2015/11/06/october-jobs-report/75247628/   [11/6/15]

4 - marketwatch.com/story/ism-manufacturing-index-drops-to-lowest-level-since-mid-2009-2015-12-01   [12/1/15]

5 - quickenloans.com/blog/a-pre-thanksgiving-feast-of-economic-data-market-update   [11/30/15]

6 - foxnews.com/us/2015/11/25/consumer-spending-weak-for-second-month-rising-01-percent-incomes-post-strong/   [11/25/15]

7 - northjersey.com/news/preliminary-figures-show-black-friday-weekend-store-sales-down-online-spending-up-1.1464472   [11/29/15]

8 - chicagotribune.com/news/sns-wp-blm-prices-6be9a58c-8d36-11e5-934c-a369c80822c2-20151117-story.html   [11/17/15]

9 - tinyurl.com/onok4pd [12/1/15]

10 - blogs.barrons.com/asiastocks/2015/12/01/asias-november-manufacturing-pmis-disappoint/   [12/1/15]

11 - euroinsight.mni-news.com/posts/eurozone-data-wrap-unemployment-dips-manufacturing-pmis-hold-at-highs-2915   [12/1/15]

12 -   msci.com/end-of-day-data-search [11/30/15]

13 - marketwatch.com/investing/index/dxy/historical   [11/30/15]

14 - money.cnn.com/data/commodities/ [11/30/15]

15 - eyeonhousing.org/ [12/1/15]

16 - cnbc.com/2015/11/30/pending-home-sales-up-just-02-in-october.html   [11/30/15]

17 - tradingeconomics.com/united-states/case-shiller-home-price-index   [12/1/15]

18 - dailyfinance.com/2015/11/18/housing-starts-fall-october-permits-rise/   [11/18/15]

19 - freddiemac.com/pmms/archive.html [12/1/15]

20 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=12%2F1%2F14&x=0&y=0   [11/30/15]

20 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=12%2F1%2F14&x=0&y=0   [11/30/15]

20 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=12%2F1%2F14&x=0&y=0   [11/30/15]

20 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F30%2F10&x=0&y=0   [11/30/15]

20 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F30%2F10&x=0&y=0   [11/30/15]

20 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F30%2F10&x=0&y=0   [11/30/15]

20 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F30%2F05&x=0&y=0   [11/30/15]

20 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F30%2F05&x=0&y=0   [11/30/15]

20 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F30%2F05&x=0&y=0   [11/30/15]       

21 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll   [12/1/15]

22 - money.cnn.com/2015/11/30/investing/december-market-movers/   [11/30/15]

23 -   forbes.com/sites/ashleaebeling/2015/11/16/its-official-medicare-part-b-premiums-will-rise-16-in-2016-for-some-seniors/   [11/16/15]