Market Share Newsletter Vol 1 Issue 5

Issue #5: October 18, 2019

October 18, 2019

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This time of year is often described as “earnings season”. Almost daily, many publicly traded companies announce their 3rd quarter earnings results and provide insights for the quarter and year ahead. There is a greater focus on forward statements, as earnings growth has slowed more than expected. It appears the uncertainty of trade continues to impact those forward-looking statements. Recent news of a short-term trade truce is unlikely to spur optimism as talks have been intermittent without a resolution to date.
 
The U.S. consumer continues to keep our economy growing. After a dip in confidence last month, October is seeing a nice boost. The economy is also entering a historically strong period, as seasonal hiring increases income in the short-term.
 
Thank you for taking time to review The Market Share, and as always, we appreciate the opportunity to work with you!
 
Paul Gifford, CFA
Chief Investment Officer
1st Source Corporation Investment Advisors, Inc.
GiffordP@1stsource.com
Erik Clapsaddle, CFA, CFP®
Senior Fixed Income Portfolio Manager
1st Source Corporation Investment Advisors, Inc.
ClapsaddleE@1stsource.com
Considerations for your portfolio

The Economy

  • There appears to be some movement on a trade agreement between the United States and China as part of a “phase one” deal. The major components are China purchasing significantly more agricultural products from the U.S. and the U.S. will in turn be expected to pull back the tariffs placed on Chinese goods.
  • Retail sales fell in September for the first time in seven months, dropping by 0.3% against an estimated increase of 0.3%. The negative result was tempered by August’s results being revised even higher to an increase of 0.6% from 0.4%.
  • The National Association of Homebuilders (NAHB) housing market index reached its highest level since February 2018. According to the NAHB Chairman, “The housing rebound that began in the spring continues, supported by low mortgage rates, solid job growth and a reduction in new home inventory.”
Economic Data: Recent
  Actual Survey Prior
ADP Employment Change
135k 140k 157k
Change in Nonfarm Payrolls 136k 145k 168k
NFIB Small Business Optimism 101.8 102.0 103.1
Univ. of Michigan Sentiment 113.4 109.0 108.5
Economic Data: Upcoming
    Survey Prior
Housing Starts   1,320k 1,364k
Durable Goods Orders   -0.8% 0.2%
FOMC Rate Decision 1.75-2% 1.75-2%
Personal Income   0.2%
0.4%
 
fixed income chart
 
 

Equities

  • JPMorgan Chase, the largest U.S. bank based on total assets, reported third quarter earnings per share that were well ahead of expectations—$2.68 against a $2.45 consensus. The biggest surprise was revenue increasing by 2%, though it was expected to decline by 1%. Other large banks such as Wells Fargo, Citi and Goldman Sachs, reported reasonably positive results, although not as notable as JPMorgan Chase.
  • The first major week for third quarter earnings results has been good. Through Thursday morning, 83% of S&P 500 companies beat expectations and most provided positive outlooks. Revenues within the banking sector have been a positive surprise, since prior to the results, the interest rate environment added a pessimistic backdrop.
  • General Motors and the United Auto Workers (UAW) reached a tentative deal after almost one month of the UAW striking, due to the belief that GM is not doing enough to protect UAW jobs. The deal still needs to be finalized, as both local union leaders and approximately 48,000 UAW members need to approve it.
Equity Index Values and Total Returns
  Value YTD 1-Year
S&P 500 2,989.7 21.18% 8.62%
Dow Jones Industrial Average 27,002.0 17.95% 7.62%
NASDAQ Composite 8,124.2 23.49% 7.52%
Russell 2000 (small-cap index) 1,525.1 14.32% -2.68%
MSCI EAFE (developed intl.) 1,916.3 15.08% 6.46%
MSCI Emerging Markets 482.9 8.40% 6.79%
Federal Reserve's Inflation Target

Fixed Income

  • Long-term interest rates have increased since the beginning of the month, as there has been positive movement in a trade agreement with China and the possibility of a Brexit deal has improved. The ten-year treasury yield increased by 21 basis points since October 4—a 14% increase in the yield.
  • The Federal Reserve announced on October 11 that they will begin to purchase U.S. treasury bills at a pace of approximately $60 billion per month. This will last until June 30, 2020, at a minimum. This is an effort to ease some of the potential stress in short-term rates.
  • A total of $434 billion in corporate bonds were sold in September. According to Dealogic, this is the largest amount sold on record, with the previous high being $429 billion in March 2017. Some of the largest issuers last month were JPMorgan Chase, Apple, PayPal and multiple foreign issuers tapping the U.S. bond market, as lower interest rates have moved borrowing forward.
Fixed Income Index Yields & Total Returns
  Yield YTD 1-Year
B’berg Barclays Inter Govt./Credit 1.92% 6.47% 8.54%
B’berg Barclays US Aggregate Bond 2.30% 8.32% 10.84%
B’berg Barclays US Corp.High Yield 5.65% 11.54% 7.20%
B’berg Barclays Municipal Bond 1.81% 6.99% 9.54%
Key Interest Rates
  10/14/19 12/31/18 10/18/14
Federal Funds Target Rate 1.75-2% 2.25-2.5% 0-0.25%
3-Month LIBOR 2.00% 2.81% 0.23%
2-Year U.S. Treasury Note 1.58% 2.49% 0.37%
10-Year U.S. Treasury Note 1.74% 2.68% 2.19%
Prime Rate 5.00% 5.50% 3.25%
 
DISCLOSURES
The information in this email was prepared from sources believed to be reliable; it is for informational purposes only and does not provide recommendations based on the investment objectives, financial situation, or needs of any individual or entity. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets. The information in this email is not a comprehensive statement of the matters discussed. Unless specifically indicated otherwise, this email is not an offer to sell or a solicitation of any investment products or other financial product or service or a confirmation of any transaction. If you have questions about the information in this email, please contact your trust administrator at 1st Source Bank Wealth Advisory Services or call 800 882-6935. Investment and Insurance products are:
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1st Source Corporation Investment Advisors, Inc. is a wholly owned subsidiary of 1st Source Bank.