Spending Up While Inflation Slows

U.S. consumer spending increased by the most in seven months in October, the Commerce Department said yesterday. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 0.6 percent last month. The biggest drivers were prescription medication and utilities.

When adjusted for inflation, consumer spending advanced just 0.4 percent. But the inflation-adjusted number is also the biggest gain for that figure in seven months.

Indeed, there was a slowdown in price gains last month. The personal consumption expenditures (PCE) price index, which excludes the volatile food and energy components, inched up 0.1 percent after increasing 0.2 percent in September. That lowered the year-on-year increase in the core PCE price index to 1.8 percent, the lowest reading since February.

Less Than Charitable in the Garden State

There are wealthy people  in every state in the U.S., but in some states, the rich tend to be less inclined to charitable giving than in others, according to a new report by Business Insider. And New Jersey is one of the stingier ones.

The average person making upward of $500,000 in the U.S. donated about $74,000 in 2016 (the most recent date for which data are available). But New Jersey’s average annual charitable contribution is just $37,368, which ranks us 48th in the nation. On the other hand, 95 percent of those making more than $500,000 per year make some sort of charitable contribution.

The worst states: Alaska, at $36,124, and West Virginia, at $31,313. The most generous state? Wyoming, surprisingly enough, where the average annual contribution by households earning $500,000 – which, to be fair, is a very small number in Wyoming – landed at $223,438.

A Split in Charitable Giving

Overall, the average American household is giving far less to charity than it did a decade ago, but not everyone has fallen into this pattern. Over the past 10 years, charitable giving deductions from lower-income donors have declined significantly, at almost the same rate that charitable giving from higher income donors have increased.

In the early 2000s, households earning $200,000 or more made up only 30 percent of all charitable deductions, but by 2017, this group accounted for 52 percent. And the percent of charitable deductions from households making over $1 million grew from 12 percent in 1995 to 30 percent in 2015.

Meanwhile, the number of donors giving at typical donation levels has been steadily declining. Low-dollar and mid-level donors have declined by about 2 percent each year for more than 15 years.

Entrepreneurs Still Like Stocks

The world’s most successful entrepreneurs now invest 20.2 percent of their total wealth in equities, according to the fifth BNP Paribas global entrepreneur report. For the first time in the study’s history, U.S. entrepreneurs’ top asset allocation choice was equities, outweighing their investments in fixed income, cash or even their own businesses.

The exception is ultra-high-net-worth entrepreneurs, whose heaviest weighting remains their own businesses. The survey results were divided among high-net-worth (investable assets between $10 million and $25 million) and ultra-high-net-worth (investable assets of $25 million or more) investors who owned businesses.

Fifty-five percent of the entrepreneurs in the study have invested in technology companies, usually directly or through mutual funds. The appetite for tech is most voracious in Belgium, India and Singapore, where 79 percent, 74 percent and 70 percent of investors, respectively, invest in the sector, compared with just 59 percent in the U.S.

A Turkey Day Spent Online

While everyone had their eyes on Black Friday, holiday shoppers jumped the gun, setting records for online shopping on Thanksgiving Day. Last Thursday, online spending reached $3.7 billion, up 28 percent from last year, according to Adobe Analytics data.

Smartphones drove a record 54.4 percent of traffic on Thanksgiving, Adobe said, capturing a 36.7 percent share of revenue. The share of Thanksgiving traffic from desktops fell to 36.5 percent from 44.3 percent last year. And tablets generated just 9.1 percent of traffic, versus 9.6 percent in 2017.

According to Target Corp., shoppers ordered more than double on the retailer’s app than they did last year. The most popular items that consumers were buying: televisions, Apple watches, Legos and board games.

What Not to Buy Today

If you're shopping today, here are some ideas of products to stay away from, courtesy of the website MarketWatch. There are a lot of sale items available today, but these aren't them:

Bedding
The lowest prices on bedding and linens have been known to appear in January during what are called “white sales,” so hold off until then if you can. Discounts at this time can hit 70 percent.

Winter clothes
Fall and winter clothing generally isn’t the best value on Black Friday. Jeans, for instance, see big sales in October, and retailers frequently offer big clearance sales on jackets when winter gives way to spring.

Toys
Toys are one of the seasonal purchase staples, but historically, it’s best to wait until closer to Christmas to purchase them. In past years, select toys have been on sale for as much as 50 percent off in the final days before Christmas.

Christmas decorations
You’ll see plenty of deals on artificial trees and rolls of wrapping paper on Black Friday — especially at home and craft stores — but retailers are particularly eager to slash prices closer to December 25.

Thoughts for Thanksgiving Day

"Appreciation can change a day, even change a life. Your willingness to put it into words is all that is necessary." ~ Margaret Cousins

“The more we express thanks, the more gratitude we feel. The more gratitude we feel, the more we express thanks. It’s circular, and it leads to a happier life.” ~ Steve Goodier

“Reflect upon your present blessings, of which every man has plenty; not on your past misfortunes, of which all men have some.” ~ Charles Dickens

Rough Start to Q4

Roughly halfway through the fourth quarter, the S&P 500 has already fallen 9.08 percent. That makes this the sixth-worst start to the fourth quarter in the history of the S&P 500. 

The only worse fourth quarter through 37 trading days came during some of the worst years for the market overall: 1929, the 1930s, 1973, 1987, and 2008. If you look at all the fourth quarters that were down between 8 percent and 12 percent, like this year, the S&P actually declined for the remainder of those four years.

In case you don’t remember, at this point in the fourth quarter of 2008, the S&P was already down 35.5 percent.  The S&P ended up rallying 20 percent for the remainder of that year - before plummeting to new lows again in the first quarter of 2009.

Good News, Bad News on Earnings

Earnings for S&P 500 companies grew by a robust 25.8 percent in the third quarter. That was the strongest performance for this figure since the third quarter of 2010, when companies benefited from very attractive, recession-era comparable earnings.

Nevertheless, all the major indexes have been falling. From the start of earnings season to the end of last week, the S&P 500 index  has fallen 2.7 percent, the Dow Jones Industrial Average 1.1 percent, and the Nasdaq Composite Index 5.5 percent.

Illustrating this trend is Apple, which announced that it was going to cease reporting the number of iPhones and other products it sells. As a result of that, rather than the earnings statement itself, Apple shares are off 11.6 percent since the end of October.

A Little More Room for Retirement Savings

There's some good news for retirement savers: The Internal Revenue Service has announced increased limits for many retirement plans. Although most of them are simply cost-of-living adjustments, they will allow us to put away a little more money for retirement next year.

Some of the new limits:

• Those contributing to 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan will be able to boost their contribution from $18,500 to $19,000.
• IRA contributions, which haven't been raised since 2013, will now be $6,000, up from $5,500. 
• Catch-up contributions for workers age 50 and over remain the same at $1,000.

Black Friday Preview

Black Friday is a week from today. About 38 percent of American consumers plan to shop on Black Friday this year, and six in 10 of those shoppers anticipate making at least half of their holiday purchases on that day, according to a new Reuters/Ipsos poll.

Fifty-nine percent of the people who plan to shop Black Friday deals intend to finish at least half of their holiday shopping that day. The poll showed 37 percent of consumers intend to do their shopping primarily or totally online, while 16 percent expect to shop primarily in a physical store.

American consumers are less interested in buying clothing, jewelry, electronics, toys and gift cards this year compared to years past, the survey found, but they are eager to spend more on food. By 2022, online grocery shopping could be a $100 billion industry, and as many as 70 percent of consumers could be doing a portion of their food shopping online.

The Natural Gas Bounce

Oil prices finally finished higher on Wednesday, with U.S. benchmark crude putting an end to its record 12-session streak of declines. But the real story was in natural gas, which settled at its highest price since February 2014.

Natural-gas futures saw a spectacular climb of about 18 percent on the day—their biggest gain in more than 14 years. The rise was fueled by cold weather forecasts that continued to feed concerns about tight U.S. supplies.

December natural gas  jumped 73.6 cents, or about 18 percent, higher to $4.837 per million British thermal units. That was the largest one-day percentage gain since September 29, 2004, and the largest gain in dollar terms since January 30, 2007. Wednesday’s rally also took natural gas futures to their highest settlement since February 26, 2014.

How Prepared Is the Middle Class?

Middle-class Americans’ own assessment of financial security suggests they may be too optimistic, according to a new survey from CUNA Mutual Group. It found that many middle-class people  have a disconnect between their aspirations and their resources.

The survey finds that Americans with an annual income of $35,000 to $100,000 tend to feel positive about their prospects for upward mobility. Some 62 percent say they feel somewhat or very confident about their personal financial situation, and nearly half (46 percent) believe it is very unlikely that they will miss a loan payment over the next one to two years.

However, the survey finds that this cautious optimism belies a more troubling financial picture. More than half of the respondents were ill-equipped for a serious financial emergency, with 23 percent saying they have no emergency savings and 30 percent saying they only have one to three months’ worth.

Blowout in Oil & Gas

More than 90 percent of S&P 500 companies have now reported results for this earnings season, and the numbers look good. S&P Global Market Intelligence expects S&P 500 companies to report a 24.7 percent increase in earnings per share from a year earlier.

A little deeper inside those numbers, the biggest story in sales came from the energy sector. The top six S&P 500 companies in quarterly sales growth were all oil & gas companies. They include:

1. Pioneer Natural Resources, up 92 percent
2. Concho Resources, up 90 percent
3. EQT Corp., up 86 percent
4. EOG Resources, up 78 percent
5. Occidental Petroleum, up 73 percent
6. Newfield Exploration, up 62 percent

Worries Over Wages

In a strong quarter for earnings results, climbing labor costs have become a growing future concern, with more than a dozen companies in the S&P 500 mentioning them in conference calls so far this earnings season. That is up from just a handful of companies that noted these concerns over a similar period in the year-ago quarter.

In the recent U.S. jobs report for October, wages recorded their largest annual gain in nine and a half years. The Employment Cost Index, the broadest measure of labor costs, increased 0.8 percent in the third quarter after a 0.6 percent rise in the second quarter, putting the year-on-year rate of increase at 2.8 percent.

These wage pressures are widely expected to be a factor in declining earnings growth in 2019. Earnings growth for S&P 500 companies has been forecast to slow to about 9 percent next year following 2018’s tax-fueled earnings gains, estimated at 24 percent, according to IBES data.

Oil in Bear Territory

The news just gets worse for oil, or better for consumers, depending on how you want to look at it. The five-week rout for oil prices officially turned into a bear market yesterday, ending the longest bull run in oil since 2015.

West Texas Intermediate crude for December delivery fell $1, or 1.7 percent, to settle at $60.67 a barrel, marking its ninth straight losing session. That's the lowest close for U.S. oil since March. That left the U.S. oil benchmark down 21 percent from its October 3 peak, exceeding the widely applied definition of a bear market.

WTI is still clinging to a gain for the year, up 0.5 percent so far in 2018. Brent crude, the international benchmark, is still up 6.1 percent. Thursday’s close means that the bull market peaked on October 3, ending a 324-day run that began on June 21, 2017.

Retirement Savings Hit a New High

Americans are saving more for retirement than ever before, according to a new report from Fidelity Investments. At the end of the third quarter of 2018, average retirement account balances reached record highs in all categories. Those September 30 average balances were:

• $106,500 in 401(k) plans, up 2.4 percent from the second quarter
• $111,000 for individual retirement accounts, up 3.8 percent
• $85,500 for 403(b) plans, up 2.5 percent

Those averages are nearly double from where savers were a decade ago, at the start of the financial crisis. The average employee contribution reached its highest level since late 2006, at 8.7 percent, and average rates among women hit a record of 8.5 percent.

The Iran Sanctions and Oil Prices

Last month, the threat of U.S. sanctions on Iran drove oil prices to multiyear highs. Those sanctions kicked in on Monday - but oil prices have stopped climbing. In fact, they've fallen.

At the start of last month, as oil shipments from Iran declined, Brent crude prices, the international benchmark, breached the $86-a-barrel threshold for the first time in four years. West Texas Intermediate, the U.S. gauge, hit around $76 a barrel, also near a four-year high.

Those increases, though, seem to be the extent of the effects that the sanctions will have on oil prices.  Since early October, Brent has fallen almost 16 percent, and WTI 17 percent. The sanctions, now being imposed, are unlikely to have more effects than that.

Election Day Notes

No matter what your political disposition, you may be a little nervous about today's elections, but you shouldn't be nervous about how it will affect the markets. Since 1946, there have been 18 midterm elections. Stocks were higher 12 months after every single one.

Since 1946, stocks have risen an average of 17 percent in the year after a midterm. If you measure from the yearly midterm lows, the results are even better. From their lows, stocks jumped an average of 32 percent over the next 12 months. That’s more than double the average performance for stocks in all years.

One more political note: The second year of the presidential cycle, which is the year we're in right now, is typically the worst for stocks. The performance of stocks in the third year of a presidential term beats all other years by a long shot, returning an average of nearly 14 percent between 1928 and 2016.

Buybacks Lose Their Impact

In the period before earnings releases, public companies face greater restrictions to buying back their own shares, known as a “buyback blackout period.” By the end of last week, about three quarters of S&P 500 companies have reported earnings, according to FactSet. So the buyback announcements have now begun, with companies ranging from Estée Lauder Companies to Intercontinental Exchange announcing purchases of their own shares.

But these repurchases are not likely to power the stock market beyond its recent peaks. Companies in the S&P 500 index are on track to buy back 30 percent less in stock than they did in the second quarter.

And investors are no longer rewarding companies that buy back their own stock. Since the Federal Reserve began raising rates in December 16, 2015, the Invesco Buyback Achievers fund has gained 28 percent, compared with a 33 percent gain for the S&P 500 index over the same period. In other words, a fund that purchases shares of companies that have consistently bought back their shares hasn’t outperformed the S&P 500.

October's Jobs Report

October was another strong month for the job market, with the American economy adding 250,000 new jobs. That follows an average monthly gain of 211,000 over the prior 12 months. The unemployment rate stayed at 3.7 percent, the lowest since December 1969,  even though there was a slight rise in the labor force participation rate to 62.9 percent.

The biggest story may be wage growth, which has been the missing piece of the economic recovery. Average hourly earnings increased by 5 cents an hour for the month and 83 cents year over year, representing a 3.1 percent gain. The annual increase in wages was the strongest since 2009.

The big month for job gains comes off a disappointing September that may have been weighed down by the violent hurricanes in the Carolinas. That month's reading fell further, from an initially reported 134,000 to 118,000. However, that decline was  offset by an upward revision to August's numbers, from an already strong 270,000 to 286,000.

Black October

October was a rough ride for U.S. stocks, which ended as one of the market's worst months since the financial crisis.The S&P 500 lost 6.9 percent in October, its biggest one-month slide since September 2011, when it fell 7.2 percent. The Nasdaq plunged 9.2 percent, its largest monthly pullback since November 2008, when it lost 10.8 percent.

The S&P 500 lost $1.91 trillion in value for the month, with widespread losses almost across the board. Consumer staples and utilities were the only major S&P 500 sectors in the black in October.

Big technology stocks, including the FAANG group, were among the hardest hit. Amazon ended the month down 20.2 percent, and Netflix ended down 19.3 percent. Facebook and Alphabet finished October down 7.7 percent and 9.7 percent, respectively.