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.