November 8, 2019
The good times kept on rolling for the Dow Jones Industrial Average, which managed to post four, new record highs this week. The positive sentiment was driven by trade developments that suggest the U.S. and China are inching closer to a Phase 1 trade agreement on improving rhetoric between the parties signaling a thawing in tensions more generally. Investors got a second dose of encouraging trade news as the U.S. reported a smaller than expected trade deficit this week. On the economic data front, an increase in the Institute for Supply Management (ISM) Services Index bolstered investor confidence that the slowdown observed in the manufacturing sector has been contained and is not beginning to spillover to the service sector. Overall, the week’s events were innocuous, allowing the Dow Jones Industrial Average to tack on an additional 1.22%.
Markets breathed a sigh of relief as the ISM Non-Manufacturing Index rebounded to 54.7 in October, up from 52.6 in September. Readings above 50 indicate expansion, while readings below 50 indicate contraction. Sales, new orders, and employment all rose from the previous month. The report measures the percentage of companies from the services sector that are expected to expand their business and the metric is widely considered to be a good indicator of the overall health of the economy. With the service sector accounting for more than two-thirds of U.S economic activity, the uptick in the month over month report suggests the economy has regained some thrust as we approach year end.
Narrowing the Gap
The Bureau of Economic Analysis reported the U.S. trade deficit narrowed to $52.5 billion in September, down 4.70% from the previous month. The narrower gap was driven by a decline in imports and the fact that the U.S. oil industry posted its first net surplus since 1978, owed to the technological advances driving U.S. shale productivity. Traders were also encouraged by the narrowing of the U.S.-China trade deficit. Tariffs on Chinese goods helped drive the trade deficit with China down 3.10% to $28 billion. Through the first nine months of the year, the U.S. trade gap in goods with China has fallen 13.40% compared to the same period last year, even though the U.S.’ overall trade deficit globally has increased 5.4% year over year.
Investors are in a cup half-full mood these days. During late summer, investors watched some key economic metrics flatten or inflect, worrying markets that we were on the front edge of a slowdown or recession. Since then, the general economic trend has been stable or slightly improving, resulting in investors becoming a fairly optimistic bunch these days. With the Fed having moved squarely to the dovish camp last week, a trade deal with China now becomes the key hurdle to keeping the good times rolling as we look towards year-end.
The Week Ahead
We’ll check in with consumers as retail sales are released for the month of October. Also on tap are the latest figures on consumer and producer prices.
Five Tips for Financial Preparedness
It’s been almost three weeks since a severe storm hit Dallas, leaving a trail of damaged and destroyed homes and businesses along its 15-mile path. It may not occur to most people to prepare for the possibility of an event like the nine tornadoes that tore through Dallas or the wildfires burning in California, however, the aftermath of any type of natural disaster can be financially devastating.
Our advisors recommend five things you need to do to help you and your family be prepared and protected in the event of a natural catastrophe such as tornado, hurricane, fire, earthquake, ice storm, or other event.
1. Have an emergency fund: If you have damage to your house, your car, or other property, or if power outages or impassable roads make it impossible for you to get to work, you will need something to live on while you are waiting for your insurance. Make sure you have a robust emergency fund. You can keep your emergency fund in a bank account, and it’s also recommended to keep cash in a safe place at home. In serious weather events, many areas may be without power for days, including banks and ATMs, and credit cards will not work so you will want to have cash on hand in small bills to cover groceries, gas, and other needs.
2. Keep good records: Making a list of every item of value in your home can be an exhausting and daunting task. However, recording a video of your home on your smartphone or other device can be relatively quick. As you record your belongings, narrate your video by stating details about each item, including price, brand, and date of purchase. Some people rent a safe deposit box at a bank while others prefer to keep things at home in a fire-resistant safe. If you live in a flood-prone area, you may want to invest in something that is waterproof as well as fire-resistant.
3. Take advantage of direct deposit and automatic bill pay: Following a natural disaster, it may be difficult to remember to pay the mortgage and utility bills while you are working on cleaning up and repairing and rebuilding. Automatic banking transactions can help ensure you stay on top of household bills and avoid late fees.
4. Check your insurance: Homeowners insurance doesn’t necessarily cover everything Mother Nature could conjure up, and many homeowners may not know what their policy covers. Advisors recommend going through your policy very carefully to make sure you have adequate coverage. One of the most common claims that is not covered by many policies is flood insurance, so you should speak with your insurance agent to determine if your policy might need to be revised.
5. Make an emergency plan: The American Red Cross advises families to discuss how to prepare and respond to the types of emergencies that are most likely to happen where you live. A three-page disaster preparedness planning template is available on their website here. Additionally, the Federal Emergency Management Agency and the Department of Homeland Security offer a number of resources to aid with disaster preparedness, including the Emergency Financial First Aid Kit and guidance for supplies to be included in a survival kit.