All investors are consumers, but not all consumers are investors.
The September installment of University of Michigan’s Consumer Sentiment Survey reported Americans are feeling pretty optimistic. Consumer sentiment rose to the second highest level since 2004, and consumer expectations reached the highest level since 2004. Surveys of Consumers chief economist, Richard Curtin, wrote:
“Consumers anticipated continued growth in the economy that would produce more jobs and an even lower unemployment rate during the year ahead…The largest problem cited on the economic horizon involved the anticipated negative impact from tariffs. Concerns about the negative impact of tariffs on the domestic economy were spontaneously mentioned by nearly one-third of all consumers in the past three months, up from one-in-five in the prior four months.”
Investors weren’t as optimistic, according to the American Association of Individual Investors (AAII). Last week, the AAII Investor Sentiment Survey reported bullish sentiment dropped more than 10 percentage points. The results were:
- Bullish 1 percent of respondents (historic average: 38.5 percent)
- Neutral 1 percent of respondents (historic average: 31.0 percent)
- Bearish 8 percent of respondents (historic average: 30.5 percent)
Despite the apparent shift in investor attitudes, stock markets moved higher last week. Vito J. Racanelli of Barron’s wrote:
“The stock market radiated confidence this past week, finishing about 1 percent higher despite choppy action. There was a plethora of good economic news – from lower-than-expected inflation to sky-high business and consumer confidence numbers – that drove shares up. Not even a ratcheting up of tough tariff talk Friday on the part of the U.S. could dampen investor enthusiasm for long.”
Some believe the AAII Sentiment Survey is a contrarian indicator. Last week, that may have been the case. Markets put in a strong performance last week as U.S. inflation came in below expectations, trade concerns temporarily abated, and technology stocks rallied. The S&P 500 climbed 1.2 percent. Global stocks rallied as Japanese stocks rose sharply, pushing the MSCI ACWI to a 1.3 percent gain. The Bloomberg BarCap Aggregate Bond Index dropped 0.1 percent.
The most important data release last week was the U.S. Consumer Price Index (CPI). U.S. inflation reports remain a central source of information for our understanding of the market. Inflation data affects how quickly the Federal Reserve raises rates and provides insight into whether the economy is growing faster than its long-term capacity. Inflation reports also indicate whether tariffs are spurring price increases and pushing prices higher.
August’s CPI showed inflation concerns remain moderate. The CPI increased 0.2 percent, while core CPI, which excludes food and energy, increased by only 0.1 percent. The year-over-year CPI increase came in at 2.7 percent, much lower than last month’s 3 percent-plus increase. All metrics came in under economists’ expectations, showing a moderation in prices.
Tariffs had many people thinking inflation would continue to climb higher and pressure the Fed to increase rates more rapidly. This report may ease their concerns as tariffs have yet to make any real impact on the broader U.S. economy. However, the Fed is still expected to raise rates next week. The solid economic growth continues to give the governors opportunities to gradually increase rates.
Key points for the week
- Stocks edged higher on positive inflation and trade news.
- Consumer inflation rose 2.7 percent, which was below expectations.
- The Federal Reserve is expected to raise rates next week.
What are we reading?
Below are some articles we paid particularly close attention to this week. We encourage our readers to follow the links.
Next month, the Social Security Administration will announce the cost of living adjustment (COLA) for 2019 benefits. Based on the inflation data year-to-date, estimates are for an increase of 2.8%. the COLA for 2018 was 2%, so a slightly higher increase is expected for 2019.
Microsoft plans to release an October 2018 update to their Windows 10 operating system. The most high-profile feature being moved is the snipping tool. However, the tool is not going away completely, but will be a part of the new sketch and snip application.
The Kepler Space Telescope has been the primary satellite since 2009 charged with scanning the sky for planets. A new telescope, TESS, is beginning to take over this role as the older Kepler telescope ages. TES is looking for planets within 30 and 300 lights year away.
All men in South Korea are required to complete at least 22 months of military service before the age of 28. This is dependent upon passing a physical exam; if one fails, he is exempt from service or must complete alternative work. Twelve student singers decided to take their fate into their own hands by binge eating pizza and hamburgers five times a day in an effort to fatten up and fail the physical exam. They were hoping for community service, so they would still have time to sing – for their dinner, presumably – after work.
The Merriam Webster Dictionary added some new words during 2018. A favorite among fans of dictionaries is ‘wordie,’ which means ‘word lover’ and should not be confused with ‘wordy,’ which describes something with too many words. Dictionary newcomer ‘TL;DR’ (the new word that means ‘too long; didn’t read’) could be used to describe a reader’s response to something that’s wordy.
A few of the new additions are descriptions of dog breeds, including:
- Chiweenie: a cross between a Chihuahua and a dachshund
- Schnoodle: a cross between a schnauzer and a poodle
- Yorkie-poo: a cross between a Yorkshire terrier and a poodle
A number of ‘wanderworts’ – words that have wandered from one language into another – also made the list. These include:
- Harissa: spicy North African chili paste
- Kabocha: a type of Japanese pumpkin
- Kombucha: a fermented, bubbly tea drink
Many of the new entries are abbreviated versions of longer words that have been part of our vocabulary for a long time. This may be the inevitable outcome in a society that adapts to the communication shorthand demanded by text, photo, and social media apps. See if you can guess the longer version of these new words:
“Language is the road map of a culture. It tells you where its people come from and where they are going.”
~ Rita Mae Brown, American author
“To be a great champion you must believe you are the best. If you're not, pretend you are.”
~ Muhammad Ali, World Champion Boxer
“I start with the premise that the function of leadership is to produce more leaders, not more followers.”
~ Ralph Nader, Consumer-Rights Advocate
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RJFS and SPC do not offer or provide legal or tax advice. Tax services and analysis are provided by the related firm, S&M through a separate engagement letter with clients. Portions of this newsletter were prepared by Carson Group Coaching. Carson Group Coaching is not affiliated with RJFS, SPC or S&M. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. This information is not intended as a solicitation of an offer to buy, hold or sell any security referred to herein. There is no assurance any of the trends mentioned will continue in the future. Any opinions are those of the author and not necessarily those of RJFS. Any expression of opinion is as of this date and is subject to change without notice.
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