The Dow Jones Industrial Average led with a strong showing for the month (+4.44%), followed by the Nasdaq (+3.57%). The S&P 500, Small cap stocks and Midcap stocks all returned over 2.0% in October. In the international markets, Emerging Market stocks (+3.51%) outperformed Developed International (+1.52%).
The economic news continues to be mostly positive. After a disappointing Nonfarm payrolls report in September (showing a loss of 33,000 jobs, thought to be hurricane-related), the October report was much better, with 261,000 jobs created in the month. In addition, the September report was revised upward, now showing a small gain of 18,000 jobs created. Economists still think this is a strong job market but would like to see better wage growth as it was flat for the month of October. Industrial production rebounded in September, post-hurricane Harvey. It is up 1.6 percent versus one year ago. Analysts are anticipating a surge in drilling activity in the months ahead.
Housing starts experienced a decline in September -- thought to be temporary -- mostly due to the hurricanes, which disrupted construction in the South. Builders’ confidence in the market for single family homes, rose 4 points in October. This is the strongest reading since May. We continue to see the market for new construction to be strong while seeing declines in sales of existing homes. The main reason is that there is an inventory shortage of existing homes for sale, which is driving up prices. Existing home sales prices are up 5.6% compared to last year.
The first reading on Q3 GDP was 3.0%, which was better than anticipated. Many economists thought that the hurricanes would negatively affect GDP for the quarter, but although personal consumption was down, private investment was strong. The NFIB Small Business Optimism Index dipped in September, but remains high by historical standards. Small business owners lost some of their confidence for proposed policy changes in Washington. The report also noted the hurricane relief spending should provide a significant boost next year.
The FOMC met in October and left rates unchanged, as expected. President Trump nominated current Fed Governor Jerome Powell to succeed Janet Yellen as Fed Chair. This was widely expected and thought to be the “safe choice.” Powell is expected to continue the gradual tightening policy that Yellen has been following. The odds of a December rate hike are lower after a disappointing CPI report on October 13, but most analysts are still expecting one more before year end.