Vorisek Financial Weekly Market Update for November 21, 2018

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Good morning!

In spite of strong domestic economic growth in the 3rd quarter 2018 (US GDP grew by an annualized +3.5% on a quarter-over-quarter basis), more American stock investors have become active sellers than active buyers in the last 2 months.  Their concern is the fear of a global economic slowdown and the ripple effect it could have on American businesses.  Third quarter GDP results from both Germany and Japan showed shrinking (not growing) economies and “year-over-year” consumer spending in China, the 2nd largest economy in the world, fell in October 2018 to its weakest growth rate since May 2018 (source: TradingEconomics.com).

But the flipside of a global economic slowdown is falling oil prices.  The price of crude oil closed at $67.59 a barrel on Friday 10/26/18.  From that point, the price of crude oil fell for the next 12 trading days through Tuesday 11/13/18, bottoming at $55.69 a barrel (down 17.6%).  That’s the longest stretch of consecutive down days for oil according to records maintained for the last 35 years.  Falling crude prices suggests that the oil market believes there may be an oversupply of crude oil worldwide in 2019.  Any drop of oil prices (leading to lower gasoline prices) is a boost for the US economy, putting more spendable money in the pockets of American consumers (source: NYMEX).                  

Rising mortgage rates (the average 30-year fixed rate mortgage reached 4.94% last week) will negatively impact the building industry at some point, but that pullback has yet to be felt.  The number of construction jobs nationally grew by +330,000 in the last 12 months, reaching 7.3 million for the first time since April 2008, just before the global real estate crisis hit (source: Associated General Contractors of America).  

Notable Numbers for the Week:

  1. WAGE HIKE - Average hourly earnings of private sector workers increased by +3.14% for the year ending October 2018, the first time the annual increase has been at least +3% since April 2009 (source: DOL).  

  2. GOOD LUCK - At least 136 California cities asked its voters in 2018 to approve tax hikes (e.g., sales tax) to pay for the pension benefits previously promised to municipal workers (source: CalWatchDog.com).   

  3. FORCE THEIR HAND - 401(k) plans with “auto-enrollment” have an average participation rate of 85% vs. 63% for plans that do not have “auto-enrollment” (source: Alight Solutions LLC). 

  4. IN THE CROSSHAIRS - In 2017 the United States imported $192 billion of new autos and light trucks (representing 8.3 million vehicles), more than 3 times the $57 billion of new autos and light trucks that were exported out of the United States (source: WorldAtlas.com).

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