October Market Commentary from Vanguard & Co

It was a good week for economic news. Inflation remained below the Federal Reserve’s 2% target rate, home sales showed growth, and The Conference Board’s Leading Indicator Index was positive.

For the week ended October 24, 2014, the S&P 500 Index rose 4.1% to 1,965 (for a year-to-date total return—including price change plus dividends—of about 8%). The yield on the 10-year U.S. Treasury note rose 7 basis points to 2.29 (for a year-to-date decrease of 75 basis points).


Drop in energy prices help hold rise in consumer prices to 0.1%

The Consumer Price Index (CPI) reversed August’s decline, gaining 0.1% in September and 1.7% over the last 12 months. When setting monetary policy, a key indicator the Federal Reserve considers is CPI inflation, which it’s currently targeting at an annual rate of 2% or below.

A 0.7% decline in the energy index wasn’t enough to offset increases to shelter and food, both up 0.3%, and medical care commodities, up 0.5%. Gasoline prices, which fell 1.0%, extended their downward movement for a third month. Cost indices for new and used vehicles, as well as apparel, remained unchanged from the previous month.

“A sustainable increase in prices continues to be challenged by lower oil prices, and by deflationary pressures from recent weakness in the global economy,” said Vanguard economic analyst Vytas Maciulis. “This could potentially slow down price growth in the near term and diverge from the Federal Reserve’s inflation target of 2%. It will be interesting to see how much these conditions will affect the Fed’s monetary decision when they meet next week.”


Existing-home sales rise yet again

Existing-home sales rose 2.4% in September to an annualized 5.17 million. Sales are at their strongest pace in 2014, according to the National Association of Realtors. While the number of existing homes sold exceeded analysts’ consensus expectations of 5.10 million, it’s still 1.7% less than September 2013’s total of 5.26 million. The median existing-home price was $209,700, up 5.6% from the previous September. This was the 31st consecutive month of year-on-year price gains.


Leading indicators up for the 12th month out of last 14

The Conference Board’s Leading Economic Index (LEI) rose 0.8% in September to 104.4. The increase—the 12th in the last 14 months—was slightly above economists’ consensus expectations of 0.6%. The Conference Board economists expect moderate growth for the U.S. economy through the end of this year, according to the LEI press release.


The economic week ahead

Economic reports scheduled for release this week include: an advance look at durable goods, along with The Conference Board’s Consumer Confidence Index on Tuesday; the Federal Reserve’s monetary policy statement on Wednesday; GDP on Thursday; and employment costs and personal income on Friday.