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U.S. Markets:  The major U.S. market indexes finished the week mixed.  The large cap indexes continued to outperform, extending their number of weekly gains to eight, while small cap indexes reported a third week of losses of the last four.  The Dow Jones Industrial Average rose 105 points to close at 23,539, a gain of 0.45%.  The technology-heavy NASDAQ Composite added 63 points to end the week at 6,764, an increase of 0.94%.  By market cap the large cap S&P 500 gained 0.26%, while the mid cap S&P 400 fell -0.17% and the small cap Russell 2000 retreated -0.89%. 

International Markets:  Canada’s TSX rose 0.4%, its eighth straight week of gains.  In Europe, the United Kingdom’s FTSE rose 0.74%, while across the channel, France’s CAC 40 gained 0.4%, Germany’s DAX added almost 2%, and Italy’s Milan FTSE gained 1.5%.  In Asia, China’s Shanghai Composite reversed last week’s gain by falling -1.3%, while Japan’s Nikkei had its fifth week of solid gains, rising over 2.4%.  As grouped by Morgan Stanley Capital International, developed markets rose by 0.9% while emerging markets added 0.4%. 

Commodities:  Precious metals ended the week mixed.  Gold had its third week of declines with a modest -0.2% loss to $1,269.20 an ounce, while silver rebounded slightly from last week’s loss closing at $16.83 an ounce, a gain of 0.49%.  In energy, oil had its fourth week of gains rising 3.2% to close at $55.64 per barrel of West Texas Intermediate crude.  The industrial metal copper, used by some analysts as a barometer of worldwide economic health due to its variety of uses, retraced some of last week’s loss and finished the week up 0.45%.

October Summary:  In the U.S., the Dow Jones Industrial average was the big winner, gaining 4.3%, while the NASDAQ Composite added 3.6%, and the S&P 500 added 2.2%.  The S&P 400 midcap index was up a similar2.2%, while the small cap Russell 2000 added just 0.78%.  Internationally, Canada’s TSX rose 2.5%, the United Kingdom’s FTSE added 1.6% and France’s CAC 40 rose 3.25%.  Germany’s DAX gained 3.1%, while in Asia, China’s Shanghai Composite rose 1.3%.  The biggest mover in major world markets was Japan’s Nikkei, by a wide margin, which surged over 8.1% in October.  As grouped by Morgan Stanley Capital Markets, developed markets added 3.28% for the month, while emerging markets gained a lesser but still respectable 1.7%.  In commodities, gold declined by 1.1% for the month of October, while West Texas Intermediate oil gained 4.7%.

U.S. Economic News:  The number of Americans applying for initial unemployment benefits fell to a near 45-year low last week according to the Labor Department.  Initial jobless claims fell by 5,000 to 229,000, lower than the 235,000 estimated by economists and far below the key 300,000 threshold that analysts use to indicate a “healthy” jobs market.  The less-volatile four-week moving average of initial claims declined by 7,250 to 232,500.  That number hit its lowest level since April of 1973.  The number of people already receiving unemployment benefits, known as continuing claims, dropped by 15,000 to 1.88 million.  That’s the lowest level since December of 1973. 

According to the Bureau of Labor Statistics’ Non-Farm Payrolls (NFP) report, the U.S. added 261,000 jobs in October as employment rebounded to normal levels following the twin hurricanes Harvey and Irma.  Economists had expected an increase of 325,000 in nonfarm jobs.  The biggest gainer was in the leisure and hospitality sector, followed by professional and business services.  The unemployment rate fell from 4.2% to 4.1%, the lowest since 2000.  A broader measure of unemployment, known as the U-6 jobless rate, fell to 7.9%.  This is the first time that the U-6 rate has been below 8% since 2006.  The U-6 rate counts all the unemployed, as well as those “marginally attached to the labor force” and employed “part time for economic reasons”.  Analysts consider the U-6 rate a more representative measure of the health of the labor market than the headline number.

According to payroll processor ADP, hiring in the private sector rebounded in October with 235,000 jobs added following September’s relatively weak number.  In the details of the report, small private-sector business employment rebounded with 79,000 jobs created.  Medium-sized businesses added 66,000 jobs, while large businesses added 90,000.  Most of the gains were in the services sector, with 150,000 jobs added, while goods‑producing businesses added 85,000.  

Home prices across the country accelerated higher in August, according to the latest S&P/Case-Shiller home price indexes.  The S&P/Case-Shiller 20-city home price index rose a seasonally-adjusted 0.5% in the third quarter, and was up 5.9% from the same time last year.  That was stronger than the 5.8% annual gain in the period ending in July.  The broader national index rose 6.1% for the year in August.  The national index surpassed the high it previously set at the peak of the housing bubble last year, and is now 5.6% higher.  The 20-city index sits just 1.8% below its peak in 2006.  In the details, annual price gains in August were led by a whopping 13.2% increase in Seattle, followed by Las Vegas with an 8.6% increase.  Some in the industry warned that these types of gains can’t continue forever.  David Blitzer, chairman of the index committee at S&P Dow Jones Indices noted that “measures of affordability are beginning to slide, indicating that the pool of buyers is shrinking.”

The Commerce Department reported that spending on construction projects ticked up last month, led by public works and housing.  Construction outlays ran at a seasonally-adjusted $1.22 billion rate.  Spending increased 0.3% during the month, and stood 2% higher than the same time last year.  For the second month in a row, public works projects drove the spending increase.  Public-sector spending was 2.6% higher than in August, while private-sector spending was 0.4% lower.  Compared to the same time last year, the pace of total public construction is 1.6% lower, while overall private spending is 3.1% higher.  Residential construction remained flat on the month, but is 9.5% higher for the year.  Almost all of that spending is on single-family houses.

Confidence among the nation’s consumers climbed to a 17-year high last month, according to the Conference Board.  Consumer confidence rose to 125.9 in October - its highest level since December of 2000.  The surge in confidence comes at a time when U.S. stock prices have hit record highs, lifted by strong economic growth, robust corporate earnings, and expectations of tax reform.  Lynn Franco, Director of Economic Indicators at the Conference Board, stated that the high level of confidence suggests the economy will continue to expand “at a solid pace” for the rest of 2017.  The index takes into account Americans' views of current economic conditions and their expectations for the next six months.  The index is particularly important because consumer spending accounts for about 70 percent of U.S. economic activity.

Spending by consumers hit an eight-year high in September, due to a surge in spending following hurricanes Harvey and Irma.  The Commerce Department reported that spending rose 1%, its biggest monthly gain since 2009 shortly after the economic recovery began.  Inflation, meanwhile, appears to still be under control.  The 12-month rate of Personal Consumption Expenditures (PCE) inflation rose slightly to 1.6%, but the core rate remained near its two-year low of 1.3%.  Both are well below the Federal Reserve’s 2% inflation target.

Manufacturing in the United States remained strong last month, according to the Institute for Supply Management’s (ISM) manufacturing survey index.  ISM’s manufacturing index retreated to 58.7 in October from September’s 13-year high of 60.8.  Of the eighteen industries tracked by ISM, sixteen reported growth.  In the details of the report, both the new orders index and current production gauge fell 1.2 points, to 63.4 and 61.0, respectively.  A measure of employment fell 0.5 to 59.8.  Economists had expected the ISM gauge to fall to 59.5.  Readings above 50 indicate continued expansion, while those less than 50 suggest contraction.  In services, ISM’s non-manufacturing index hit 60.1 last month, reaching its best level since August 2005 and handily exceeding its forecasts.  October’s reading was the 99th consecutive month of growth in the overall economy, and the 94th month of growth in the services sector. 

The Federal Reserve remained optimistic that the economy would continue to perform well as it held rates steady at its latest meeting.  As was widely expected, the Fed left rates unchanged in a range of 1% to 1.25%.  Policymakers had signaled ahead of the meeting that were was virtually no chance of a rate hike this month, but December is still a possibility.  In its statement released following its two-day meeting, policy makers said economic activity has been rising at a “solid rate”, an improvement from the language in the September minutes that described growth as “moderate”. 

International Economic News:  To the north, Canadian employers added 35,300 jobs last month as a surge in full-time jobs was offset by a smaller decline in part-time positions.  According to Statistics Canada, the last time the country saw such strong gains was in March of 2000.  On an annualized basis, 396,800 full-time positions have been created, marking the country’s strongest job growth since the beginning of the century.  Bank of Montreal economist Doug Porter noted that the surge in full-time jobs came on the heels of an even larger gain in September, setting a new all-time record for any two-consecutive-month period.  Despite the gains, the national jobless rate actually rose 0.1% as more people rejoined the work force, to 6.3%.

Across the Atlantic, the United Kingdom’s FTSE 100 index reached a record high this week after solid sales across the services sector showed the economy remained resilient following the post-Brexit vote.  The new highs came as the Bank of England announced its first interest rate increase in more than 10 years.  Services firms “signaled a shift in momentum”, according to a survey of the sector.  Analysts said the survey showed that the services sector, which makes up almost 80% of UK economic activity, remained resilient despite the Brexit uncertainty.

On Europe’s mainland, the French economy expanded in the third quarter, putting the French economy on a stronger growth path than the United Kingdom.  French national statistics institute INSEE reported that gross domestic product (GDP) expanded by 0.5% in the third quarter, following 0.5% and 0.6% increases in the first and second quarters.  Over the past year, France’s economy has grown by 2.2%, its strongest showing since 2011.  Analysts were quick to point out that the 12 month growth rate is higher than in the United Kingdom where the economy is up a still-respectable 1.5%.  INSEE stated that the economic activity was driven by a pick-up in household consumption and rising investments.

In Germany, the Federal Labor Agency reported unemployment in Germany held steady at historic lows last month, suggesting Europe’s largest economy can look forward to continued good health.  The jobless rate stood at a seasonally-adjusted 5.6% in October, matching September’s reading.  However, in unadjusted terms, the rate fell to 5.4% - its lowest level since German reunification in 1990.  Low unemployment has supported economic growth in Germany by increasing domestic demand for goods.  Surveys show the public believes their prosperity will continue to grow, giving them the confidence to spend money.  However, economist Casten Brzeski at ING Diba bank noted that many of the jobs created have been low-wage positions, often in the health or social care sectors.

Chinese President Xi Jinping’s promise to clamp down on corruption will ultimately help the nation’s economy.  This surprising conclusion is contained in research led by Mariassunta Giannetti, finance professor at Stockholm School of Economics, The research found that the amount of money large companies spent on meals and gifts to attract the favor of government officials, commonly detailed in the accounting line known as “entertainment expenses”, dropped as a ratio of their sales in the two years after Xi’s campaign began.  In turn, that has led to smaller companies without deep expense accounts to compete on a more level playing field, according to the research.  “Small firms are more profitable and productive when their large peers spend less on so-called entertainment expenses in proportion to their sales, because they are able to increase their sales, invest more, and have cheaper funding,” the researchers wrote in the paper.  The crackdown, launched only days after Xi came into power in late 2012, has snared more than 1.5 million officials.

According to several private sector estimates, Japan’s economy likely achieved annualized growth of around 1.5% in the third quarter.  The gain would mark the seventh quarter of uninterrupted expansion for the Japanese economy.  These projections for real gross domestic product growth come from the average of estimates from ten private sector think tanks.  Japan’s Cabinet Office will publish its official preliminary third-quarter numbers on November 15.  The current economic growth phase began in December 2012, and is poised to become Japan’s second-longest boom in the post-war era. 

(sources: all index return data from Yahoo Finance; Reuters, Barron’s, Wall St Journal,,,,,,,, Eurostat, Statistics Canada, Yahoo! Finance,,,, BBC,,,, FactSet; W E Sherman & Co, LLC)