U.S. stocks edged slightly higher Friday, sending the S&P 500 to its fifth straight weekly gain, while the NASDAQ Composite finished the week at a new closing high. Trading was largely subdued as investors weighed increased consumer spending against mixed takeaways on the inflation front. September retail sales rose 1.6%, the largest monthly increase in 2 ½ years. The start of the third quarter earnings season was highlighted by mostly strong results from large cap banks, but investors displayed little excitement, with the financial sector actually posting a loss for the week. Healthcare stocks were also down last week after the White House announced that it is halting subsidy payments to health insurers under the 2010 Affordable Care Act. The move could increase losses for insurers and reduce payments to hospitals and other healthcare facilities. The U.S. dollar weakened and bond prices advanced for the week.
For the week, the S&P 500 rose +0.17%, the Dow Industrials gained +0.43% and the MSCI EAFE (developed international) increased by +1.63%.
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U.S. unemployment has been trending steadily downward for the past several years. The U3 Unemployment Rate, which measures the percentage of people without jobs who are actively seeking work, has stayed under 5% for the past year, reaching 4.2% as of the latest reading. As noted on the right of Chart 1, in the past 20 years the U3 rate has been higher 93.7% of the time, and a reading as low as the current one is typically achieved late in economic expansions. Some economists worry that competition for workers may cause inflation, if increased wages translate into higher prices.
In our view, there is still room for low unemployment to continue without a major uptick in inflation, as the recovering U.S. economy encourages displaced workers and retirees to come back into the labor force. The U6 Unemployment Rate, which includes discouraged workers, has steadily declined to 8.3% from 9.7% a year ago, while the percentage of population employed in the workforce has grown to 60.4% from 59.8% last year. Both these measures suggest there is still slack in unemployment, and inflation increases are not imminent.
Some materials are chosen by the Cetera Investment Management team and summarized by Jason Vitucci who is not affiliated or registered with Cetera. Cetera Investment Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. Cetera Investment Management individuals who provide investment management services are not associated persons with any broker-dealer. International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.