Weekly Advisor Analysis: October 12, 2015

The “risk on” trade emerged in full force last week after investors dissected the release of the minutes of the Federal Open Market Committee. The S&P 500 rose 3.3 percent. The Dow Jones Industrial Average jumped 3.7 percent. The NASDAQ Composite climbed 2.6 percent. Equities were not the only asset class moving higher last week; the price of oil soared 9 percent.

IMF Lowers Forecast Again

The International Monetary Fund (IMF) hosted its annual meeting of central bankers and finance ministers in Peru last week, and the organization lowered its outlook for global growth for 2015 to 3.1 percent compared to the prior estimate of 3.3 percent. The slowdown in emerging markets has prompted the organization to cut its outlook there to 4 percent. This is the fifth consecutive year of slowing growth. The IMF stated there is a 50 percent chance global growth will continue decelerating in 2016 and fall below 3 percent, which is the equivalent of a global recession.


No Concerns of Deflation Here

As the rest of the world grapples with potential deflation there is one area of the domestic economy where there is no confusion around continually higher prices: childcare. According to the Economic Policy Institute, the price of childcare exceeds rent for families with two children in 500 of the 618 local areas where the group collected data. According to the Bureau of Labor Statistics, childcare costs have ballooned 168 percent since 1990, more than twice the rate of total consumer prices. Shockingly, childcare costs have outpaced another family budget line item that has notoriously risen over the years: college tuition. In 33 states, infant care costs more than the average in-state college tuition for a public institution. And there is no relief in sight: millennials are now entering their prime child-bearing years and the supply of daycare centers has not kept pace, pushing demand ever higher.

Holiday Shopping Expected to Grow Slower

Those higher daycare costs may be denting holiday sales. Last week, the National Retail Federation predicted a 3.7 percent rise in sales for the upcoming holiday seasons. Several other forecasting services are calling for sales expansion in the same ballpark. This compares to a 4.1 percent gain last year. However, despite the slight slowdown from last year, the expected rate is still higher than the average for the last decade, which measures 2.5 percent. The trend toward more online purchases is expected to continue. The National Retail Federation anticipated growth in this segment to range between 6-8 percent.


Fun Story of the Week

Thanksgiving is still weeks away, but it’s never too early to start thinking about your strategy for maximizing dessert consumption. This year’s tip is to head for the pumpkin pie first; it might not last. Severe rains in the Midwest have put a big dent in pumpkin harvests. Yields in Illinois, America’s great pumpkin patch, are down 50 percent year-over-year according to Libby’s, the largest U.S. producer of canned pumpkin. Libby’s has an 80 percent market share in the United States, and the Nestle brand said it will make enough cans of filling to bake 45 million eight-inch pies, but this is half of what it originally planned.

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