The stock market is humming — at home, anyway. The Dow Jones Industrial Average has hit 28 new highs this year. The S&P 500 index has hit even more highs this year, rising to records 45 times, and many of those new highs have come over the past couple of weeks.
Meanwhile, foreign markets are both strong and weak. Japan is technically and officially in recession. Prime Minister Abe’s quiver of arrows, which he said Japan would use to stimulate the economy, didn’t hit its targets. Yet, inside the data is the knowledge that the jump in the national sales tax from 5% to 8% on the first day of Q2 caused a “shock” to the economy and was probably behind GDP falling 1.9% in the quarter. A bit of a recovery from that drop, even if it’s still negative, means that Q3, in fact, wasn’t as bad as it could have been. And now Prime Minister Abe’s plan to hike the sales tax again, to 10% next October, has been postponed.
Think of it this way: The patient who was in full cardiac arrest three months ago may still have a thready pulse and clammy skin, but he’s looking a whole lot better than he was. Is he on the mend towards a recovery? Could be. We’ll have to wait and see.
The market hasn’t waited, though — Japan’s Nikkei (NTETF) has rallied more than 5% this month, but emerging markets are off. Russia’s market is down 3.0%. Hong Kong is off 2.3%. Lower oil prices aren’t helping the oil-dependent markets, and fears of global slowdowns don’t help either. Add in a strong dollar and the slowing means foreign funds are at a bit of a disadvantage. The Pacific Index is down 3.7% this month through Thursday, and Vanguard Emerging Markets Select Stock Fund Investor Shares (VMMSX) and Vanguard Emerging Markets Stock Index Fund Investor Shares (VEIEX) are down 2.7% and 2.1%, respectively.
In Europe, we are still seeing some mixed signals. German manufacturing is stalling. But how do you explain, with a near-recession on hand, the big jump in auto sales in October, particularly in Spain? Yes, the year-over-year comparisons are bound to be good, given how lousy car sales were in the prior two years, but Europe will take growth wherever it can get it. And how do you explain Vanguard European Stock Index Fund Investor Shares (VEURX) being up 0.5% this month? Me, I’d rather let the managers at Vanguard’s best international fund figure it out.
Let’s come back home for a moment. Friday’s retail sales report showed buying in October made up for the numbers in September, when sales declined. And don’t forget, lower gasoline prices do make the numbers look a little lower than they might otherwise be. In my recent trip through South Carolina and Georgia, I saw regular gas selling for under $2.60 per gallon. That’s a big and healthy decline that puts more money into consumer wallets. I’m looking for pent-up buying in November and early December as holiday season kicks into full gear.
On Tuesday we also learned that home-builders are feeling even more upbeat, particularly in the northeast, where some pessimism in recent data suggested housing might be slowing. That’s all good, including today’s existing home sales data that showed October to be a bit stronger than expected. Even though the cold weather is going to put a crimp in starts and in home buying — nothing we wouldn’t have expected, given that we’re almost at Thanksgiving. You can be sure there’s little home-buying going on in Buffalo today.
Senior Editor Dan Wiener and Editor/Research Director Jeffrey DeMaso publish The Independent Adviser for Vanguard Investors, a monthly newsletter that keeps abreast of recent developments at Vanguard, and the annual FFSA Independent Guide to the Vanguard Funds.
