October finished strong for the last few days of the month, but overall monthly results are some of the worst in recent history for the TSP. The S Fund was down over 10%, the I Fund was down just under 8%, and the C Fund was down about 6.8%. The F Fund continued its slide with a 0.78% loss for the month, and the G Fund gained 0.26%.
Analysts and investors have had a lot of fresh market and economic data to digest last week, and some of the key items are highlighted below.
Apple Earnings Report
Apple is the biggest company in the United States and they reported earnings last week. As the largest component of the C Fund, representing a whopping 4.4% of the 500-company fund, Apple is a big mover for U.S. markets whenever it issues an update on its results.
Like the federal government, Apple’s fiscal year ends with September of the year. Although the company reported strong fourth-quarter results, their guidance for next quarter was below what analysts were expecting, and this period includes holiday guidance.
As a result, the stock dramatically dropped about 6% in one day, wiping away approximately $65 billion in market capitalization and briefly falling below its historical $1 trillion market capitalization total valuation.
Strong U.S. Wage Growth
The Labor Department reported last week the wages and salaries growth for the month of September. There is of course always a lag between the data being collected for the month and the data being reported due to the time to collect the data after the month ends.
The data came back very strong: private industry wages and salaries grew by 3.1% on a yearly basis, which is the highest increase in a decade. This long economic recovery has seen relatively stagnant wage growth for years, but in the past couple of months we’ve been seeing strong wage and salary growth with this month being the highest in a very long time.
This is a strong sign for consumer spending, as higher salaries and wages generally leads to more disposable income.
From an investor perspective, if the numbers remain elevated it also potentially heightens the odds that the Federal Reserve will continue increasing interest rates, because higher wages are inflationary and one of the central bank’s mandates is to control price inflation at around 2% per year. If the Fed continues to raise rates, this may continue to improve the returns of the G Fund and temporarily hurt the returns of the F Fund.
Worsening U.S. Trade Deficit
Also last week, the Commerce Department released September trade balance numbers, and they weren’t good.
For September, the United States had a trade deficit of $54 billion. This is the second largest monthly trade deficit in ten years, with the first highest being in February earlier this year.
More notably, this September had the all-time highest manufacturing (goods) trade deficit on record. The overall trade deficit has two components: goods and services. Goods are physically-manufactured exports and imports, while services are more intangible like software and financial work. The United States consistently has a massive (and worsening) goods trade deficit and a moderate (and growing) service trade surplus. September’s $77 billion goods trade deficit was the worst on record, and only partially offset by the country’s $23 billion services trade surplus.
For the first nine months of the year so far, the nation’s goods and services combined trade deficit was about 10% higher in 2018 than it was in 2017.
This could have ramifications for ongoing trade disputes between the United States and its trading partners, especially China. In recent months, investors have been watching for possible trade deals closely, with positive signs often resulting in up days for the respective stock markets, and negative signs often resulting in down days.