Thanksgiving mutes market response to geopolitics

Geopolitics remained at the forefront of headlines last week due to the downing of a Russian military jet by Turkey. Markets responded in a more muted fashion, perhaps due, in part, to the U.S. Thanksgiving holiday and some solid U.S. economic data.

Third quarter gross domestic product (GDP) growth was revised up to 2.1% for the quarter as a result of rising investment spending. Personal income rose 0.4% in October. The savings rate rose to 5.6% of personal disposable income as consumers allocated a portion of their increase to savings and continued to maintain household balance sheet discipline. Also on the positive side of the ledger was the 3% rise in durable goods orders for October, which gives some hope that the U.S. manufacturing sector may rebound in the fourth quarter.

On the negative side of the ledger is some deterioration in consumer confidence, with two key consumer surveys showing declines from last month. Given this data, the U.S. economy appears on solid footing, with this week’s November employment report expected to provide key data prior to the much anticipated Dec. 15–16 Federal Open Market Committee meeting. The jobs report should indicate continued solid gains in employment for the U.S. economy.

Economic data outside the United States displayed modest improvement based on “flash” purchasing manager surveys for Europe and Japan, which pointed to stronger activity. Quantitative easing by the European Central Bank and Bank of Japan have supported both economies, although recent signs of soft inflation may indicate both central banks should inject additional stimulus. A recent decline in personal incomes for Japan may lead to further quantitative easing. Prime Minister Abe also has proposed plans to raise the minimum wage by 3% a year for several years in an effort to stimulate consumer spending and rekindle nominal economic growth.

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Robert L. Haworth, CFA, is a senior investment strategist and Darrell Behnke is the Madison market leader for the Private Client Reserve of U.S. Bank.

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