Stocks Down on Day, but Good Weekly Advance
U.S. stocks closed the regular trading session to the downside, paring solid weekly gains that stemmed from mostly positive reactions to monetary policy decisions from the Fed and Bank of Japan. Crude oil prices were solidly lower amid some uncertainty regarding what next week’s OPEC meeting will bring in terms of production.
Treasuries were mixed, gold was slightly higher and the U.S. dollar was little changed. In equity news, Twitter rallied on a CNBC report that it may be close to receiving a takeover bid.
The Dow Jones Industrial Average declined 131 points (0.7%) to 18,262
The S&P 500 Index lost 12 points (0.6%) to 2,165
The Nasdaq Composite decreased 34 points (0.6%) to 5,306
In moderate volume, 811 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq
WTI crude oil fell $1.84 to $44.48 per barrel, wholesale gasoline was $0.02 lower at $1.36 per gallon
The Bloomberg gold spot price gained $0.57 to $1,337.64 per ounce
The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat at 95.47
Markets were higher for the week, as the DJIA gained 0.8% and the S&P 500 Index and Nasdaq Composite advanced 1.2%
Manufacturing activity surprisingly dips
The preliminary Markit U.S. Manufacturing PMI Index for September unexpectedly dipped to 51.4 from August’s 52.0 level, where the Bloomberg forecast expected it to remain, though a reading above 50 denotes expansion in activity. Markit said payroll numbers had a moderate upturn despite slower expansion of output volumes, new business growth eased further from June’s nine-month peak, and export orders fell for the first time since May.
Treasuries finished mixed, with the yield on the 2-year note losing 2 basis points (bps) to 0.75%, the yield on the 10-year note was unchanged at 1.62% and the 30-year bond rate gained 1 bp to 2.34%.
Bond yields dipped the past two sessions in the wake of Wednesday’s monetary policy decision from the Federal Open Market Committee (FOMC), which held off on raising rates, with three members dissenting to the decision, while noting that “the case for an increase in the federal funds rate has strengthened, but decided, for the time being, to wait for further evidence of continued progress toward its objectives.”
The Fed hinted at a possible rate hike for December, while lowering its projections to a more gradual pace of hikes down the road. All, in our opinion, very bullish for equities.
Europe pares weekly gain, Asia mixed to close out a positive week
European equities trimmed a solid weekly rebound, with most major market sectors seeing some pressure, exacerbated by a disappointing read on Eurozone business activity. Stocks in the region rebounded this week as crude oil prices recovered somewhat and the global markets reacted mostly positive to key monetary policy decisions out of the U.S. and Japan. Markit’s preliminary Eurozone Composite PMI Index—a gauge of output from both the services and manufacturing sectors—declined to 52.6 for September, from 52.9 in August, and compared to the dip to 52.8 that economists had projected. This was the lowest level since January 2015, though a reading above 50 denotes expansion.
In other economic news, France’s Q2 GDP was revised to a 0.1% quarter-over-quarter (q/q) contraction, from the preliminary flat reading, where it was expected to remain. France’s economy grew 0.7% q/q in 1Q. The British pound fell versus the U.S. dollar following comments from British Foreign Secretary Boris Johnson that suggested a sooner-than-expected execution of the Brexit, per Bloomberg. U.K. stocks were relative outperformers, flirting with positive territory led by strength in commodity-related issues. The euro rose versus the greenback, while government bond yields in the major European countries gained ground.
The U.K. FTSE 100 Index was flat, while France’s CAC-40 Index decreased 0.5%, Germany’s DAX Index and Switzerland’s Swiss Market Index declined 0.4%, Spain’s IBEX 35 Index fell 1.3%, and Italy’s FTSE MIB Index dropped 1.1%.
Stocks in Asia finished mixed to close out a solid weekly advance, with data on the light side. This week’s gains came as the U.S. FOMC held off on raising rates and the Bank of Japan (BoJ) changed its monetary policy to target the yield curve and overshoot its inflation target, instead of moving rates further into negative territory, which boosted financials.
Japanese equities declined in a return from yesterday’s holiday break, reacting to the recent gain in the yen on the heels of the BoJ’s and Fed’s decisions this week. Stocks trading in mainland China and Hong Kong decreased, while Indian securities also finished to the downside. However, South Korean equities rose and Australian listings were standout winners, amid broad-based strength led by telecom and healthcare issues.
Back-to-back U.S. gains on positive reaction to central bank decisions
U.S. stocks rose solidly on the week, a second-straight weekly gain, as the global equity markets received a boost from the much-awaited monetary policy decisions in the U.S. and Japan. The Fed held off on raising rates and hinted at a December hike, but eased concerns by lowering its outlook for the pace of future increases. The BoJ’s monetary announcement appeared to foster optimism that it is taking a different approach to try to boost the economy and stoke inflation.
Financials found support from the BoJ’s decision, while energy issues participated in a broad-based advance as crude oil prices recovered, partially due to some weakness in the U.S. dollar. The real estate sector led the way, aided by a jump in homebuilder sentiment and mostly positive earnings results from the sector, which overshadowed declines in existing home sales, along with housing starts and building permits. Bond yields were mixed, as the short end of the curve was little changed, while rates on the mid-to-long end of the curve fell.
Next week’s U.S. economic calendar will yield a plethora of reports: new home sales, Markit’s Services PMI Index, Consumer Confidence, durable goods orders, the final read on Q2 GDP, personal income and spending, and the final University of Michigan Consumer Sentiment Index. Much of the attention will likely be vectored to a ramp-up in Fed speak and Monday night’s first Presidential debate between Clinton and Trump.
International reports due out next week include: China—industrial profits and the Manufacturing and non-Manufacturing PMI Indexes. Japan—retail sales, household spending, industrial production and the Consumer Price Index (CPI). Eurozone—CPI, as well as German business sentiment and retail sales. U.K.—Q2 GDP and consumer confidence.
After a slow and boring summer, volatility has picked up along with global central bank policy uncertainty and a back-up in U.S. and global bond yields. We believe the Fed is likely to hike rates one time this year, probably in December, but that central bank consternation will continue to elevate volatility. The long-running equity bull market should stay intact with modest economic growth continuing; and investors should remain globally diversified.
Finish Line Inc. reported Q2 earnings-per-share of $0.53, in line with the FactSet estimate, as revenues rose 5.4% year-over-year to $509 million, above the projected $495 million. Q2 same-store sales grew 5.1% y/y, compared to the expected 2.9% increase. FINL reaffirmed its full-year EPS and same-store sales outlooks. The shoe and apparel retailer said the combination of top-line growth and disciplined expense management allowed it to partially offset planned gross margin pressure from its inventory reduction actions. Shares lost ground.
Facebook Inc. is in focus after the world’s largest social network disclosed that it overestimated average viewing time for video advertisements to marketers, as its metric only included views of more than three seconds. FB said it fixed the error and it did not impact billing. Shares were lower.
Twitter Inc. is rallying following a report from CNBC’s David Faber that the social media entity has received expressions of interest regarding a takeover from several companies. Faber stressed that there is no imminent sale of the company. TWTR has not commented on the report.