Monthly Archives: September 2017

U.S. Market Weekly Summary – Week Ending 09/29/2017

S&P 500 Posts 0.7% Weekly Increase to New Closing High as Energy, Financials Lead Gainers; Utilities Slip

The Standard & Poor’s 500 index edged up 0.7% this week to a fresh closing high as the energy and financial services led gains that spanned all but two sectors: utilities and consumer staples.

The market benchmark ended the week at 2,519.36, up from last week’s closing level of 2502.22 and marking a record close. The benchmark also reached an intraday record Friday at 2,519.44.
Friday’s closing level puts the S&P 500′s gain for the month of September at 1.9%.

The energy sector had the largest percentage increase of the week, up 1.9%, followed by financials, which added 1.5%. Just two sectors were on the downside this week, led by the utilities sector, which shed 0.5%, while consumer staples edged down 0.1%.

The energy sector’s climb came as crude-oil futures continued their recent upward direction for much of the week. The sector’s gainers included TechnipFMC (FTI), whose shares jumped 4.1% from a week ago amid plans for a $500 million share-repurchase program as well as the company’s win of an engineering, procurement, construction and installation contract from Statoil (STO).

In the financial sector, insurance stocks erased some of the declines they were hit with in recent weeks on concerns about the potential impacts of recent hurricanes. XL Group (XL) shares closed up 0.7% on the week while Progressive (PGR) climbed 0.9%.

On the downside, the utilities sector’s decliners included SCANA (SCG), which tumbled 12% this week amid reports that a federal lawsuit included claims utility executives collected bonuses even as the V.C. Summer reactor expansion project was falling apart. The suit alleges SCANA and partner Santee Cooper “actively concealed” or publicly minimized a substantial risk the project could fail, the reports said.

Market Insights 9/29/2017

U.S. stocks closed the last trading day of Q3 higher as shares added to weekly, monthly and quarterly advances.

In economic developments, personal income and spending matched forecasts though the PCE deflator—a measure of consumer price inflation—was cooler-than-expected, and the Chicago Purchasing Managers Index unexpectedly jumped further into expansion territory.

Treasury yields diverged and the U.S. dollar was lower. Crude oil prices were mixed and gold traded lower.

The Markets…

The Dow Jones Industrial Average increased 24 points (0.1%) to 22,405

The S&P 500 Index was 9 points (0.4%) higher at 2,519

The Nasdaq Composite advanced 43 points (0.7%) to 6,496

In moderate-to-heavy volume, 929 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil added $0.11 to $51.57 per barrel and wholesale gasoline was $0.02 lower at $1.59 per gallon

The Bloomberg gold spot price declined $6.66 to $1,280.64 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 93.06

Markets were higher for the week, as the DJIA gained 0.3%, the S&P 500 Index added 0.7% higher and the Nasdaq Composite increased 1.1%

Personal income and spending match forecasts, regional manufacturing activity jumps

Personal income was 0.2% higher month-over-month (m/m) in August, in line with the Bloomberg forecast, and compared to July’s downwardly revised 0.3% increase. Personal spending ticked 0.1% higher last month, matching expectations, and versus July’s unrevised 0.3% gain. The August savings rate as a percentage of disposable income was 3.6%. The PCE Deflator was 0.2% higher, below expectations of a 0.3% gain and versus the prior month’s unrevised 0.1% rise. Compared to last year, the deflator was 1.4% higher, south of estimates of a 1.5% increase and in line with July’s unrevised rise. Excluding food and energy, the PCE Core Index was 0.1% higher m/m, below expectations of a 0.2% gain, and the index was up 1.3% y/y, versus estimates calling for it to match July’s unrevised 1.4% increase.

The final September University of Michigan Consumer Sentiment Index (chart) was revised lower to 95.1 from the preliminary level of 95.3, where it was expected to remain. The index was down versus August’s level of 96.8. Compared to last month, the expectations component of the report improved, though the current conditions portion slipped. The 1-year inflation outlook ticked higher to 2.7% from August’s 2.6% rate, and the 5-10 year forecast remained at 2.5%.

The Chicago Purchasing Managers Index unexpectedly jumped further into expansion territory (above 50) for September, after rising to 65.2 from August’s unrevised 58.9 level, and versus expectations calling for a dip to 58.7. The index moved back to near June’s three-year high of 65.7 as new orders and production continued to grow, while employment moved back into expansion territory and order backlogs hit a 29-year high. However, prices paid increased significantly to the highest since July 2011, bolstered by elevated commodity prices and the hurricane(s)-induced materials shortage.

Treasuries were mixed, but tilted to the downside following the regional manufacturing report, with the yields on the 2-year and 10-year notes rising 3 basis points (bps) to 1.48% and 2.34%, respectively, while the 30-year bond rate dipped 1 bp to 2.86%.

Treasury yields and the U.S. dollar have rallied recently, with the rate on the 10-year note hitting multi-month highs and the greenback moving to a level not seen in over a month. These moves have been bolstered by heightened December Fed rate hike expectations and apparent cautious optimism regarding fiscal policy as the markets scrutinize this week’s release of tax reform details.

Europe adds to weekly, monthly and quarterly gains, Asia mostly higher

European equity markets finished higher, adding to solid gains for the week, month and quarter, as a plethora of diverging economic data in the region was highlighted by an upbeat read on German unemployment and U.K. consumer data. The euro gained ground on the U.S. dollar but pared an upside move as the greenback found some support from a jump in regional manufacturing activity. The British pound saw some pressure to help bolster the U.K. markets. The eurozone consumer price inflation estimate came in a bit cooler than expected for this month, while German retail sales unexpectedly declined last month.

U.K. Q2 GDP growth was unrevised at a 0.3% quarter-over-quarter pace, but the 1.5% y/y expansion came in below estimates. Economists are pointing to the savings and income component of the GDP report, which showed the former rose and the latter outpaced inflation for the first time in a year to boost optimism regarding the health of the U.K. consumer, per Bloomberg. French consumer spending surprisingly declined last month, though Germany’s unemployment fell more than forecasted for this month. In other economic news, U.K. business investment for Q2 and September home prices came in above estimates. Bond yields in the region moved to the downside.

The U.K. FTSE 100 Index and France’s CAC-40 Index were up 0.7%, and Germany’s DAX Index rose 1.0%, while Switzerland’s Swiss Market Index, Spain’s IBEX 35 Index and Italy’s FTSE MIB Index gained 0.5%.

Stocks in Asia tilted to the upside to close out a mixed month, though conviction may have been held in check ahead of next week’s plethora of holidays, notably in China where the markets will experience an extended break. Also, the markets digested a host of Japanese economic data. Japan’s consumer price inflation rose mostly in line with forecasts in August, but a read on consumer inflation in Tokyo for September a bit cooler than expected. Also, the nation’s household spending and retail sales for last month missed forecasts but its preliminary read on industrial production rose more than expected.

Japanese equities finished flat, with the yen paring a recent drop that has fueled solid gains for the stock markets this month. Shares trading in mainland China and Hong Kong rose ahead of next week’s holidays and tonight’s reads on manufacturing and services sector activity. Australian securities gained ground and South Korean stocks advanced, while Indian equities finished little changed.

Stocks nudge higher on week to tack onto solid Q3 gains

U.S. stocks capped off a Q3 rally with a modest weekly advance. The business spending component of the August durable goods orders report posted a back-to-back monthly jump and Q2 GDP growth was unexpectedly revised higher to 3.1%, adding to an upbeat economic backdrop. This may have helped the markets shrug off elevated December Fed rate hike expectations, which were preserved by continued hawkish rhetoric from the Fed, headlined by Chairwoman Janet Yellen’s speech.

Financials were one of the best performers as Treasury yields extended a rally, along with the U.S. dollar. Energy issues continued their quarterly rally as crude oil prices remained in recovery mode. The release of the framework for tax reform also appeared to underpin sentiment even as the timing and potential areas of contention were highly scrutinized.

Technology issues gained slightly, adding to their decisive quarterly of out-performance. However, utilities finished lower on the week amid the upside move in interest rates and healthcare stocks saw some pressure as the sector continued to face regulatory uncertainty and fiscal policy concerns. The consumer staples sector, the worst quarterly performer, nudged higher on the week, along with consumer discretionary issues, despite Dow member Nike Inc’s disappointing outlook.

The resiliency of stocks continues but risks of a pullback exist with signs of investor complacency and heightened political and geopolitical uncertainties. U.S. economic data will likely be skewed by the hurricanes’ impact but the underlying trend should remain positive. Earnings reporting season will begin with elevated expectations, so the ability to hurdle the bar is getting tougher, but if surprises are biased to the upside, stocks should perform well. Non-U.S. stocks are about to hit multiple milestones, which typically shouldn’t concern investors as underlying fundamentals continue to appear solid.

Market Insights 9/28/2017

U.S. stocks overcame some early weakness to finish the regular trading session slightly higher as market participants welcomed a surprising upward revision to Q2 GDP, while Fed rate hike expectations remained elevated and yesterday’s GOP tax reform proposal found focus.

The U.S. dollar pared its recent run and Treasury yields finished mixed. Crude oil registered lower after a midday reversal and gold was higher.

The Markets…

The Dow Jones Industrial Average increased 40 points (0.2%) to 22,381

The S&P 500 Index was 3 points (0.1%) higher at 2,510

The Nasdaq Composite was nearly unchanged at 6,453

In moderate volume, 766 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil declined $0.58 to $51.56 per barrel and wholesale gasoline was $0.01 lower at $1.61 per gallon

The Bloomberg gold spot price added $4.18 to $1,286.97 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 93.17

Final read on Q2 GDP revised higher, jobless claims increase

The final look (of three) at Q2 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of growth of 3.1%, adjusted up from the 3.0% expansion posted in the first revision, where it was expected to remain. Q1 GDP expanded by an unrevised 1.2% rate. Personal consumption was unrevised at a 3.3% gain for Q2, matching estimates. Personal consumption grew by an unrevised 1.9% in Q1.

On inflation, the GDP Price Index was unadjusted at a 1.0% gain, in line with forecasts, while the core PCE Index, which excludes food and energy, was unadjusted at a 0.9% rise, matching expectations.

Weekly initial jobless claims rose by 12,000 to 272,000 last week, above forecasts of 270,000, with the prior week’s figure being revised higher by 1,000 to 260,000. The four-week moving average gained by 9,000 to 277,750, while continuing claims fell 45,000 to 1,934,000, south of estimates of 1,993,000.

The advance goods trade deficit narrowed unexpectedly to $62.9 billion in August, from the downwardly revised $63.9 billion in July, and compared to expectations of $65.1 billion.

Treasuries were mixed, with the yield on the 2-year note dipping 2 basis points (bps) to 1.46%,the yield on the 10-year note nearly unchanged at 2.31% and the 30-year bond rate adding 1 bp to 2.87%.

Treasury yields eased off a recent rally that took the rate on the 10-year note to multi-month highs, while the U.S. Dollar Index pared a jump as of late to levels not seen in over a month. These moves were bolstered by heightened December Fed rate hike expectations and apparent optimism regarding fiscal policy as some details regarding tax reform were released.

Tomorrow, the U.S. economic calendar will include personal income and spending for August, with economists expecting increases of 0.2% and 0.1%, respectively, and the Chicago Purchasing Managers Index, anticipated to show a slight downtick to a level of 58.7 in September from the 58.9 registered in August. Rounding out the day’s releases will be the final University of Michigan Consumer Sentiment Index for September, forecasted to remain at the preliminary level of 95.3, but down from August’s final read of 96.8.

Europe mostly higher on data, Asia mixed following advance in U.S. yesterday

European equity markets finished mostly higher, with an upbeat read on Wurozone sentiment supporting the advance and helping the euro rebound. The British pound also recovered from recent weakness, as the two currencies have come under pressure amid a rally in the U.S. dollar on heightened Fed rate hike expectations and on the heels of yesterday’s details of the tax reform framework. Bond yields in the region finished mixed. German consumer confidence unexpectedly dipped in October, while the nation’s consumer price inflation came in slightly below expectations for September. However, September eurozone economic confidence improved more than expected.

Stocks in Asia finished mixed on the heels of yesterday’s gains in the U.S., which were bolstered by an upbeat durable goods orders report and the release of details of tax reform framework for the world’s largest economy.

The U.S. dollar has rallied to apply pressure on the yen, which helped Japanese equities move higher. However, lingering regulatory concerns and dampened conviction ahead of next week’s holiday break weighed on Chinese stocks. Australian securities ticked higher and South Korean shares finished flat. Indian equities snapped a seven session losing streak that developed amid recent economic data that fostered concerns and led to the markets retreat from record highs.

Market Insights 9/27/2017

U.S. stocks gained solid ground with technology and financial shares leading an advance that followed an upbeat business spending report and an optimistic reception for the latest ambitious tax reform proposal.

Treasury yields and the U.S. dollar rallied, gold was lower and crude oil prices were mixed.

The Markets…

The Dow Jones Industrial Average increased 56 points (0.3%) to 22,341

The S&P 500 Index was 10 points (0.4%) higher at 2,507

The Nasdaq Composite rallied 73 points (1.1%) to 6,453

In moderate volume, 834 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil gained $0.26 to $52.14 per barrel and wholesale gasoline was $0.03 lower at $1.62 per gallon

The Bloomberg gold spot price lost $10.11 to $1,283.87 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% higher at 93.42

Business spending jumps again, Treasury yields and dollar rally on Fed expectations

August preliminary durable goods orders were up 1.7% month-over-month, compared to the Bloomberg estimate of a 1.0% gain, and July’s 6.8% drop was unrevised. Ex-transportation, orders were 0.2% higher m/m, in line with forecasts and versus July’s upwardly revised 0.8% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, rose 0.9%, well above projections of a 0.3% increase, and following the upwardly revised 1.1% rise posted in the month prior. The volatile component of non-defense aircraft and parts orders jumped to bolster the headline figure, along with a rebound in demand for motor vehicles and parts. Orders for communications equipment jumped and machinery ticked higher, while demand for computers dropped and electrical equipment and appliances was little changed.

The MBA Mortgage Application Index declined 0.5% last week, following the prior week’s 9.7% drop. The decrease came as a 3.5% drop in the Refinance Index more than offset a 2.8% gain for the Purchase Index. The average 30-year mortgage rate rose 7 basis points to 4.11%.

Pending home sales fell 2.6% m/m in August, versus projections of a 0.5% decline, and following the unrevised 0.8% decrease registered in July. Compared to last year, sales were 3.1% lower. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which unexpectedly fell in August due to inadequate levels of available inventory and the upward pressure it’s putting on prices.

Treasuries were lower, with the yield on the 2-year note rising 2 bps to 1.48%, the yield on the 10-year note gaining 7 bps to 2.30%, and the 30-year bond rate advancing 8 bps to 2.85%.

Treasury yields rallied, with the 10-year rate hitting a two-month high, and the U.S. Dollar Index jumped to levels not seen in over a month. Fiscal policy focus appears to be heating up as the markets began to digest the release of tax-reform proposal details, while expectations of a Fed rate hike in December were bolstered by yesterday’s speech by Federal Reserve Chairwoman Janet Yellen, which seemed to foster a hawkish reaction. The comments come on the heels of last week’s Fed monetary policy decision, after which its statement was viewed as a bit more hawkish.

Tomorrow, the U.S. economic calendar will remain busy, beginning with four major releases an hour prior to the opening bell. Early reports include the third and final read for Q2 GDP, with economists anticipating no revision to the quarterly 3.0% annualized growth rate in the second release, weekly initial jobless claims, forecasted to tick higher to 270,000 from the prior week’s 259,000, the advanced goods trade balance, estimated to show that the deficit widened in August to $65.1 billion, and preliminary wholesale inventories for August, expected to have increased by 0.4% after registering a 0.6% rise for July’s final print.

Europe higher and Asia mixed amid Fed expectations

Most European equity markets finished higher, with the euro and British pound losing ground versus the U.S. dollar, which rallied on some upbeat economic data and yesterday’s speech by Fed Chief Janet Yellen that bolstered expectations of a December rate hike. Bond yields in the region moved noticeably to the upside to boost the financial sector. In economic news, Italian economic and consumer confidence both topped forecasts in September.

Stocks in Asia finished mixed as the markets grappled with heightened rate hike expectations in the U.S. following the Fed Chair’s speech yesterday, while shares in China and Hong Kong gained ground following an upbeat read on the nation’s industrial profits. Japanese equities declined, though losses may have been limited by continued weakness in the yen as the U.S. dollar has rallied as of late. Indian stocks extending their losing streak to seven sessions as recent economic data has fostered concerns and the markets continue to retreat from record highs. South Korean and Australia securities ticked lower.

Market Insights 9/26/2017

U.S. equities finished mixed and nearly unchanged, unable to hold onto an early morning advance, as an increase in North Korean rhetoric and festering geopolitical anxiety were met with uncertainty from Federal Reserve Chair Janet Yellen’s speech today in Cleveland.

Treasuries, gold and crude oil prices all finished lower, while the U.S. dollar gained ground. News on the economic front was mixed, as September new home sales surprisingly decreased, consumer confidence inched lower and regional manufacturing activity unexpectedly jumped further into expansion territory.

The Markets…

The Dow Jones Industrial Average declined 12 points (0.1%) to 22,284,

The S&P 500 Index was nearly unchanged at 2,497, and

The Nasdaq Composite gained 10 points (0.2%) to 6,380.

In moderate volume, 737 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq.

WTI crude oil lost $0.39 to $51.88 per barrel and wholesale gasoline was $0.02 lower at $1.65 per gallon. Elsewhere,

The Bloomberg gold spot price tumbled $14.64 to $1,296.14 per ounce, and

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% higher at 93.02.

New home sales unexpectedly decline, regional manufacturing surprises to the upside

New home sales surprisingly declined 3.4% month-over-month in August to an annual rate of 560,000, below the forecasts calling for 585,000 units and the upwardly revised 580,000 unit pace in July. The median home price was up 0.4% y/y to $300,200. New home inventory increased to 6.1 months of supply at the current sales pace from 5.7 in July. Sales fell m/m in the Northeast, South, and West, but were flat in the Midwest. New home sales are based on contract signings instead of closings. The impact of the three recent major hurricanes may increase the volatility of the economic data for a few months.

The Consumer Confidence Index dipped to a level of 119.8 in September from the downwardly revised 120.4 in August, and compared to the Bloomberg estimate of a 120.0 reading. The Present Situation Index declined, while the Expectations Index of business conditions for the next six months rose marginally. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—declined to 14.5 from the 16.0 level posted in August.

The Richmond Fed Manufacturing Activity Index jumped to 19 in September, versus an unrevised level of 14 in August and compared to the Bloomberg expectation of a decline to 13, with a reading above zero denoting expansion.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.8% y/y gain in home prices in July, versus the Bloomberg expectation of a 5.7% increase. Month-over-month (m/m), home prices were up nearly 0.4% on a seasonally adjusted basis for July, topping forecasts calling for a 0.2% rise.

Federal Reserve Chair Janet Yellen addressed the National Association for Business Economics today in Cleveland, where the Fed head noted that trends in employment, wages and prices may have shifted from what the central bank forecasters had originally expected. Yellen indicated that though the central bank expects that longer-run inflation should trend toward its two percent target, the Fed is making room for the possibility that it could be wrong.

Treasuries were lower, as the yields on the 2-year and 10-year notes, as well as the 30-year bond all advanced 2 basis points to 1.44%, 2.24% and 2.78%, respectively.

The markets continue to digest last week’s monetary policy decision from the Fed, which as expected signaled an October start for the reduction of the Central Bank’s massive $4.5 trillion balance sheet, but resuscitated expectations for another rate hike in December.

Tomorrow’s economic calendar will hold preliminary durable goods orders, forecasted to have gained 1.5% m/m during August following July’s 6.5% plunge, while ex-autos, orders are expected to gain 0.4% m/m. As well, pending home sales will be reported, with economists anticipating a 0.2% m/m decline for August after falling 0.8% in July, and MBA Mortgage Applications will round out the day.

European equities lack decisive direction, Asia finishes mostly lower

European equities oscillated between gains and losses before ultimately closing mixed amid the rising tension between North Korea and the United States and as the outgoing government of Germany’s Chancellor Merkel rejected a proposal to pool euro-area sovereign debt. The proposal, supported by French President Macron, would have been aimed at utilizing the region’s bailout fund, the European Stability Mechanism (ESM), with a goal of granting additional powers to the ESM to turn it into a sort of European Monetary Fund. The German Chancellor is in the midst of complex coalition talks in an attempt to build a new government.

A recent speech by U.K. Prime Minister Theresa May seemingly failed to spark trade negotiation optimism; though some European Finance Ministers said the speech was constructive and likely a step in the right direction as EU leaders will have their first chance to approve trade talks in mid-October. The British Prime Minister is meeting with the President of the European Council today, while their counterparts held a fourth round of Brexit discussions in Brussels.

The euro and British pound dipped versus the U.S. dollar and bond yields in the region were mixed. In economic developments, import prices for Germany rose in line with forecasts, business confidence in France missed expectations and finance loans for housing in the U.K. increased, but were lower than projections.

The German DAX Index gained 0.1%, Italy’s FTSE MIB Index increased 0.2%, and France’s CAC-40 Index was nearly unchanged, while the U.K. FTSE 100 Index declined 0.2%, Spain’s IBEX 35 Index declined 0.4% and Switzerland’s Swiss Market Index fell 0.3%.

Stocks in Asia finished mostly to the downside, but losses were limited as the markets seemingly attempted to stabilize amid the recent host of catalysts. Mainland Chinese equities and those traded in Hong Kong advanced modestly, after both indexes came under pressure yesterday amid increased measures aimed at curbing the country’s housing market where record home sales helped to spark a surge in Chinese property developers this year.

Japanese securities decreased amid strength in the yen, and as minutes released from the Bank of Japan’s July meeting indicated some optimism regarding consumer price inflation. Separately, the island nation also released economic data that showed producer price inflation slightly exceeded expectations. Markets in Australia declined, led lower by consumer discretionary issues, stocks in South Korea fell amid the festering North Korean rhetoric, while Indian listings were also lower.

Market Insights 9/25/2017

U.S. equities finished lower, a fresh threat from North Korea exacerbated already-negative sentiment that followed results from Germany’s national election over the weekend.

Treasury yields were lower, despite a surprising jump in a regional manufacturing report, and the U.S. dollar was higher after the euro saw pressure following the election results, while gold and crude oil prices rallied.

The Markets…

The Dow Jones Industrial Average (DJIA) declined 54 points (0.2%) to 22,296

The S&P 500 Index lost 6 points (0.2%) to 2,497

the Nasdaq Composite tumbled 56 points (0.9%) to 6,371

In moderate volume, 842 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil rose $1.56 to $52.22 per barrel and wholesale gasoline was $0.04 higher at $1.67 per gallon

The Bloomberg gold spot price increased $13.80 to $1,311.10 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% higher at 92.67

Treasury yields dip, U.S. dollar up, geopolitics and political uncertainty reign

Treasuries were higher, as the yield on the 2-year note dipped 1 basis point to 1.42%, the yield on the 10-year note declined 3 bps to 2.22%, and the 30-year bond rate decreased 2 bps to 2.77%.

Treasury yields have dipped after a recent rally and the U.S. dollar extended its bounce from multi-year lows hit earlier this month amid lingering global monetary policy uncertainty, while the euro saw pressure after a national election in Germany. Geopolitical concerns flared-up in late-morning action to exacerbate sentiment following reports that North Korea’s foreign minister said President Trump’s latest comments amount to a declaration of war. The markets continue to digest last week’s monetary policy decision from the Fed, which as expected signaled an October start for the reduction of the Central Bank’s massive $4.5 trillion balance sheet, but resuscitated expectations for another rate hike in December.

The Dallas Fed Manufacturing Activity Index surprisingly jumped further into a level depicting expansion (a reading above zero). The index rose to 21.3 in September—the highest since February—from 17.0 in August, and versus the Bloomberg forecast of a decline 11.5.

The week’s economic calendar will begin to heat up tomorrow with some housing data in the form of the S&P CoreLogic Case-Shiller Home Price Index, expected to show the 20-city composite increased 5.7% year-over-year for the month of July, matching that seen the month prior, as well as new home sales, with economists forecasting a 2.5% month-over-month rise in August to a level of 585,000 units following July’s decline. Rounding out the day will be the Conference Board’s Consumer Confidence Index, anticipated to indicate a slight downtick to a level of 120.0 for September, from the 122.9 posted in August.

Europe dips as German election and geopolitics eyed, Asia mixed

European equity markets finished mostly lower, with political uncertainty ensuing after the weekend’s national election in Germany where Chancellor Angela Merkel won a fourth term but her margin of victory fostered concerns about the potential complex negotiations in forming a coalition government.

The markets were pressured late in the day as U.S. stocks fell on reports of North Korea’s latest threat toward the U.S. The euro fell versus the U.S. dollar, with an unexpected decline in German business confidence for September likely adding to the pressure. The euro held onto losses after European Central Bank (ECB) President Mario Draghi noted today in a speech that the ECB will keep as much monetary policy support in place that the region needs to complete its transition to a new balanced growth trajectory characterized by sustained price stability. The British pound dipped late in the session versus the greenback, while Brexit negotiations resume today on the heels of last week’s speech by U.K. Prime Minister Theresa May, which appeared to disappoint as it lacked details on the path to leave the European Union.

Financials saw some pressure and led to the downside as bond yields in the region were mostly lower and as the Bank of England called for banks to hold additional capital.

Stocks in Asia finished mixed as the markets reacted to a national election in Germany, while anticipating a call for a snap election in Japan.

The yen came under pressure to boost Japanese equities, along with some upbeat manufacturing data and reports that Prime Minister Abe will announce a new economic package. After the closing bell, Abe called for the snap election after saying he will dissolve the lower house of parliament this week, while announcing an $18 billion economic package. However, stocks in China and Hong Kong came under pressure amid increased measures to curb the housing market. Recent data showing China’s property prices have been cooling had fostered some speculation that this could slowdown government measures to curb the housing market. Meanwhile, securities traded in South Korea and India lost ground, and markets in Australia’s finished flat.

For tomorrow, the international economic calendar will hold consumer price inflation from Japan, consumer sentiment from South Korea, import prices from Germany, and sentiment data from France.

CIO Thoughts

Despite a seemingly more hawkish tone by the Fed, we see the y/y change in core CPI at 2.2% by the end of 2018, while the 10-year yield should remain under 3.0%.

We also project Fed funds target to stay below inflation, as it averages 2.13% in Q4 ‘18.

As a result, we see the S&P 500 and its sectors offering shelter (or “quarter”) in the final three months of 2017, as has been the case since 1990 when the “500” rose an average of nearly 5%, and gained in price more than 80% of the time, all while the 11 sectors also posted positive average price gains and frequencies of advance ranging from 63% to 85%.

U.S. Market Weekly Summary – Week Ending 09/22/2017

S&P 500 Adds 0.1% on Week, Led by Gains in Telecom, Financials; Real Estate, Utilities, Consumer Staples Weigh

The Standard & Poor’s 500 index ended the week up just 0.1% from last week as gains in sectors including telecommunications and financials managed to slightly outweigh declines in a number of other sectors including real estate, utilities and consumer staples.

The market benchmark ended the week at 2502.22, up from last Friday’s closing level of 2,500.23. Last week’s closing level had marked a record high at the time. The index set a new record above that on Wednesday at 2,508.85.
This week’s small movement came as gains and declines across a number of sectors nearly canceled each other out. The upside was led by telecommunications, up 3.8%, and financials, up 2.6%. Meanwhile, the downside was driven by drops of 2.8% each in real estate and utilities as well as a 2.3% decline in consumer staples

The telecommunications sector’s climb comes on top of a 3.9% jump last week as investors are anticipating wireless carriers will receive strong demand for Apple’s (AAPL) newest slate of iPhone models as well as the Apple Watch. The iPhone 8, iPhone 8 Plus and Apple Watch Series 3 became available Friday at Verizon Communications (VZ) and AT&T (T) locations. Verizon shares jumped 4.3% on the week while AT&T added 4.0%.

The financial sector’s gains came as the Federal Open Market Committee on Wednesday left rates unchanged while signaling it is on track to raise short-term terms later this year, seen as a sign of optimism for the US economy. The advancers included Goldman Sachs Group (GS), up 2.6% on the week; Morgan Stanley (MS), up 3.6%; and Wells Fargo (WFC), up 5.0%.

On the downside, the real-estate sector’s decliners included HCP (HCP), which fell 5.4% even as the real-estate investment trust said its preliminary assessment indicates its assets in regions impacted by Hurricane Irma incurred either no or limited wind, flood or other storm-related damage. It said utility power has been restored at all but one property. Weighing on the shares, Bank of America downgraded its investment rating on the stock to neutral from buy.

The utilities sector’s drop came as investors accounted for the expected impacts of many utilities’ exposure to areas affected by the recent hurricanes. Among them, NextEra Energy (NEE) was down 2.5% this week as the company said while its Florida Power & Light subsidiary has restored service to nearly 99% of its customers impacted by hurricane Irma, customers may experience outages over the coming weeks and months due to weakened trees and branches that could fall and impact power lines and electric equipment.

The consumer staples sector’s decliners included General Mills (GIS), which fell 8.2% this week amid its report of weaker-than-expected fiscal Q1 results. RBC Capital Markets cut its price target on the stock following the report, saying General Mills “will need to recover from a much deeper trough than we would have anticipated.”

Procter & Gamble (PG) slipped 1.1% from a week ago amid the consumer-products company’s proxy fight with hedge-fund operator and activist investor Nelson Peltz of Trian Fund Management. Peltz is seeking a seat on P&G’s board while the company is urging shareholders to reject him, saying Friday that Peltz “lacks specific qualities” that the company is looking for. Trian meanwhile received support from proxy advisory firm Glass Lewis for its nomination of Peltz.

Market Insights 9/22/2017

Stocks Dip on Data and North Korean Tensions

U.S. stocks finished nearly unchanged to round up the trading week as the markets grappled with flared up tensions in regard to North Korea and as international and domestic business activity reports painted a positive global growth picture.

Treasury yields and the U.S. dollar pared a weekly advance, while gold was higher and crude oil prices were mixed.

The Markets….

The Dow Jones Industrial Average decreased 10 points (0.1%) to 22,350

The S&P 500 Index added 2 points (0.1%) to 2,502

The Nasdaq Composite ticked 4 points higher (0.1%) to 6,427

In light to moderate volume, 719 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq

WTI crude oil added $0.11 to $50.66 per barrel and wholesale gasoline was $0.02 higher at $1.63 per gallon

The Bloomberg gold spot price increased $5.80 to $1,297.00 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.1% lower at 92.18

Markets were mixed for the week, as the DJIA gained 0.4%, the S&P 500 Index ticked 0.1% higher and the Nasdaq Composite declined 0.3%

Preliminary September business activity reports mixed but continue to signal growth

The preliminary Markit U.S. Manufacturing PMI Index showed expansion in output accelerated after rising to 53.0 in September, from August’s 52.8 level, matching the Bloomberg expectation. The preliminary Markit U.S. Services PMI Index showed growth for the key U.S. sector this month slowed more than expected, declining to 55.1 from August’s 56.0 level, versus forecasts calling for a dip to 55.7.

Readings above 50 for both reports denote expansion in activity and the data followed Markit’s Eurozone manufacturing and services growth that topped forecasts. All of the world’s top 20 economies are growing this year, a rare occurrence over the last decade and a key component to our positive global outlook for earnings.

Treasuries were mostly higher, with the yield on the 2-year note flat at 1.44%, while the yield on the 10-year note declined 2 basis points (bps) to 2.26% and the 30-year bond rate dipped 1 bp to 2.80%.

Bond yields and the U.S. dollar experienced volatility following Wednesday’s decision by the Fed to hold interest rates steady. Ss expected, left rates unchanged but announced it would start to shrink its balance sheet in October. On balance, the statement was seen as more hawkish than expected, with the majority of FOMC participants expecting at least one more rate hike this year. We continue to believe a December rate hike remains firmly on the table given continued strength in the labor market and some signs that inflation is getting a lift. In addition, since the Fed began raising interest rates in late-2015, financial conditions have actually loosened—giving the Fed the runway to continue tightening policy.

North Korean concerns flared-up after the country issued a threat that it could test another hydrogen bomb over the Pacific. The threat comes as U.S. President Donald Trump offered some tough commentary toward the nation in his speech at this week’s United Nations gathering.

Europe mostly higher and Asia mostly lower amid geopolitical uneasiness

Most European equity markets finished higher, with some upbeat economic data in the region helping overshadow flared up risk aversion on new threats by North Korea. Markit’s preliminary Eurozone Composite PMI Index—a gauge of activity in both the manufacturing and services sectors—improved to 56.7 in September from 55.7 in August, and versus the projected dip to 55.6. A reading above 50 denotes expansion and German manufacturing activity was a standout in the report as its index unexpectedly rose to a level above 60.

The euro ticked higher versus the U.S. dollar following the data and as the greenback was hampered by the geopolitical uneasiness. The markets mostly shrugged off some political uncertainty ahead of this weekend’s national election in Germany and as today’s highly anticipated Brexit speech from U.K. Prime Minister Theresa May appeared to disappoint as it lacked details on the path to leave the European Union. The British pound saw pressure following May’s speech.

The U.K. FTSE 100 Index was up 0.6%, France’s CAC-40 Index rose 0.3%, Germany’s DAX Index dipped 0.1%, Spain’s IBEX 35 Index ticked 0.1% higher, Switzerland’s Swiss Market Index was flat, and Italy’s FTSE MIB Index advanced 0.2%.

Global monetary policy remained in focus as the Fed this week signaled a December rate hike remains in play, while the European Central Bank and Bank of England have offered hawkish signals as of late.

Stocks in Asia finished mostly to the downside amid a reversal as new bomb testing threats by North Korea caused geopolitical tensions to flare up and bolster risk aversion.

The yen rallied in the final hours of trading and Japanese equities declined. Shares trading in mainland China and Hong Kong fell, with the geopolitical uneasiness being met with a downgrade of China’s credit rating by Standard & Poor’s. South Korean stocks decreased and Indian equities dropped. However, strength in financials helped lift Australian securities higher.

Market Insights 9/21/2017

U.S. stocks finished the trading session lower with technology issues leading decliners after the Fed decided to hold rates steady yesterday, while it bolstered rate hike expectations for later this year.

Treasury yields were nearly unchanged and the U.S. dollar trimmed some its solid gains from the previous session. Gold declined and crude oil prices ticked lower.

In other economic developments, weekly jobless claims fell, regional manufacturing activity surprisingly grew and leading indicators continued to climb.

The Markets…

The Dow Jones Industrial Average (DJIA) decreased 53 points (0.2%) to 22,359,

The S&P 500 Index lost 8 points (0.3%) to 2,501, and

The Nasdaq Composite declined 33 points (0.5%) to 6,423.

In moderate volume, 726 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq.

WTI crude oil shed $0.14 to $50.55 per barrel and wholesale gasoline was $0.02 lower at $1.64 per gallon. Elsewhere,

The Bloomberg gold spot price decreased $10.28 to $1,290.82 per ounce, and

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 92.24.

Leading indicators continue upward momentum, jobless claims fall

The Conference Board’s Index of Leading Economic Indicators (LEI) for August rose 0.4% month-over-month, above the Bloomberg projection to match July’s unrevised 0.3% gain. This was the twelfth-straight monthly gain for the index, bolstered by ISM new orders, building permits, the yield curve and consumer expectations, which more than offset the negative impact of jobless claims, which jumped briefly after Hurricane Harvey.

The LEI suggests limited risk of an economic recession, keeping us in the bull market camp, as Bear markets have rarely occurred outside of economic recessions. However, there are some near-term risks, and we think any corrective phase will be limited in both time and magnitude. One of the strongest areas of the U.S. economy continues to be the labor market and the leading indicator of jobless claims continues to indicate a robust employment environment.

Weekly initial jobless claims dropped by 23,000 to 259,000 last week, below forecasts of 302,000, with the prior week’s figure being revised lower by 2,000 to 282,000. The four-week moving average rose by 6,000 to 268,750, while continuing claims increased 44,000 to 1,980,000, north of estimates of 1,975,000. Claims have been volatile in the wake of the Hurricanes Harvey and Irma.

The Philly Fed Manufacturing Index in September rose to 23.8 from 18.9 in August, with a reading above zero indicating expansionary activity, and compared to estimates of a decline to 17.1.

Treasuries were little changed, with the yields on the 2-year note and the 30-year bond nearly unchanged at 1.44% and 2.81%, respectively, while the yield on the 10-year note increased 1 basis point to 2.28%.

Bond yields continued a solid rebound and the U.S. dollar rallied yesterday following the Fed’s unchanged monetary policy decision. The Fed, as expected, left rates unchanged but announced it would start to shrink its balance sheet in October. On balance, the statement was seen as more hawkish than expected, with the majority of FOMC participants expecting at least one more rate hike this year. We expect less impact on stocks and Treasuries, but more impact on the mortgage market.

Europe mostly higher, Asia mostly lower

Most European equity markets traded higher, with the markets digesting the expected unchanged monetary policy decision in the U.S. and announcement that in October the Central Bank will begin to shrink its balance sheet. However, the Fed appeared to strike a more hawkish tone and expectations of another rate hike this year rose, boosting the U.S. dollar. This comes on the heels of recent hawkish signals from the European Central Bank and the Bank of England.

Financials led to the upside, amid rising bond yields in the region and speculation of large M&A activity as Italy’s largest bank was reported to have shown interest in merging with Germany’s second-largest, state-backed, lender. None of the companies commented on the speculation, but Bloomberg reported that the German Finance Ministry told it there are no current negotiations.

The euro trimmed yesterday’s fall against the U.S. dollar that came on the heels of the Fed’s decision, while the British pound also pared yesterday’s drop. In economic news, Switzerland’s exports rebounded in August, while eurozone consumer confidence fell by a smaller amount than expected for September.

Stocks in Asia finished mostly to the downside on the heels of yesterday’s monetary policy decision by the Fed, which announced it would start to shrink its balance sheet in October, as expected, but appeared a bit more hawkish to preserve expectations of another rate hike this year.

The Bank of Japan left its monetary policy stance unchanged. The U.S. dollar rallied sharply following the Fed’s decision, which weighed on the yen and helped Japanese equities rise. However, shares trading in mainland China and Hong Kong dipped. Stocks in Australia, South Korea and India finished lower.

The international economic docket for tomorrow will be limited to preliminary Markit manufacturing and services PMIs from Germany, France and the Eurozone, while France is also expected to report Q2 GDP.