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 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.