Market Insights 8/24/2018

U.S. stocks finished the week in strong fashion as market participants seemingly had a dovish take on Fed Chairman Jerome Powell’s Jackson Hole speech and as business spending reportedly rose for the fourth-straight month.

Treasury yields ticked to the downside, gold and crude oil prices advanced and the U.S. dollar declined.

The Markets…

The Dow Jones Industrial Average advanced 133 points (0.5%) to 25,790

The S&P 500 Index increased 18 points (0.6%) to 2,875

The Nasdaq Composite gained 68 points (0.9%) to 7,946

In moderate volume, 611 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.89 higher to $68.72 per barrel and wholesale gasoline was up $0.01 at $2.07 per gallon

The Bloomberg gold spot price added $19.79 to $1,205.35 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.6% lower at 95.13

Markets were higher for the week, as the DJIA increased 0.5%, the S&P 500 Index advanced 0.9%, and the Nasdaq Composite jumped 1.7%

Business spending rises for fourth-straight month, Fed Chair Powell keeps rate concerns calm

July preliminary durable goods orders fell 1.7% month-over-month, compared to the Bloomberg estimate of a 1.0% decline, and June’s 0.8% rise was revised to a 0.7% gain. Ex-transportation, orders were up 0.2% m/m, versus forecasts of a 0.5% rise and compared to June’s downwardly-revised 0.1% gain. However, orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, jumped 1.4%, well above projections of a 0.5% gain, and the prior month’s figure was revised higher to a 0.6% increase from the initially reported 0.2% rise.

The report showed orders for aircraft and parts, typically volatile, fell but demand for autos, computers and related products, and machinery gained solid ground. This was the first look at manufacturing orders since the U.S. and China imposed tariffs on each other last month, and the business spending component registered a fourth-straight monthly gain, likely preserving economic optimism and keeping trade concerns in check.

The data set the stage for today’s speech at the Fed gathering in Jackson Hole, Wyoming, from Chairman Jerome Powell, in which he noted the solid economic backdrop but no apparent risk of overheating, and if this continues gradual rate hikes remain appropriate. Powell also added that there is no clear sign of inflation accelerating above the Central Bank’s 2.0% target and “we will do whatever it takes” should inflation expectations drift materially up or down or should crisis again threaten.

The speech and today’s data appeared to foster a positive market takeaway but as the Fed has expressed little concern, but financial conditions have gotten tighter this year, which has implications for markets. Also, economic growth continues to be solid, but the rate of improvement may be leveling off, while trade/tariff concerns and the Fed inject more uncertainty for investors.

The U.S. dollar resumed a recent retreat from last week’s more than 1-year high and Treasuries overcame early losses, with the yield on the 2-year note little changed at 2.62%, while the yield on the 10-year note declined 1 basis point to 2.81%, and the 30-year bond rate dipped 2 bps to 2.96%.

Europe higher and Asia mixed on data, energy, and Fed Chair’s speech

European equities finished higher, despite some strength in the euro and British pound as the U.S. dollar resumed a recent soft patch, exacerbated by today’s speech from Fed Chairman Jerome Powell that seemed to foster a dovish takeaway. Also, the markets appeared to shrug off the conclusion of low-level trade talks between the U.S. and China that ended without a major breakthrough.

Stocks in Asia finished mixed, with the U.S. and China wrapping up low-level trade talks with no major agreements, while consumer price inflation data out of Japan came in a bit cooler than expected, while a political shakeup in Australia garnered attention.

Japanese equities gained ground, extending a recent rally as the yen continued to slide in the wake of the inflation data. Stocks trading in mainland China nudged higher, while those trading in Hong Kong declined. Australian securities pared gains, but ticked higher, in the wake of the ouster of Prime Minister Malcolm Turnbull, with Scott Morrison being named the new leader.

The markets were likely a bit cautious ahead of today’s speech from Fed Chairman Jerome Powell, especially the emerging markets as the gradual pace of rate hikes has underpinned the U.S. dollar this year, exacerbating volatility in the group along with the flared-up Turkish turmoil.

Stocks post modest weekly gain on energy, trade and earnings

Stocks finished higher on the week, returning to near record high territory. The energy sector led the way as crude oil prices rallied and snapped a string of weekly losses amid supply concerns as oil inventories fell decisively and worker strikes in the North Sea threatened production, along with the impact of renewed U.S. sanctions on Iran.

Consumer discretionary issues also contributed to the upside move as the retail sector, highlighted by Target Corporation, put the finishing touches on a strong earnings season. Trade concerns were held at bay, helping tech stocks rebound from last week’s decline and materials issues advance solidly. NAFTA negotiations seemed to show some signs of progress and a meeting between President Donald Trump and Chinese President Xi Jinping appeared to be set for November despite low-level talks this week failing to yield any new developments.

The economic front remained solid, even as concerns toward the housing sector continued to gain traction, as existing and new home sales both surprisingly declined in July. The yield curve continued to flatten and the U.S. dollar continued to retreat from last week’s 14-month high, with the minutes from the Fed’s July/August meeting and Fed Chairman Powell’s Jackson Hole speech offering an upbeat economic assessment but not signaling a change to the Central Bank’s gradual rate hike campaign.

International reports due out next week that deserve a mention include: China—Manufacturing and non-Manufacturing PMI Indexes. Japan—retail sales, Tokyo Consumer Price Index (CPI), and industrial production. Eurozone—economic confidence, consumer confidence, and CPI, along with German business sentiment and retail sales.