The U.S. markets finished out Q3 nearly unchanged amid some mixed news on the economic front, some attention to geopolitical events and an eye toward the drama in Washington.
Treasury yields dipped but the U.S. dollar extended a recent run as of late, as Italian concerns and trade uneasiness lingered.
Crude oil prices jumped and gold was higher.
The Dow Jones Industrial Average rose 18 points (0.1%) to 26,458
The S&P 500 Index was nearly unchanged at 2,914
The Nasdaq Composite inched 4 points (0.1%) higher to 8,046
In heavy volume,955 million shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq
Crude oil rose $1.13 to $73.25 per barrel and wholesale gasoline was up $0.02 at $2.09 per gallon
The Bloomberg gold spot price gained $9.34 to $1,992.17 per ounce
The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 95.14
Markets were mixed for the week, as the DJIA fell 1.1%, the S&P 500 Index lost 0.5%, while the Nasdaq Composite increased 0.7%
Personal income and spending rise, consumer sentiment revised lower but at 6-month high
Personal income rose 0.3% month-over-month in August, versus the Bloomberg forecast of a 0.4% gain, and matching July’s unrevised rise. Personal spending gained 0.3%, in line with estimates, but below July’s unrevised 0.4% gain. The August savings rate as a percentage of disposable income was 6.6%.
Treasuries were mostly higher, as the yield on the 2-year note declined 3 basis points to 2.80% and the yield on the 10-year note dipped 1 bp to 3.04%, while the 30-year bond rate was little changed at 3.18%.
The Fed’s rate hike decision, which included updated economic projections and a press conference by Chairman Jerome Powell in her latest article, Tighten Up: Fed Raises Rates Again. Liz Ann notes that yesterday’s decision on rates and the accompanying statement reinforces an upbeat assessment of the economy; but a need to remain vigilant with inflation (and trade risks). We feel the removal of the “accommodative” language is seen as giving the Fed more flexibility both in future actions as well as communications.
The final September University of Michigan Consumer Sentiment Index was adjusted slightly lower to 100.1, from the preliminary 100.8 figure, and versus forecasts of 100.6. However, the index was above August’s 96.2 level and remained at a 6-month high. The downward revision came as both the expectations and current conditions components of the survey were adjusted lower, but both were up solidly versus August’s figures. The 1-year inflation forecast declined m/m to 2.7% from August’s 3.0% and the 5-10 year outlook dipped to 2.5% from 2.6%.
Europe falls as financials and Italian markets drop, Asia mixed on trade
European equities dropped broadly, despite some continued weakness in the euro and British pound as the U.S. dollar extended a run in the wake of this week’s third Fed rate hike of the year. Financials fell to weigh on the markets as Italian stocks tumbled on the heels of the release of Italy’s budget target that came in above what some had anticipated. The budget target also appeared to foster concerns about the potential reaction from ratings agencies and what the European Commission’s response may be. As such, Italian bond yields surged, with the 10-year rate jumping about 25 bps. Bond yields outside Italy were mostly lower.
Stocks in Asia finished mixed as the global markets continued to grapple with persisting trade uneasiness, while the yen weakened to help Japanese stocks continue to grind higher despite mixed economic data. Japanese equities rose solidly, with a host of data being digested, headlined by an unexpected dip in the nation’s unemployment rate and a larger-than-expected rise in retail sales, which was countered by a softer-than-expected read on industrial production. Mainland Chinese stocks and those traded in Hong Kong gained ground in the final trading session of the quarter that has seen the region’s stock markets slide on escalated trade tensions and festering concerns toward the emerging markets.
Markets in South Korea and India traded lower, with the latter extending a monthly drop that has come from liquidity concerns, as well as uneasiness regarding the weakening rupee and increased inflation pressures, likely exacerbated by the rise in the U.S. dollar, which has added to a recent run in the wake of this week’s third Fed rate hike of the year.
WEEK IN REVIEW: Stocks mixed on week as Fed, oil, trade and politics command attention
U.S. stocks finished mixed—but posted a strong Q3 advance—with trade uncertainty remaining a source of market skittishness as further tariffs between the U.S. and China went into effect and the latter reportedly declined a next round of talks. Enduring drama in Washington was also met with a persisting U.K. Brexit standoff, but Italy’s fiscal turmoil appeared to take top billing on the global political front to unnerve the markets. The Fed hiked rates for a third time this year as widely expected, but kept alive the possibility of another increase this year and suggested three more moves next year after upgrading the economic outlook.
The solid economic backdrop was on display this week, as Q2 GDP growth was unrevised at a 4.2% quarter-over-quarter annualized rate, new home sales rose more than expected and Consumer Confidence jumped to an 18-year high. Treasury yields were mixed-to-little-changed as the markets grappled with the Fed decision and exacerbated global uneasiness, while the U.S. dollar rebounded from last week’s drop. Crude oil prices extended a rally amid continued supply concerns. Materials and financials saw heavy pressure to weigh on the markets, but the energy sector posted a strong rally and technology issues gained ground.
Next week, the economic calendar will be robust as we head into Q4, courtesy of the ISM Manufacturing Index and ISM non-Manufacturing Index, monthly auto sales, factory orders and the trade balance. However, Fed monitoring is poised to remain in high gear, with two speeches from Chairman Jerome Powell preceding Friday’s September non-farm payroll report.
U.S. stock indexes again hit record highs but sentiment and action below the surface may indicate a less bullish picture. The uptrend should continue, but risks have risen, and we believe the signal is for investors to have a neutral stance. Higher oil prices could benefit Canadian and emerging market stocks, but also have the potential to impact central bank actions.