Market Insights 9/17/2018

Trade and Technology Drag Stocks Lower

U.S. stocks finished lower as trade uneasiness was accelerated by expectations President Donald Trump will go ahead with further tariffs on China after the closing bell.

Tech issues remained vulnerable by the trade uneasiness and Amazon pressured the consumer discretionary sector.

Treasury yields were little changed though the U.S. dollar fell, while a read on regional manufacturing noticeably missed estimates. Crude oil prices turned lower and gold advanced.

The Markets…

The Dow Jones Industrial Average fell 93 points (0.4%) to 26,062

The S&P 500 Index was 16 points (0.6%) lower at 2,889

The Nasdaq Composite dropped 114 points (1.4%) to 7,896

In moderate volume, 732 million shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq

WTI crude oil dipped $0.08 to $68.91 per barrel and wholesale gasoline was little changed at $1.97 per gallon

The Bloomberg gold spot price moved $5.73 higher to $1,200.59 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.4% to 94.49

Regional manufacturing activity falls more than expected to kick off the week

The Empire Manufacturing Index showed output from the New York region fell more than expected but remained solidly in expansion territory (a reading above zero) for September. The index dropped to 19.0 from August’s unrevised 25.6 level, with the Bloomberg forecast calling for a decline to 23.0.

Treasuries were little changed, with the yields on the 2-year and 10-year notes, along with the 30-year bond, flat at 2.78%, 2.99% and 3.13%, respectively. The U.S. dollar saw some pressure.

The markets continued to grapple with a highly-expected Fed rate hike next week as economic data has been mostly solid, headlined by the August non-farm payroll report that showed wage growth was stronger than expected, but recent reads on inflation came in cooler than anticipated to keep a December rate hike in question. Trade concerns continued to fester as talks with China seemed threatened by news that President Donald Trump is likely to go ahead with further tariffs on Chinese goods after today’s market close.

Today’s regional manufacturing report kicked off the week’s economic calendar, and will be complemented by the Philly Fed Business Outlook Index later this week, along with the Leading Index, which will give us a look at economic momentum as we head toward Q4. However, the housing market, which has been a recent source of economic uncertainty, will likely garner the most of attention, courtesy of August housing starts and building permits and existing home sales. Tomorrow the data will begin with a September read on homebuilder sentiment in the form of the NAHB Housing Market Index, expected to dip to 66 for September from 67 in August, though a reading of 50 separates good and poor conditions.

There is little doubt that near-term risks have risen, but that can help the long-running bull market continue as investor enthusiasm remains lacking and we have not reached the euphoria stage. Risks exist on both sides—pullbacks are possible but so are breakouts to the upside—warranting a relatively neutral stance on US equities in our opinion. Trade disputes as of yet are not having much impact on U.S. economic growth, although the risk remains, especially with regard to China. Meanwhile, the Fed will almost assuredly raise rates later this month, but has kept overtly hawkish commentary to a minimum. International equities have continued to diverge from U.S. equities and we would continue to be under-weighted on most developed market regions.

Remember John Templeton’s famous quote ““Bull markets are born in pessimism, grow on skepticism, mature on optimism and die on euphoria.”

Europe mixed on earnings and trade worries, which weighed on Asia

European equities finished mixed, with the euro and British pound rising versus the U.S. dollar, while expectations that the U.S. could soon impose further tariffs on China seemed to exacerbate global trade concerns. U.K. Brexit uncertainty lingered but Italian budget worries appeared to continue to recede. Earnings from the retail sector also helped support the markets. Bond yields in the region traded mixed with the cooled Italian budget concerns weighing on that nation’s rates, while most other yields nudged higher. Eurozone consumer price inflation for August came in as expected.

The U.K. FTSE 100 Index was little changed, France’s CAC-40 Index dipped 0.1%, Germany’s DAX Index declined 0.2%, and Switzerland’s Swiss Market Index decreased 0.4%, while Italy’s FTSE MIB Index rallied 1.1% and Spain’s IBEX 35 Index gained 0.4%.

The previously mentioned trade concerns also weighed on stocks in Asia, led by the Chinese markets, with concerns that if the U.S. goes ahead with another round of tariffs on Chinese goods it could thwart an another round of talks. However, volume was lighter than usual with markets in Japan closed for a holiday. South Korean equities traded lower, but Australian stocks moved higher with financials leading to the upside. Indian markets finished lower on the trade uneasiness and following a downgrade of the nation’s markets by Goldman Sachs, as well as the continued drop in the rupee as the government’s measures to support the currency appeared to disappoint.