- The major U.S. stock market indices were mixed, as the prospects of rising rates and more trade tensions were two recurring themes throughout the week
- The large-cap S&P 500 and DJIA both hit new records, finishing the week with gains of 0.8% and 2.3%, respectively, but the technology-laden NASDAQ finished the week down by 0.3%
- It was the first time the DJIA hit a new record since January 26th
- President Trump kept tariff tension in the air and announced tariffs on $200 billion worth of Chinese goods starting on September 24th, but the market seemed to shrug off the news as being somewhat positive — as if there is room for negotiations — given that the tariff rate will start at 10% and will increase to 25% on January 1st
- In a reversal of prior weeks, the financial sector was among the top-performing groups with a jump of 2.3%, having benefited from a steepening yield curve
- The yield on the benchmark 10–yr Treasury note climbed to end Friday at 3.06%, while the sensitive 2–year yield jumped to 2.81%
- The technology sector underperformed this week, losing 0.1% and giving up its top YTD spot to the consumer discretionary sector, which is up a whopping 18.7% YTD (vs. 18.5% YTD for technology)
- On the week, eight of the eleven S&P sectors finished bathed in green, but there was lots of chatter about a new sector being created next week that will be called “Communication Services” and will include several big names — Facebook, Alphabet (Google), Netflix and Disney
- WTI crude climbed 2.6% this week to over $70/barrel
- The Fed is expected to raise rates by 25 basis points at next week’s meeting, with the CME’s Fed Watch Tool placing the chances of a rate increase at just about 100%
Weekly Market Performance
And The Bull Marches On
The U.S. stock market hit new highs on Thursday and Friday of this week, bringing its total return to more than 400% since the bull market started in early 2009. Equally impressive is that the S&P 500 has moved 15% off its low from earlier this year, when the bears were starting to dance on Wall Street during the first few months of 2018.
- Despite these new records, it was still a mixed week for the markets as the tech-heavy NASDAQ and the smaller cap benchmarks turned in small losses on the week.
- A sharp uptick in longer-term bond yields pushed financials stocks along, but hampered REITs and Utilities as dividend payers looked less attractive given the rise in longer-term rates.
- For the first time in over a month, value stocks outperformed growth stocks, but growth stocks remain significantly ahead of value stocks so far in 2018.
US & China Continue Trade Conflict...but Market Doesn't Care
Economists braced for bad news on the trade conflicts between the U.S. and China and while the news was dramatic, the markets didn’t really react as many expected.
Stocks moved down Monday afternoon in anticipation of news from the White House, which occurred after market close when President Trump announced that $200 billion worth of Chinese goods would be subject to a 10% tariff immediately and that would rise to 25% by the end of 2018. This announcement is in addition to tariffs on approximately $50 billion of Chinese goods already. The next trading day —Tuesday — saw stocks rise steadily, a trend that continued for the remainder of the week to the surprise of many economists.
Glass-half-full economists are suggesting that the initial 10% level is an indication that the White House is willing to negotiate. Time will tell.
Jobless Claims Lowest Since 1969
Investors received positive news from the Department of Labor when weekly jobless claims were reported. From the DOL:
“In the week ending September 15, the advance figure for seasonally adjusted initial claims was 201,000, a decrease of 3,000 from the previous week's unrevised level of 204,000. This is the lowest level for initial claims since November 15, 1969 when it was 197,000.
The 4-week moving average was 205,750, a decrease of 2,250 from the previous week's unrevised average of 208,000. This is the lowest level for this average since December 6, 1969 when it was 204,500.“
FactSet is Predicting Headwinds
Research firm FactSet released this statement at the close of trading Friday:
“Heading into the end of the third quarter, 98 S&P 500 companies have issued EPS guidance for the quarter. Of these 98 companies, 74 have issued negative EPS guidance and 24 companies have issued positive EPS guidance.
The percentage of companies issuing negative EPS guidance is 76% (74 out of 98), which is above the five-year average of 71%. If 76% is the final percentage for the quarter, it will mark the highest percentage of S&P 500 companies issuing negative EPS guidance for a quarter since Q1 2016 (79%).“
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