- The major U.S stock market indices ended the week mixed again — just like last week — although the technology-laden NASDAQ turned in a pretty decent gain
- The S&P 500 retreated from its all-time high as investors were inundated with drama from Washington and the latest rate–hike announcement from the Federal Reserve
- The Fed announced its third rate hike in 2018 and signaled a path to raise rates for a fourth time before the year is over
- The Fed also appears to be on track to raise rates another 25 basis points in December, with the CME FedWatch Tool putting the chances at 76%. Fed–watchers are further predicting three rate hikes in 2019 and one in 2020
- Along with technology stocks, consumer discretionary shares outperformed, while the materials sector and financial sector declined
- The week saw the U.S. implementing tariffs on $200 billion worth of Chinese goods, and then the expected response of retaliatory tariffs from China on $60 billion worth of U.S. goods
- OPEC was in the news this week after it and non–OPEC nations ended meetings without an agreement to increase output in order to react to declining supply from Iran. President Trump lambasted OPEC in front of the UN, saying the oil cartel is “ripping off the rest of the world”
Weekly Market Performance
Solid Third Quarter
A solid third quarter has pushed 2018 into a pretty good year as U.S. stocks finished the third quarter with a 7.2% gain — the best quarter since 2013.
Very solid corporate earnings, historically low unemployment, increased wage growth and still relatively low interest rates have all caused the U.S. markets to handily outpace global markets. Lost in all the good news is that the bull market is still very much alive, as the S&P 500 is up over 14% since February, when the bears were starting to make noises.
FED Raises Rates a Third Time in 2018
On Wednesday, the Federal Reserve increased short term rates by 25 bps in what was probably the most predictable and predicted rate movement the markets have ever seen. Here are the exact words from the Fed’s release:
“Information received since the Federal Open Market Committee met in August indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12–month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer–term inflation expectations are little changed, on balance.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.
In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2 to 2-1/4 percent.”
Musk Slips Up
One of the biggest stories of the week was the SEC’s grenade thrown at Tesla and its CEO, Elon Musk. On Thursday, the SEC announced that it was going after Musk for his tweet about taking the electric automaker private. According to sources, Musk and the SEC were close to reaching a no-guilt settlement that would have barred him from being chairman for two years, but Mr. Musk walked away from the agreement at the last minute. But, then this past Saturday Mr. Musk agreed to pay $20 million in fines and be removed as Chairman of Tesla. He is still allowed to operate as CEO of Tesla.
To understand how serious the SEC is, here is their release from Thursday:
“The Securities and Exchange Commission today charged Elon Musk, CEO and Chairman of Silicon Valley-based Tesla Inc., with securities fraud for a series of false and misleading tweets about a potential transaction to take Tesla private.
On August 7, 2018, Musk tweeted to his 22 million Twitter followers that he could take Tesla private at $420 per share (a substantial premium to its trading price at the time), that funding for the transaction had been secured, and that the only remaining uncertainty was a shareholder vote. The SEC’s complaint alleges that, in truth, Musk had not discussed specific deal terms with any potential financing partners, and he allegedly knew that the potential transaction was uncertain and subject to numerous contingencies. According to the SEC’s complaint, Musk’s tweets caused Tesla’s stock price to jump by over six percent on August 7, and led to significant market disruption.
The SEC’s complaint, filed in federal district court in the Southern District of New York, alleges that Musk violated antifraud provisions of the federal securities laws, and seeks a permanent injunction, disgorgement, civil penalties, and a bar prohibiting Musk from serving as an officer or director of a public company.”
A Little Data Dump
- Personal income climbed 0.3% in August
- Personal spending rose 0.3% in August
- The PCE Price Index rose 0.1% in August and the core PCE Price Index, which excludes food and energy, was flat
- Year-over-year, the core PCE Price Index is up 2.0%, unchanged from July
- The University of Michigan Consumer Sentiment Index for September moved down to 100.1
- The Chicago PMI Index declined to 60.4 in September from 63.6 in August (the dividing line between expansion and contraction is 50.0)
sec.gov; sca.isr.umich.edu; ism-chicago.org ; bls.com; cmegroup.com; commerce.gov; standardandpoors.comv commerce.gov; bls.gov; msci.com; dol.gov; cboe.com; federalreserve.gov; nasdaq.com; dowjones.com; morningstar.com; edwardjones.com; bloomberg.com