Weekly Market Update August 20, 2018
Presented by Fred Burgess
General Market News
- On Monday morning, the yield for the 10-year Treasury opened at 2.85 percent, closer to the bottom of the range in which it had been trading in recent days. The yields for the 30- and 2-year Treasuries were 3.01 percent and 2.6 percent, respectively. Most parts of the curve opened at or close to the flattest they’ve been in this cycle, with the spread between the 2- and 10-year notes at less than 24 basis points (bps). The difference between yields on the 2- and 30-year Treasuries was down to only 39 bps—just above its most recent low.
- The markets were mixed last week. In the U.S., the Dow Jones Industrial Average led the way with a 1.49-percent gain, backed by earnings strength from retailers Walmart (WMT) and Nordstrom (JWN). The Nasdaq lagged, as we saw a rotation toward value. Telecommunications, consumer staples, and REITs were among last week’s top performers. Energy, materials, and consumer discretionary were among the top laggards. Meanwhile, in international markets, the MSCI Emerging Markets Index continued to be hurt by contagion fears surrounding Turkey’s currency weakness.
- Several news items out of China affected last week’s market performance. The first story announced that the U.S. and China had agreed to resume trade talks this week. The second story speculated that softer July activity was leading to some concerns about a slowdown in global growth momentum. The third story reported that China had frozen its approvals of game licenses. China’s government continues to reorganize various departments, and its regulators have become more concerned about the content in some games.
- Last week was busy on the economic update front. On Wednesday, July’s retail sales data came in better than expected, as consumers are still spending. On a month-over-month basis, sales grew 0.5 percent against expectations for 0.1-percent growth.
- On Thursday, building permits and housing starts were a mixed bag; starts declined while permits rose slightly. Given the current low level of new home supply, these measures will be an important barometer of the overall health of the housing market.
- Finally, on Friday, the University of Michigan consumer sentiment survey dropped to 95.3, against expectations that it would remain steady at 97.9. The result still represents a strong level of confidence. Consumers are continuing to spend, as reflected in the strong retail sales figure.
|MSCI Emerging Markets||–3.68%||–5.82%||–9.99%||–0.93%|
|Fixed Income Index||Month-to-Date||Year-to-Date||12-Month|
|U.S. Broad Market||0.50%||–1.10%||–0.78%|
Source: Morningstar Direct
What to look forward to
This week will be relatively quiet on the economic news front, with only two major data releases.
On Wednesday, the minutes from the August 1 meeting of the Federal Open Market Committee will be released. At that meeting, the committee kept rates flat. The major section of the minutes to watch for will be the commentary surrounding inflation, as most inflation figures are now above the Federal Reserve’s stated 2-percent target.
On Friday, July’s durable goods orders are expected to show a slight decline due to transportation orders. The core figure, which excludes volatile transportation orders, is expected to show steady 0.5-percent growth. This proxy for business confidence has been growing steadily throughout the year, so a decline in the headline number would be nothing to worry about.