Weekly Market Update
September 24, 2018
Presented by Fred Burgess
General Market News
- Rates continue to move higher, testing certain resistance levels. The 10-year Treasury yield opened at 3.07 percent on Monday; less than a month ago, it was at 2.80 percent. The 2-year now stands at 2.80 percent, while the 30-year is at 3.20 percent. The difference in rates between the short end and the long end moved slightly higher last week but, in general, continues a downward trend. The Federal Reserve (Fed) is likely to raise the federal funds rate on Wednesday, which could tighten the spread.
- S. equity markets were mixed last week. The Dow Jones Industrial Average and the S&P 500 both hit new all-time highs, while the tech-oriented Nasdaq Composite Index posted a small loss. Despite an escalation in U.S.-China trade tensions, markets seemed to shrug off the news.
- On Monday, President Trump announced plans to impose tariffs on an additional $200 billion in imported Chinese goods. The tariffs would go into effect this week and begin at 10 percent, before ramping up to 25 percent in 2019. China responded with an additional 5-percent to 10-percent tariff on $60 billion in U.S. imports. It remains uncertain whether the U.S. or China will move forward with these plans, but the market seemed to shrug off the news or take peace in the lower rates. In other news, a 0.7-percent decline in the U.S. dollar helped support emerging market stocks last week, easing the burden of their dollar-denominated debt.
- Last week, several housing-related economic updates were released. On Tuesday, the National Association of Home Builders Housing Market Index remained flat at 67. This result is down from highs earlier this year but still signals confidence among home builders.
- On Wednesday, housing starts increased, while building permits declined slightly. On Thursday, existing home sales came in unchanged for the month, against expectations for a slight increase.
| Equity Index | Week-to-Date | Month-to-Date | Year-to-Date | 12-Month |
| S&P 500 | 0.86% | 1.08% | 11.13% | 19.44% |
| Nasdaq Composite | –0.28% | –1.45% | 16.59% | 25.67% |
| DJIA | 2.25% | 3.07% | 10.01% | 22.32% |
| MSCI EAFE | 2.91% | 1.78% | –0.14% | 4.58% |
| MSCI Emerging Markets | 2.28% | –0.25% | –7.16% | –2.53% |
| Russell 2000 | –0.53% | –1.56% | 12.48% | 20.07% |
Source: Bloomberg
| Fixed Income Index | Month-to-Date | Year-to-Date | 12-Month |
| U.S. Broad Market | –0.81% | –1.76% | –1.36% |
| U.S. Treasury | –1.06% | –1.79% | –1.93% |
| U.S. Mortgages | –0.80% | –1.25% | –1.03% |
| Municipal Bond | –0.82% | –0.57% | –0.11% |
Source: Morningstar Direct
What to look forward to
This week is a busy one on the economic front. It gives us a solid look at the consumer’s thoughts and actions, as well as business activity and housing data.
On Tuesday, the Conference Board releases its consumer confidence survey. It is expected to pull back slightly, from 133.4 to 131.5. This result would still leave the index at a multiyear high and would signal continued spending growth. If the number comes in as expected, it will be positive for the economy.
On Wednesday, the new home sales report is expected to tick up slightly—from 627,000 to 631,000—continuing a gradual recovery from an earlier slowdown. If the number comes in as expected, it will signal that while housing growth continues to slow, it remains at healthy levels overall.
Also on Wednesday, the Fed meeting concludes. Markets expect the Fed to raise interest rates by 25 basis points on continued growth and rising inflation. The announcement will be followed by a press conference, which markets will be watching closely for hints of how the Fed sees future rate increases playing out. This rate increase is expected, so it should have minimal impact.
On Thursday, the headline index of the durable goods orders report is expected to bounce significantly. It should go from a 1.7-percent decline in July to a 1.7-percent increase in August, on a rise in airplane orders. As these numbers suggest, the headline index is notoriously volatile. The core index, which excludes transportation and is a much better economic indicator, is expected to improve from 0.1-percent growth in July to 0.4-percent growth in August, on growing capacity constraints in many businesses. This again would be a healthy level of growth.
On Friday, the personal income and spending report is expected to show that personal income rose by 0.4 percent in August, up from 0.3 percent in July, on continued strong job growth and faster wage growth. There may be some upside risk here. Personal spending is expected to fall from 0.4 percent in July to 0.3 percent in August, as retail sales surveys showed modest growth and auto sales declined. Despite the decline, this would remain a healthy level of spending growth and would be well supported by income growth.