Weekly Market Update,
September 17, 2018
Presented by Fred Burgess
General Market News
- Rates moved higher last week. The 10-year Treasury yield went from 2.87 percent to more than 3 percent this morning. The 3-year bond is now yielding what the 10-year was last week, and the 2-year is yielding what the 10-year was two weeks ago. As rates continue to compress and push up closer to a ceiling, the bond market seems to be telling us that while the economy looks good, there are factors indicating a recession in the future. The Federal Reserve (Fed) seems committed to raising rates. Keep in mind, however, that the Fed uses its “language” as a policy tool as well.
- All three major U.S. indices, the Russell 2000, and both the MSCI EAFE and MSCI Emerging Markets indices were up last week. Both improvement in fundamentals and the expectation of resumed trade talks between the U.S. and China were also in the news. The Wall Street Journal reported on Wednesday that Treasury Secretary Steven Mnuchin had reached out to continue trade talks with China. This was confirmed by the Chinese Foreign Ministry, which had reportedly welcomed the offer. Further, the Turkish Central Bank surprised last week when it increased the one-week repo rate by 625 basis points. This move followed the country’s continued currency weakness after the U.S. doubled its tariffs of Turkish steel and aluminum last month.
- Despite both Goldman Sachs and Stifel raising concerns over a potential peak in the memory chip cycle, the S&P 500’s technology sector posted a 1.83-percent gain. This move was supported both by Qualcomm announcing $16 billion of its common stock as the first phase of its $30 billion buyback plan and by a 1.2-percent move in Apple following the release of three new iPhones and a new version of the Apple watch.
- Economic news regarding inflation and consumer spending was released last week. On Wednesday, the Producer Price Index declined by more than expected, leaving annual inflation for producers at 2.8 percent. On Thursday, the Consumer Price Index showed a similar decline, with annual inflation of 2.7 percent.
- On Friday, August retail sales came in lower than expected at 0.2-percent growth month-over-month. July’s figure was revised upward, however, accounting for the lower-than-expected growth in August.
| Equity Index | Week-to-Date | Month-to-Date | Year-to-Date | 12-Month |
| S&P 500 | 1.21% | 7.33% | 10.18% | 18.68% |
| Nasdaq Composite | 1.39% | 6.90% | 16.92% | 25.90% |
| DJIA | 0.94% | 8.37% | 7.59% | 20.47% |
| MSCI EAFE | 1.78% | –0.60% | –2.96% | 2.19% |
| MSCI Emerging Markets | 0.60% | –2.91% | –9.23% | –3.97% |
| Russell 2000 | 0.54% | 5.03% | 13.08% | 22.36% |
Source: Bloomberg
| Fixed Income Index | Month-to-Date | Year-to-Date | 12-Month |
| U.S. Broad Market | –0.55% | –1.51% | –1.37% |
| U.S. Treasury | –0.73% | –1.46% | –1.95% |
| U.S. Mortgages | –0.52% | –0.98% | –0.97% |
| Municipal Bond | –0.46% | –0.21% | –0.01% |
Source: Morningstar Direct
What to look forward to
This week’s economic data is all about housing.
On Tuesday, the National Association of Home Builders survey will be released. It is expected to tick down a bit further—from 67 in August to 66 in September—for the third month in a row. There may be some upside risk here. Although the industry continues to suffer from labor shortages and slowing housing demand, dropping lumber prices and an increase in permits may signal improved sentiment. That being said, this survey has shown declining confidence for several months now.
On a similar note, the housing starts report, released on Wednesday, is expected to show further recovery after a significant drop in June. It should rise from 1.17 million in July to 1.23 million (annualized) in August. Here again, this report will be constrained by rising supply and weakening demand. Even if it comes in as expected, it will still be below the levels from earlier this year.
Finally, on Thursday, the existing home sales report is also expected to show sales rising from 5.34 million in July to 5.38 million in August. This would be a partial recovery, but as with new home sales, it will be below the levels of the first half of the year.
Overall, while some recovery is expected from the weak results of last month, the data will likely show that housing continues to slow.