General market news
- Following the Federal Reserve’s (Fed’s) announcement on Wednesday to leave interest rates unchanged (for now), the 10-year Treasury spiked to 2.28 percent, its highest point since August 16. It opened Monday at 2.24 percent. The 30-year briefly touched 2.83 percent last Wednesday before opening Monday at 2.78 percent. The 2-year spiked from 1.39 percent to 1.44 percent after the Fed’s announcement, and it has maintained that level.
- S. markets were mixed last week as the Federal Open Market Committee meeting, mergers and acquisitions (M&A) activity, and individual stock performance all played a role. The Dow Jones Industrial Average led the way, posting a gain of 0.36 percent, as telecom, financials, industrials, and energy posted the largest gains. Telecom was up 3.8 percent on news that Sprint (S) and T-Mobile (TMUS) were nearing terms of a deal. The industrial sector also saw some M&A activity last week, as Orbital ATK, Inc., agreed to be acquired by Northrop Grumman Corp. (NOC) for an expected $7.8 billion.
- Financials were supported by the Fed’s plan for continued tightening, as it projected one additional rate hike this year and three for 2018. The S&P 500 was mostly flat as the bond proxies in consumer staples, utilities, and real estate experienced the largest declines last week. The Nasdaq Composite Index experienced a decline of 0.33 percent, as weak projected iPhone 8 sales weighed on Apple Inc. (AAPL) and the sector.
- Last week’s economic data focused mostly on housing. To start things off, the National Association of Home Builders Housing Market Index declined unexpectedly. This decline was likely due to increased costs for builders. Despite the decline, the index remains in healthy expansionary territory, as homebuilders are confident that demand is strong.
- Given high levels of homebuilder confidence, it is not surprising that both housing starts and building permits increased in August. Permits significantly outperformed expectations with an increase of 5.7 percent; they had been forecast to decline 0.8 percent.
- Finally, existing home sales disappointed by falling 1.7 percent in August. As has been the case for the entire year, existing home supply remains near all-time lows. This is due in large part to a reluctance by elder homeowners to sell, which has curtailed sales
|MSCI Emerging Markets||0.03%||1.47%||30.48%||22.84%|
|Fixed Income Index||Month-to-Date||Year-to-Date||12-Month|
|U.S. Broad Market||–0.38%||3.24%||0.73%|
What to look forward to
This week will give us a broad look at the economy, with housing, consumer confidence, business investment, and personal income and spending reports lined up. Some weakness is expected, but it would be due to the effects of hurricanes Harvey and Irma and should be short lived. Overall, although the data this week will be worth watching, given the storm effects, we shouldn’t give excessive weight to it.
The new home sales report, due on Tuesday, is expected to rise from 571,000 in July to 590,000 in August, with significant upside potential. This would be a rebound from a surprise decline in July, which brought sales down by almost 10 percent. Should this number come in as expected or higher, it would suggest that last week’s disappointing existing homes data was due more to supply constraints than lack of demand.
Also on Tuesday, the Conference Board’s consumer confidence survey will be released. Expectations are for a small decline—from a very strong 122.5 in August to 119.5 in September—but there is some downside risk. A substantial rise in gas prices, due to the hurricanes, may give confidence a knock this month. If so, the drop may be temporary, as price gains are starting to reverse. In any event, even with a decline, this would keep confidence at a healthy level.
On Wednesday, durable goods orders are expected to bounce back at the headline level, from a drop of 6.8 percent in July to a gain of 0.9 percent in August, on a rebound in commercial aircraft orders. Core orders, which exclude transportation, are expected to rise 0.2 percent in September, after rising 0.6 percent in August. These results would suggest that business investment continues to improve.
Finally, on Friday, we’ll see personal income and spending figures. Personal income is expected to show a 0.3-percent gain in August, down from 0.4 percent in July. Spending is expected to show more of a slowdown, from 0.3 percent in July to 0.1 percent in August. These declines would be due largely to the hurricanes, as employment and wages, as well as retail sales, were directly affected. There may be some downside risk here as well, depending on how substantial the hurricane effects turn out to be. Although this would be something to watch, any weakness would be likely to reverse in subsequent months.