General market news
- Last week, the Federal Reserve (Fed) cut rates by 25 basis points (bps), bringing the lower rate target to 1.75 percent. The 10-year Treasury opened early Monday at 1.69 percent after posting its highest rates since the end of July at 1.90 percent. The 2-year Treasury touched 1.80 percent and opened at 1.66 percent on Monday. The 30-year Treasury, which had been as high as 2.37 percent, opened at 2.13 percent.
- A tick up in trade tensions and some uncertainty in the Fed’s future rate path led markets modestly lower.
- On Friday, trade tensions increased when Chinese officials cancelled their visit to U.S. farms. This decision came following remarks from President Trump that he does not want an interim trade deal and does not think a trade deal needs to be reached before the 2020 election.
- The top-performing sectors were the more defensive and bond proxy sectors in health care, utilities, and real estate. The worst performers were the more growth and cyclical sectors, such as consumer discretionary, technology, and industrials. Despite the sell-off in technology, Microsoft (MSFT) was the top contributor to the index last week, up 1.54 percent as it authorized an additional $40 billion in share buybacks and increased its quarterly dividend by 5 cents.
- Netflix (NFLX) was among the top detractors on the week, down by 7.96 percent. CEO Reed Hastings admitting to Variety magazine that “while we’ve been competing with many people in the last decade, it’s a whole new world starting in November.” He was referring to streaming services Disney+ and Apple TV+, which are both due out in November.
- The week began with Tuesday’s release of the August industrial production report, which showed faster-than-expected growth. Headline production grew by 0.6 percent against expectations for 0.2 percent growth. This outsized growth during the month was due in large part to a rebound in manufacturing output, which grew by 0.5 percent during the month. This result should help calm fears of a sustained downturn in manufacturing output following the recent decline in manufacturing confidence.
- Also on Tuesday, the National Association of Home Builders Housing Market Index was released. Home builder confidence increased by more than expected. It went from 66 in August to 68 in September, against expectations for a more modest increase to 67. This result marks the highest level of home builder confidence in 11 months, as low interest rates and strong home buyer demand continue to support builders.
- On Wednesday, this increased confidence was put to the test, as August’s building permits and housing starts reports were released. Both came in much better than expected. Starts increased an impressive 12.3 percent during the month against expectations for 5 percent growth. New home supply remains constrained in key markets, so this uptick in development is good news for the housing market.
- The Federal Open Market Committee (FOMC) met last Tuesday and Wednesday for its regularly scheduled rate setting meeting. On Wednesday, the FOMC rate decision was released, revealing that the FOMC lowered the upper bound of the federal funds rate from 2.25 percent to 2 percent. This rate cut was presented by Fed Chairman Jerome Powell as a hedge for the U.S. economy against slowing global trade. Voting members of the FOMC were uncharacteristically split, with a final tally of seven FOMC participants supporting the cut and three voting against the action. This public disagreement indicates that future rate cuts this year are not guaranteed, despite market expectations for a further cut in December.
- We finished out the week with the release of August’s existing home sales report. Sales rose by 1.3 percent during the month, against expectations for a 0.7 percent decline. This result marks the second straight month of growth in existing home sales and, perhaps even more important, the second straight month of year-over-year growth in existing home sales. This growth is notable, as we had previously experienced 17 straight months of year-over-year declines in existing home sales until July’s results broke the trend. This continued growth, combined with increasing home builder sentiment and building activity, indicates that the housing sector may finally be turning around after a couple of disappointing years.
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|Fixed Income Index
|U.S. Broad Market
What to Look Forward To
We’ll start the week with Tuesday’s release of the Conference Board Consumer Confidence Index. It is set to decline from 135.1 in August to 133 in September. A spike in gas prices midmonth due to the disruption of Saudi Arabian oil production is expected to weigh on consumer confidence. Despite the anticipated decline for the index, confidence remains near post-recession highs, as equity markets have recovered from August’s volatility nicely and the job market remains healthy. High confidence levels support continued consumer spending, so this will be an important update to monitor for any weakness.
On Wednesday, August’s new home sales report will be released. New home sales are forecast to increase by 3.3 percent in August, following a 12.8 percent decline in July. Historically, new home sales have been much more volatile than existing home sales, as new homes make up a much smaller portion of the market. A rebound in new home sales following July’s decline would be welcome and unsurprising given the better-than-expected housing data we’ve already seen in August.
On Friday, August’s personal income and personal spending reports are set to be released. Economists expect income to rise by 0.4 percent during the month. Spending is set to grow by 0.3 percent, following a 0.6 percent increase in July. Consumer spending has been the major driver of economic growth for much of the year, so continued strength in August’s income and spending figures would bode well for overall third-quarter growth.
Also on Friday, August’s durable goods orders report is set to be released. Here, economists expect a 1.2 percent decline in August, following a 2 percent increase in July. While the projected headline decline is disappointing, it would be due in large part to an expected drop-off in aircraft orders following the continued grounding of the Boeing 737 MAX. The core durable goods figure, which strips out the impact of volatile transportation orders, is set to increase by 0.2 percent.