Week in Review
Week Ending: Friday, September 15, 2017
Recap & Commentary
Equity markets enjoyed strong gains resulting in the S&P 500 setting three new all-time highs and closing above 2,500 for the first time ever. The Dow Jones Industrial Average enjoyed similar performance, setting four new all-time highs. The gains came despite additional missile tests by North Korea and conventional wisdom that September is one of the weakest calendar months for stocks.
North Korea conducted its 14th missile test of the year on Thursday, launching a missile over Japan and far out into the Pacific Ocean. The launch came after the U.N. announced additional sanctions against the reclusive nation including limits on oil imports and a ban on textile exports. Thus far sanctions have had no demonstrable impact on curtailing North Korea’s pursuit of nuclear weapons or incentivizing it to resume negotiations.
Bitcoin experienced a rough week, falling more than 10% after China ordered exchanges to stop allowing people to trade the cryptocurrency, and JP Morgan CEO, Jamie Dimon called Bitcoin a fraud, pledging to fire any trader “stupid” enough to trade it. According to Bank of America Bitcoin is the most crowded trade in the market.
Markets will be closely watching the Fed this week in anticipation of a formal announcement by the central bank to begin reducing its $4.2T balance sheet. The plan, which the Fed first laid out following its June meeting, is intended to be very slow and methodical, or as Fed Chair Janet Yellen has described it, “as boring as possible.” As with many post-financial crisis actions, a balance sheet reduction of this magnitude will be another “first”.
Economic Bullet Points
Data out of the factory sector indicated that strength continues to build. Regional data showed some signs of overheating; the Empire State Mfg. Survey indicated new orders at their fastest monthly growth rate in 8 years, backlog orders starting to pile up, and delivery delays due to supply chain issues, a result of the hurricanes. Hurricanes affected Industrial Production in August, with all three component reports having declined (utilities, mining and manufacturing). Hurricane effects are temporary but Irma’s effects will likely be priced in through September.
Business Inventories rose 0.2% in July, with wholesalers and manufacturers growth offsetting a slight pullback from retailers. Small Business Optimism in August beat consensus to match a 12-year high set in January. Particularly strong were plans for capital expenditures, a positive sign for sustained small business growth. Although unaffected by the hurricanes, the PPI missed expectations, edging just 0.2% higher in August vs. 0.3% expectations. The report speaks to the lack of price pressures in the economy.
Consumer data was largely positive. For the first time since February, CPI did not miss expectations, and rose 0.2% for August. At the core, housing posted a solid 0.4% gain, and energy costs spiked due to the hurricanes. The report adds conviction to the Fed’s balance-sheet unwinding plan. Data for Retail Sales was soft, August saw a -0.2% decline. Weak auto sales were a large detractor, and a lack of fundamental strength scales back consumer spending expectations, although it remains on course to contribute to Q3 GDP. Despite a slight decline from August, Consumer Sentiment remains elevated, and the current conditions component rose to its highest level in 17 years. Inflation expectations increased modestly. Volatility from the hurricanes is expected in the coming weeks, but Initial Jobless Claims for the week fell -14K to 284K.
- Through Friday, the S&P 500 has set 33 new record highs, more than twice the annual average since 1945. At the same time, it has experienced just eight days in which it changed by more than +/- 1% from the prior day, versus an average of 50/year since World War II. According to Barron’s, during the 18 calendar years of above-average new highs and below-average volatility, the S&P 500 recorded an average full-year gain of 18.3%, and rose in price 100% of the time.
Market Indices Week of 9/15
S&P 500 1.6%
Russell 2000 2.3%
MSCI EAFE 1.7%
MSCI EM 1.0%
Barclay’s Agg. -0.5%
US Dollar Index 0.6%
10-Yr Yield 2.20%
Oil ($/bl) $50
Gold ($/oz) $1,323
The Week Ahead
- Housing Market Index
- Housing Starts
- Existing Home Sales
- Philly Fed Business Outlook
- Leading Indicators
- Jobless Claims
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