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Week in Review

Week Ending: Friday, September 29, 2017 

Recap & Commentary

U.S. markets posted positive returns supported by positive sentiment surrounding Republicans’ tax plan and upbeat economic data.  Strength in the U.S. dollar and interest rates weighed on both commodities as well as emerging markets.

The start of the week saw Republicans scrap their latest attempt at healthcare reform– again lacking the necessary votes– before pivoting quickly to unveil their tax reform plans.  The blueprint, which remains far from becoming actual legislation, calls for a number of changes, including collapsing the number f personal tax brackets from seven to three; doubling the standard deduction; eliminating the deduction for state and local taxes; allowing the “pass through” of business income at a 25% rate, instead of higher, personal tax rates; eliminating the estate tax; and cutting the maximum corporate tax rate from 35% to 20%. Small caps, which tend to pay a higher effective tax rate than large caps, rallied on the news ending the week up 2.8%.

On Tuesday, speaking before a business group, Fed Chair Janet Yellen reinforced the notion that the Fed will raise rates once more before year end. Remarking that she sees “considerable” odds against inflation settling at or above the Fed’s 2% target in coming years she warned “It would be imprudent to keep monetary policy on hold until inflation is back to 2%” and that the Fed should “be wary of moving to gradually”.

Economic Bullet Points

Data out of the housing market was mixed in the month, prices continued on their upward trajectory, while sales saw hurricane related declines. The Case-Shiller HPI rose in line with expectations – home price appreciation a positive for household wealth, a negative for affordability. New Home Sales were pulled down by a steep weather related decline in the South.

The factory sector is accelerating into the end of the year; Durable Goods Orders rose higher than expected in the month. Importantly, core capital goods orders continue to be strong. The International Trade in Goods deficit narrowed meaningfully in the month, a positive for Q3 GDP.

The consumer continues to send mixed signals as sentiment readings remain elevated, while income and spending is weak. Consumer confidence was elevated at 119.8, but did reflect hurricane-related weakness. Consumer Sentiment eased slightly from last month, but remains high. Personal Income & Outlays was unexpectedly weak in the month, soft inflation readings a standout negative. Core PCE prices inched slightly upward M/M, but Y/Y fell back to 1.3%, its weakest since 2015.

The labor market seems to have had a relatively limited impact from the storms. Jobless Claims rose 12K in the week, but claims in Texas continue to come down. Though claims in Florida and Georgia are on the rise, the effects are expected to be less dramatic in these states.

Of Note

  • Over the weekend, citizens in Spain’s Catalonia region voted overwhelmingly in a controversial and chaotic referendum to declare independence from Spain. The vote was declared illegal by Madrid.
  • Saudi Arabia announced that beginning June 2018 women will be allowed to drive. Previously, Saudi Arabia was the only country in the world with such a ban. 
Market Indices Week of 9/29

S&P 500                   0.7%

Russell 2000            2.8%

MSCI EAFE              -0.2%

MSCI EM                  -1.9%

Commodities         -0.5%

Barclay’s Agg.          -0.1%

US Dollar Index        1.0%

10-Yr Yield              2.33%

Oil ($/bl)                     $52

Gold ($/oz)             $1,283

 

The Week Ahead

  • ISM Mfg. Index
  • Factory Orders
  • ISM Non-Mfg. Index
  • Construction Spending
  • International Trade
  • Employment Situation
  • Jobless Claims

 

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