Markets, Economy

Weekly Kickstart (09/24/2018-09/28/2018)

9/24/18 8:00 AM

iStock-626627280.jpgStocks continued higher last week, as the S&P 500 rose by 0.85 percent to 2,929.67. That solid gain left the benchmark index up 9.58 percent 2018-to-date, and just 0.04 percent below the record close (hit on Thursday). The market rally was broad-based, enough so that even the Dow Jones Industrial Average was finally able to join other major indices in taking out its January high. Equities actually started the week off under pressure as the United States and China each announced plans for more tariffs, but the bulls were able to quickly regain control because the escalation in trade tensions was less severe than many investors had feared.


U.S. Treasury yields also jumped last week, as the likelihood of additional interest rate hikes continued to rise. In fact, the base case is still for a quarter-point increase in the Federal Funds rate this month and another hike in December, but the market is now pricing in a non-trivial chance of Federal Reserve officials raising rates by 25 basis points in November. The bullish price action in the stock market suggests that investors so far are able to overlook the potential headwinds of a rising rates environment, e.g. higher borrowing costs that can drag on consumer spending and business investment. However, there remains a lot of uncertainty surrounding U.S. trade and monetary policy, as well as the upcoming midterm elections and approaching deadline for a government spending bill. Any of these issues could serve as a near-term volatility catalyst, and retail investors worried about navigating this environment should consider consulting with a professional financial advisor.


To recap a few of the things we learned about the economy last week, the positives included that mortgage applications rose, housing starts increased, homebuilder sentiment remained elevated, and the number of Americans making first-time claims for unemployment benefits fell to the lowest level since 1969. As for the negatives, building permits declined, existing home sales disappointed forecasts, and gauges of regional manufacturing activity continued to send mixed signals. This week the pace of economic data picks up, with several important reports on manufacturing, housing, consumers, and inflation scheduled to be released, along with the potentially market-moving announcement on monetary policy from the Federal Open Market Committee on Wednesday.


**A more detailed snapshot of the U.S. economy can be found here.**

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Sources: Econoday, Bloomberg, FRBSL

Post author: Charles Couch