Presented by Mark Gallagher
General market news
• The yield on the 10-year Treasury opened this Monday at 2.34 percent, up from last week’s low of 2.27 percent. The 30-year yield opened at 2.89 percent, which was also up slightly from last week’s 2.80-percent low. This move may be attributed to the optimism surrounding possible tax reform. As the 10-year Treasury has remained fairly range bound, the 2.45-percent level will be a strong technical level to keep watching.
• The S&P 500 posted its sixth consecutive week of gains, rising 0.88 percent, as a resolution on the 2018 fiscal budget saw domestic markets react favorably. The budget resolution paves the way for tax reform plans. The Nasdaq Composite also saw an increase of 0.36 percent. But it was the Dow Jones Industrial Average that led domestic markets last week with a gain of 2.04 percent, as Johnson & Johnson (JNJ), UnitedHealth (UNH), Goldman Sachs (GS), and IBM (IBM) all surprised to the upside on Tuesday. Later in the week, though, General Electric (GE) missed big on earnings as both its power and oil and gas business weighed on results. GE is the Dow’s worst-performing stock year-to-date.
• Last week’s top-performing sectors were financials, health care, and utilities, while consumer staples, real estate, and energy were among the laggards.
• International markets were down slightly last week, as uncertainty over the details of Brexit and Catalonia independence lingered.
• The economic data released last week focused primarily on the housing market. The numbers were mixed; builder confidence improved, but construction-related activity decreased slightly. Last Tuesday, the National Association of Home Builders Housing Market Index came in better than expected, increasing from 64 to 68 against expectations that it would remain flat. Despite the increase in confidence, housing starts and building permits declined slightly on Wednesday. Given the low levels of supply and high builder confidence, these measures may improve next month.
| Equity Index | Week-to-Date | Month-to-Date | Year-to-Date | 12-Month |
| S&P 500 | 0.88% | 2.31% | 16.88% | 22.74% |
| Nasdaq Composite | 0.36% | 2.08% | 24.26% | 28.00% |
| DJIA | 2.04% | 4.22% | 20.33% | 31.65% |
| MSCI EAFE | –0.30% | 1.26% | 21.99% | 22.74% |
| MSCI Emerging Markets | –0.54% | 3.55% | 32.63% | 25.79% |
| Russell 2000 | 0.45% | 1.27% | 12.34% | 25.39% |
Source: Bloomberg
| Fixed Income Index | Month-to-Date | Year-to-Date | 12-Month |
| U.S. Broad Market | –0.13% | 3.01% | 0.30% |
| U.S. Treasury | –0.26% | 2.00% | –1.23% |
| U.S. Mortgages | –0.21% | 2.10% | 0.22% |
| Municipal Bond | 0.51% | 5.20% | 2.40% |
Source: Morningstar Direct
What to look forward to
This week will be a relatively slow one, but it still will give us a look at the economy as a whole.
On Wednesday, the durable goods orders data will indicate how business investment is doing. The headline number is expected to rise by 1.3 percent in September, down from a 2-percent gain in August. While this still would be a solid number, it would have some downside risk, as commercial aircraft orders are extremely volatile. The core index, which excludes transportation and is a better economic indicator, is expected to grow by 0.4 percent in September. This would be down from 0.5-percent growth in August, but it would indicate continued healthy business investment growth.
Also on Wednesday, the new home sales report is expected to tick down slightly from 560,000 in August to 550,000 in September. August’s number was a surprise drop to its lowest level since the end of 2016, so there may be some upside risk of a bounce back. If the number comes in as expected, it would suggest a continued moderation in housing demand.
Finally, on Friday, the first estimate of economic growth for the third quarter will be released in the gross domestic product report. Expectations are for growth to drop from 3.1 percent in the second quarter to 2.5 percent, which still would be reasonably healthy. The slowdown is expected to come from slower consumption growth and lower government spending, although those would be partially offset by faster business investment growth. Overall, if the numbers come in as expected, they would indicate continued but moderate growth. This would be considered a positive sign going forward.
Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.
Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.
Authored by the Investment Research team at Commonwealth Financial Network.
© 2017 Commonwealth Financial Network®