Presented by Mark Gallagher
General market news
• The 10-year Treasury yield reached 2.45 percent twice last week before retreating on Friday and opening lower on Monday at 2.38 percent. Similarly, the 30-year Treasury was as high as 2.97 percent last week before pulling back on Friday and opening at 2.90 percent on Monday.
• The three major U.S. indices continued higher last week. The Nasdaq posted the largest gain of 1.09 percent, prompted by the earnings of Alphabet and Microsoft, which pushed the heavily tech-weighted Nasdaq higher. The Dow Jones Industrial Average posted a gain of 0.45 percent, followed by the S&P 500’s gain of 0.23 percent.
• President Mario Draghi of the European Central Bank (ECB) announced that the ECB would begin to taper its quantitative easing (QE) program in January. The taper will halve its QE bond buying from €60 billion per month to €30 billion per month until the end of September 2018. The ECB reaffirmed that rates would remain at current levels past the end of the QE program.
• In domestic news this week, the House of Representatives passed the Senate’s budget bill, making the passage of a tax reform package without Democratic support a possibility.
• U.S. technology led the gains last week, which was followed by consumer discretionary and materials. The lagging sectors were telecom, health care, and real estate. Health care was hit by a sales miss from Celgene and added pressure, as Donald Trump declared a public health emergency over the opioid crisis.
• The economic data released last week came in better than expected, as the economy remains healthy in the face of external pressures. On Wednesday, durable goods orders rose 2.2 percent against expectations of a modest 1-percent gain. The September growth helps assuage concerns around the potential effect of the hurricanes on business confidence.
• Also on Wednesday, new home sales outperformed by growing an eye-popping 18.9 percent in September. After a slowdown in August and expectations for a 1.1-percent decline, this increase was particularly notable.
• On Friday, the University of Michigan Consumer Sentiment Survey declined slightly, but consumer confidence remains very strong.
• Finally, the first estimate for third-quarter GDP also surprised to the upside, with 3-percent annualized growth. Given the negative effects of the storms and the uncertainty surrounding tax and health care reform during the quarter, this better-than-expected growth is certainly welcome.
| Equity Index | Week-to-Date | Month-to-Date | Year-to-Date | 12-Month |
| S&P 500 | 0.23% | 2.55% | 17.16% | 23.50% |
| Nasdaq Composite | 1.09% | 3.20% | 25.62% | 30.03% |
| DJIA | 0.45% | 4.70% | 20.87% | 32.19% |
| MSCI EAFE | –0.34% | 0.92% | 21.59% | 23.24% |
| MSCI Emerging Markets | –0.84% | 2.68% | 31.52% | 25.83% |
| Russell 2000 | –0.06% | 1.22% | 12.28% | 28.44% |
Source: Bloomberg
| Fixed Income Index | Month-to-Date | Year-to-Date | 12-Month |
| U.S. Broad Market | –0.23% | 2.91% | 0.69% |
| U.S. Treasury | –0.42% | 1.83% | –0.87% |
| U.S. Mortgages | –0.28% | 2.03% | 0.31% |
| Municipal Bond | 0.20% | 4.87% | 2.22% |
Source: Morningstar Direct
What to look forward to
It will be a busy week on the data front, and we’ll get a wide-ranging look at the economy.
On Monday, personal income came in with 0.4-percent growth for September, up from 0.2 percent in August, which was expected. Personal spending was up by 1 percent, which was slightly above expectations of 0.9-percent growth and well above the August level of 0.1 percent. Both of these numbers were affected by the hurricanes, with spending particularly inflated as new autos replaced those destroyed by the storms and gasoline prices rose. These are solid numbers and suggest continued growth.
On Tuesday, the consumer confidence survey will be released and is expected to increase from 119.8 to 121. This remains at a very strong level historically, and the improvement would be due to lower gas prices from the post-hurricane spike and a strong job market. Strong consumer confidence is likely to keep spending growing, which would be a boon for the economy.
The regular meeting of the Federal Open Market Committee will conclude on Wednesday. There is hope for the possible announcement of President Trump’s selection for the next chair of the Federal Reserve, which would be big news.
Also on Wednesday, the Institute for Supply Management (ISM) Manufacturing Index is expected to pull back slightly from 60.8 to a very strong 59. Last month’s spike was largely due to technical adjustments after the hurricanes, so a small reduction was expected. Similar to the ISM Manufacturing Index, the ISM Non-Manufacturing Index is expected to decline slightly from 59.8 to 58 on Friday. Both of these indices indicate solid growth.
The international trade report, which will be released on Friday, is expected to pull back a bit, from a deficit of $42.4 billion in August to $43.5 billion in September. This is also due to hurricane effects, as petroleum exports were shut down during the storms. Preliminary data shows that the trend has reversed, so the pullback is of little concern, as export growth continues.
Finally, on Friday, the employment report is expected to show a major reversal of the hurricane-induced job loss seen last month. Job growth is expected to swing from a loss of 33,000 in September to a gain of 310,000 in October. Wage growth is expected to drop back from 0.5-percent growth to 0.2-percent growth, as overtime pay due to the storms drops out of the data. Other indicators are expected to remain steady, with unemployment at a very low 4.2 percent and the average workweek remaining at 34.4 hours. If the numbers come in as expected, this would be another strong report.
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.
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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®