Weekly Market Update, September 25, 2017

Presented by Mark Gallagher

General market news
• Following the Federal Reserve’s (Fed’s) announcement on Wednesday to leave interest rates unchanged (for now), the 10-year Treasury spiked to 2.28 percent, its highest point since August 16. It opened Monday at 2.24 percent. The 30-year briefly touched 2.83 percent last Wednesday before opening Monday at 2.78 percent. The 2-year spiked from 1.39 percent to 1.44 percent after the Fed’s announcement, and it has maintained that level.
• U.S. markets were mixed last week as the Federal Open Market Committee meeting, mergers and acquisitions (M&A) activity, and individual stock performance all played a role. The Dow Jones Industrial Average led the way, posting a gain of 0.36 percent, as telecom, financials, industrials, and energy posted the largest gains. Telecom was up 3.8 percent on news that Sprint (S) and T-Mobile (TMUS) were nearing terms of a deal. The industrial sector also saw some M&A activity last week, as Orbital ATK, Inc., agreed to be acquired by Northrop Grumman Corp. (NOC) for an expected $7.8 billion.
• Financials were supported by the Fed’s plan for continued tightening, as it projected one additional rate hike this year and three for 2018. The S&P 500 was mostly flat as the bond proxies in consumer staples, utilities, and real estate experienced the largest declines last week. The Nasdaq Composite Index experienced a decline of 0.33 percent, as weak projected iPhone 8 sales weighed on Apple Inc. (AAPL) and the sector.
• Last week’s economic data focused mostly on housing. To start things off, the National Association of Home Builders Housing Market Index declined unexpectedly. This decline was likely due to increased costs for builders. Despite the decline, the index remains in healthy expansionary territory, as homebuilders are confident that demand is strong.
• Given high levels of homebuilder confidence, it is not surprising that both housing starts and building permits increased in August. Permits significantly outperformed expectations with an increase of 5.7 percent; they had been forecast to decline 0.8 percent.
• Finally, existing home sales disappointed by falling 1.7 percent in August. As has been the case for the entire year, existing home supply remains near all-time lows. This is due in large part to a reluctance by elder homeowners to sell, which has curtailed sales.


Equity Index Week-to-Date Month-to-Date Year-to-Date 12-Month
S&P 500 0.09% 1.34% 13.43% 17.32%
Nasdaq Composite –0.33% 0.02% 20.41% 21.84%
DJIA 0.36% 1.91% 15.17% 24.57%
MSCI EAFE 0.70% 2.53% 20.50% 18.19%
MSCI Emerging Markets 0.03% 1.47% 30.48% 22.84%
Russell 2000 1.35% 3.32% 7.88% 16.39%

Source: Bloomberg


Fixed Income Index Month-to-Date Year-to-Date 12-Month
U.S. Broad Market –0.38% 3.24% 0.73%
U.S. Treasury –0.58% 2.55% –0.79%
U.S. Mortgages –0.22% 2.32% 0.47%
Municipal Bond –0.19% 5.00% 1.33%

Source: Morningstar Direct

What to look forward to
This week will give us a broad look at the economy, with housing, consumer confidence, business investment, and personal income and spending reports lined up. Some weakness is expected, but it would be due to the effects of hurricanes Harvey and Irma and should be short lived. Overall, although the data this week will be worth watching, given the storm effects, we shouldn’t give excessive weight to it.

The new home sales report, due on Tuesday, is expected to rise from 571,000 in July to 590,000 in August, with significant upside potential. This would be a rebound from a surprise decline in July, which brought sales down by almost 10 percent. Should this number come in as expected or higher, it would suggest that last week’s disappointing existing homes data was due more to supply constraints than lack of demand.

Also on Tuesday, the Conference Board’s consumer confidence survey will be released. Expectations are for a small decline—from a very strong 122.5 in August to 119.5 in September—but there is some downside risk. A substantial rise in gas prices, due to the hurricanes, may give confidence a knock this month. If so, the drop may be temporary, as price gains are starting to reverse. In any event, even with a decline, this would keep confidence at a healthy level.

On Wednesday, durable goods orders are expected to bounce back at the headline level, from a drop of 6.8 percent in July to a gain of 0.9 percent in August, on a rebound in commercial aircraft orders. Core orders, which exclude transportation, are expected to rise 0.2 percent in September, after rising 0.6 percent in August. These results would suggest that business investment continues to improve.

Finally, on Friday, we’ll see personal income and spending figures. Personal income is expected to show a 0.3-percent gain in August, down from 0.4 percent in July. Spending is expected to show more of a slowdown, from 0.3 percent in July to 0.1 percent in August. These declines would be due largely to the hurricanes, as employment and wages, as well as retail sales, were directly affected. There may be some downside risk here as well, depending on how substantial the hurricane effects turn out to be. Although this would be something to watch, any weakness would be likely to reverse in subsequent months.

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®