Weekly market update
Geopolitical headlines sparked a late week rally for stocks, with both U.S/China trade negotiations and renewed Brexit optimism top of mind. The Dow rose 0.93%, the S&P 500 gained 0.66% and the NASDAQ rose 0.94%.
It was a Crash to the Upside!
It basically is like this—the market rose on hopes for a trade deal with China. This is in contrast to earlier when stocks dropped on dashed hopes for a trade deal with China. That, of course, was a reaction to the previous rally which happened on the hopes for a trade deal.
We also heard from the FED—they are going to start buying Treasury bills to the tune of 60 billion a month starting this week. Oh, but they aren’t calling it quantitative easing as in the past, even though it is the same thing. They also announced they would continue open market operations (repo market extension).
We also got the FED minutes from the September meeting and it reflected a split among policymakers on more accommodating policy. Those minutes further highlighted an uptick in recession risk and growing downside risk from trade and conditions abroad, with the latter potentially dampening business investment and exports.
On the fixed income side, yields climbed on the back of those positive developments on a possible trade truce with the yield on the U.S. 10-year Treasury rising from 1.53% to 1.75%. That’s a big jump in yields and it pushed bond prices lower on the week.
On the economic front, both Producer Price index and Consumer Price index aren’t showing the bounce analysts and economists had hoped for. PPI fell 0.3% and CPI rose a paltry 0.1%. Meanwhile, the Job Openings and Labor Turnover report (JOLTs) survey showed that worker demand had softened over the summer. The number of job openings fell in August on a year-on-year basis—a third drop in as many months. Finally, despite all of the uncertainty surrounding trade and all of the political turmoil, the University of Michigan Consumer Sentiment survey actually rose.
This week is a busy week on the earnings front and for economic data. Banks will start reporting on Tuesday with JP Morgan leading the way. We will get a couple of regional FED reports along with retail sales, housing starts and industrial production.
As of this writing, the administration did a good job of talking up the “trade deal” agreed to in part on Friday, but over the week we learned that China wants more talks before signing phase one of the trade deal. Beijing could send delegation, led by Vice Premier Liu He, as soon as the end of October to finalize text to be signed by presidents in November. China is said to want December tariff hikes scrapped, too. The saga continues—so, stay tuned and we’ll keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
